Haynsworth Sinkler Boyd, P.A.
Attorneys and Counselors at Law
1201 MAIN STREET, 22ND FLOOR
(29201-3226)
POST OFFICE BOX 11889 (29211-1889)
COLUMBIA, SOUTH CAROLINA
TELEPHONE 803.779.3080
FACSIMILE 803.765.1243
WEBSITE www.hsblawfirm.com
GEORGE S. KING, JR.
DIRECT DIAL NUMBER (803) 540-7818
EMAIL gking@hsblawfirm.com
December 15, 2008
VIA FACSIMILE
Justin Dobbie, Esquire
Attorney
Division of Corporation Finance
United States Securities and Exchange Commission
Washington, D.C. 20549
Re: Community First Bancorporation
Preliminary Proxy Statement on Schedule 14A
File No. 000-29640
Filed December 9, 2008
Dear Mr. Dobbie:
Attached are the proposed changes to the above referenced proxy
statement to address the comments you communicated to me orally last week. The
attached copy is marked to show the changes made since the filing. The attached
copy also includes an unmarked version of the pro forma financial statements
which may be more easily read than the marked copy.
I have reproduced the substance of your comments below along with the
Company's response:
Please state the Company's intent with respect to which program (public
company or non-public company) intends to participate in or, if the
Company does not know which program, revise to fully disclose the pro
forma effects of participating in each program.
Response: A sentence has been added to the first paragraph under the
caption "Description of Capital Stock and Capital Purchase Program -
Proposed Issuance of Senior Preferred Stock" beginning on page 10 of
the attached copy which indicates that the Company applied after the
deadline for the public company program and currently plans to
participate in the non-public company program.
Please revise the pro forma balance sheet to show line items for the
discount on the Senior Preferred Stock and the premium on the Warrant
Preferred Stock and adjust the pro forma additional paid in capital
accordingly.
Response: The pro forma balance sheet has been modified as requested.
--------
Justin Dobbie, Esquire
December 15, 2008
Page 2
Please add line items for the average number of shares outstanding,
basic and diluted, to the pro forma statements of operations.
Response: The line items have been added.
--------
Please add footnotes to the pro forma statements of operations to
describe the use of the proceeds from the sale of the preferred stock.
Response: The footnotes have been added.
--------
Please advise the staff supplementally how the discounts and premiums
on the preferred stock were computed.
Response: Copies of the Excel spread sheets used are attached.
--------
Please let me know if you have further questions or comments. Thank you
for your assistance.
Very truly yours,
s/George S. King, Jr.
----------------------------------
George S. King, Jr.
GSK/pd
COMMUNITY FIRST BANCORPORATION
449 Highway 123 ByPass
Seneca, South Carolina 29678
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
of Community First Bancorporation to be held on Tuesday, January 27, 2009, 1:30
p.m. EST, at Community First Bank, 449 Highway 123 ByPass, Seneca, South
Carolina 29678.
This important meeting is being held for the following purposes:
1. Creation of a New Class of Capital Stock. To vote on an amendment to
our Articles of Incorporation to authorize the issuance of 10 million shares of
preferred stock with such preferences, limitations and relative rights, within
legal limits, of the class, or one or more series within the class, as are set
by the Board of Directors.
2. Other Business. To transact such other business as may properly come
before the Special Meeting or any adjournment of the Special Meeting.
The purpose of the amendment to our Articles of Incorporation is to
increase the types of equity instruments we may use to raise capital, and to
cause us to be eligible to participate in the U.S. Department of the Treasury's
Capital Purchase Program under the Emergency Economic Stabilization Act of 2008.
We are proposing the amendment because our Board of Directors has concluded,
after careful consideration, that it is in the best interest of our Company for
the Board of Directors to be given the authority to issue preferred stock with
terms set by the Board of Directors on short notice, especially during periods
of unsettled economic conditions such as national and international markets are
currently experiencing. Although our current capital position continues to be
strong, our Board of Directors believes that it is prudent to prepare for the
possibility that a need for additional capital could arise unexpectedly. OUR
BOARD RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT TO OUR ARTICLES OF
INCORPORATION. We encourage you to read carefully the Proxy Statement and
attached appendices.
Shareholders are or may be entitled to assert dissenters' rights under
Chapter 13 of the South Carolina Business Corporation Act if: (i) you do not
vote in favor of the proposed amendment to our Articles of Incorporation, (ii)
you elect to dissent, and perfect your dissenters' rights, (iii) the amendment
to our Articles of Incorporation is approved by our shareholders, and (iv) we
make the required filing to amend our Articles of Incorporation. If you comply
with the statutory requirements to perfect your dissenters' rights, you will be
entitled to receive the "fair value" of your shares. A copy of Chapter 13 of the
South Carolina Business Corporation Act is attached as Appendix A to the
enclosed Proxy Statement. You must strictly comply with the requirements of
Chapter 13 in order to exercise your dissenters' rights. Please read Chapter 13
of the South Carolina Business Corporation Act and the section entitled "
Dissenters' Rights" beginning on page 4 of the Proxy Statement in their entirety
for complete disclosure about your dissenters' rights. We encourage you not to
exercise your dissenters' rights because doing so will reduce our capital, and
would thus be contrary to the purpose of the amendment to our Articles of
Incorporation, which is to facilitate our ability to raise capital. Should
dissenters' rights be exercised for a substantial number of shares, our Board of
Directors will make a judgment as to whether it is in our best interest to
proceed with the amendment or abandon it.
Your vote is very important. Whether or not you plan to attend the
Special Meeting, please complete, date, sign and return your proxy, or such
other document as your broker or other nominee instructs you to use if your
shares are held in "street name," promptly in the enclosed pre-addressed,
postage-paid envelope. If you are a record shareholder and attend the Special
Meeting, you may vote in person if you wish, even if you have previously
returned your proxy.
On behalf of our Board of Directors, I would like to express our
appreciation for your continued loyal support of our Company.
Sincerely,
December __, 2008 Frederick D. Shepherd, Jr.
President
Community First Bancorporation
449 Highway 123 ByPass
Seneca, South Carolina 29678
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of the Shareholders of
Community First Bancorporation will be held at the offices of Community First
Bank at 449 Highway 123 ByPass, Seneca, South Carolina, on Tuesday, January 27,
2009, at 1:30 p.m., for the following purposes:
(1) To vote on an amendment to our Articles of Incorporation to
authorize the issuance of 10 million shares of preferred stock with such
preferences, limitations and relative rights, within legal limits, of the class,
or one or more series within the class, as are set by the Board of Directors;
and
(2) To act upon other such matters as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on December 20,
2008, are entitled to notice of and to vote at the Special Meeting and any
adjournment of the Special Meeting.
Shareholders are or may be entitled to assert dissenters' rights under
Chapter 13 of the South Carolina Business Corporation Act if: (i) you do not
vote in favor of the proposed amendment to our Articles of Incorporation, (ii)
you elect to dissent, and perfect your dissenters' rights, (iii) the amendment
to our Articles of Incorporation is approved by our shareholders, and (iv) we
make the required filing to amend our Articles of Incorporation. A copy of
Chapter 13 of the South Carolina Business Corporation Act is attached as
Appendix A to the enclosed Proxy Statement. You must strictly comply with the
requirements of Chapter 13 in order to exercise your dissenters' rights. Please
read Chapter 13 of the South Carolina Business Corporation Act and the section
entitled " Dissenters' Rights" beginning on page 4 of the Proxy Statement in
their entirety for complete disclosure about your dissenters' rights. We
encourage you not to exercise your dissenters' rights because doing so will
reduce our capital, and would thus be contrary to the purpose of the amendment
to our Articles of Incorporation, which is to facilitate our ability to raise
capital. Should dissenters' rights be exercised for a substantial number of
shares, our Board of Directors will make a judgment as to whether it is in our
best interest to proceed with the amendment or abandon it.
You are cordially invited and urged to attend the Special Meeting in
person. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY, OR SUCH OTHER
DOCUMENT AS YOUR BROKER OR OTHER NOMINEE INSTRUCTS YOU TO USE IF YOUR SHARES ARE
HELD IN "STREET NAME," IN THE ACCOMPANYING PRE-ADDRESSED, POSTAGE-PAID ENVELOPE.
If you need assistance in completing your proxy, please call the Company at
(864) 886-0206. If you are the record owner of your shares and attend the
Special Meeting and desire to revoke your proxy and vote in person, you may do
so. In any event, a proxy may be revoked by the record owner of shares at any
time before it is exercised by giving notice of revocation to our Corporate
Secretary, or by returning a properly executed proxy with a later date at or
before the meeting. If your shares are held in "street name" by your broker, you
must follow the instructions you will receive from your broker to change or
revoke your proxy.
We do not know of any other matters to be presented at the Special
Meeting, but if other matters are properly presented, the persons named as proxy
agents will vote on such matters in their discretion.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE PROPOSAL TO AMEND OUR ARTICLES OF INCORPORATION PRESENTED ABOVE.
By Order of the Board of Directors
December ____, 2008 Frederick D. Shepherd, Jr.
President
Community First Bancorporation
449 Highway 123 ByPass
Seneca, South Carolina 29678
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
We are providing this Proxy Statement to our shareholders in connection
with the solicitation of proxies by the Board of Directors of Community First
Bancorporation for use at a Special Meeting of Shareholders to be held on
Tuesday, January 27, 2009, at 1:30 p.m. at Community First Bank, 449 Highway 123
ByPass, Seneca, South Carolina, and at any adjournment or adjournments thereof.
Throughout this Proxy Statement, we use terms such as "we," "us," "our," "our
Company," and "the Company" to refer to Community First Bancorporation, and
terms such as "you" and "your" to refer to our shareholders.
A Notice of Special Meeting is attached to this Proxy Statement and a
form of proxy is enclosed. We first began mailing this Proxy Statement to
shareholders on or about ________________, 2008. We are paying the costs of this
solicitation of proxies and other expenses associated with the Special Meeting
of Shareholders. The only method of solicitation we currently plan to use, other
than the mail, is personal contact, including by telephone, or other electronic
means by our directors, officers and regular employees, who will not be
specially compensated. We may, however, subsequently decide to use paid proxy
solicitors if we determine it would be helpful to do so. We do not believe the
cost of such solicitors would be significant. We intend to request that
brokerage houses, nominees, fiduciaries and other custodians forward
solicitation materials to beneficial owners of our common stock and obtain their
voting instructions, if necessary, and we will reimburse them for their
expenses.
PURPOSE OF THE MEETING
The purpose of the Special Meeting of Shareholders is to vote on an
amendment to our Articles of Incorporation to authorize the issuance of 10
million shares of preferred stock with such preferences, limitations and
relative rights, within legal limits, of the class, or one or more series within
the class, as are set by the Board of Directors, and to act upon such other
matters as may properly come before the meeting or any adjournment thereof. We
sometimes refer to the amendment to our Articles of Incorporation described
above as the "Amendment."
Reasons for the Amendment
Our existing Articles of Incorporation only allow us to issue one class
of stock - common stock. We propose to amend the Articles of Incorporation to
allow us to issue up to 10 million shares of preferred stock in addition to the
10 million shares of common stock already authorized by our Articles of
Incorporation. If the Amendment is approved, our Board of Directors will be
authorized to set the preferences, limitations and relative rights, within legal
limits, of the class of preferred stock or one or more series within the class
of preferred stock, and will have the authority to issue preferred stock at any
time it deems it appropriate to do so.
Amending our Articles of Incorporation to authorize the issuance of
preferred stock will provide our Board of Directors with much greater
flexibility in raising capital, which will enable us and our bank subsidiary to
continue to meet our various capital requirements and to respond to
unanticipated circumstances that could adversely affect our capital positions.
Although we are currently well capitalized and have not experienced many of the
problems currently besetting our industry, we face the challenges of a weak
economy and real estate market. Accordingly, there can be no assurance that we
will not have a need for additional capital in the future. Thus, our Board
believes it is in our interest to be prepared to respond quickly to such
situations should the need arise.
Our timing for seeking to amend the Articles of Incorporation is
occasioned by the U. S. Department of the Treasury's creation of a Capital
Purchase Program under the authority of the recently enacted Emergency Economic
Stabilization Act of 2008. The program permits eligible institutions to sell
senior preferred stock to the Treasury. If we had a class of preferred stock, we
would be eligible to participate in the program, which is why we are seeking
approval of the Amendment at this time. The program outlines numerous
requirements and conditions for the sale of the preferred stock, which are
discussed in more detail under the caption "Description of Capital Stock and
Capital Purchase Program - Proposed Issuance of Senior Preferred Stock" and
"--Additional Terms of Participation in the Capital Purchase Program." The
Treasury has adopted two versions of the Capital Purchase Program, one of which
applies to public companies and one of which applies to non-public companies.
Although it is not completely clear from the Treasury's definition of the term
"public company," we believe we would be deemed a non-public company. Included
among the conditions to non-public company participation in the program is a
condition that an application to sell the preferred stock be filed by December
8, 2008, which we have done, and that all required documentation be completed
within 30 days after receiving preliminary approval. We do not know whether or
when we will receive preliminary approval. Nevertheless, we believe approval of
the proposed Amendment at the Special Meeting would allow us to meet the
applicable deadline. Further information about the requirements of the program
is discussed under the caption "Description of Capital Stock and Capital
Purchase Program - Proposed Issuance of Senior Preferred Stock" and
"--Additional Terms of Participation in the Capital Purchase Program."
Although we have not made a final decision to participate in the
program if the Amendment is approved, our Board of Directors currently believes
that participation could be in our best interest. The additional capital that
would be obtained by selling preferred stock to the Treasury would provide
additional protection against an unanticipated event or series of events that
might erode our capital to levels below regulatory requirements. If our capital
were to erode to levels below regulatory requirements, we or our bank could be
exposed to strenuous corrective measures, which could severely impair our
ability to do business. Thus, although participation in the program will entail
a level of cost, it may provide us with a desirable level of protection against
a disastrous situation.
We have no assurance that our application will be approved. The
Treasury has not announced the criteria it will use in making its decision and
our impact on the stability of the national economy is minimal. Fortunately, we
do not presently need the capital for liquidity purposes or to support our
current operations, and we do not believe we will need it in the next few years.
Indeed, even if our application is approved, we could decide that the costs of
having the capital are unreasonable in comparison to the benefit we will derive
from having it in case it is ever useful.
Whether or not we participate in the Capital Purchase Program, if the
Amendment is approved and we file Articles of Amendment to our Articles of
Incorporation, our Board of Directors will be authorized to issue preferred
shares at any time it deems it appropriate to do so, and will be authorized to
set the preferences, limitations and relative rights, within legal limits, of
such stock.
Our Board of Directors believes the Amendment is in the best interest
of our Company, and unanimously recommends that you vote "FOR" the Amendment.
VOTING PROCEDURES
Quorum
You are only entitled to notice of and to vote at the Special Meeting
if you were a record shareholder of our common stock on December 20, 2008 (the
"record date"). On that date, we had outstanding 3,394,873 shares of our common
stock, no par value per share. Each share outstanding will be entitled to one
vote upon each matter submitted at the meeting.
A majority of the shares entitled to be voted at the Special Meeting
constitutes a quorum. If a share is represented for any purpose at the Special
Meeting by the presence of the registered owner or a person holding a valid
proxy for the registered owner, it is deemed to be present for purposes of
establishing a quorum. Therefore, valid proxies which are marked "Abstain" or
"Withhold" and shares that are not voted, including proxies submitted by brokers
that are the record owners of shares (so-called "broker non-votes"), will be
included in determining the number of votes present or represented at the
Special Meeting.
If a quorum is not present or represented at the meeting, the
shareholders entitled to vote, present in person or represented by proxy, have
the power to adjourn the meeting from time to time. If the meeting is to be
reconvened within thirty days, no notice of the reconvened meeting will be given
other than an announcement at the adjourned meeting. If the meeting is to be
adjourned for thirty days or more, notice of the reconvened meeting will be
given as provided in the Bylaws. At any reconvened meeting at which a quorum is
2
present or represented, any business may be transacted that might have been
transacted at the meeting as originally noticed.
Vote Required and Method of Counting Votes
If a quorum is present at the Special Meeting, the Amendment will
require the affirmative vote of two-thirds of our outstanding common stock, or
at least 2,263,249 shares. Our directors and executive officers own
approximately 36% of our outstanding shares, and they have indicated that they
intend to vote their shares "FOR" the Amendment. If a quorum is present, all
other matters that may be considered and acted upon at the Special Meeting will
be approved if the number of shares of common stock voted in favor of the matter
exceeds the number of shares of common stock voted against the matter.
Only shares affirmatively voted for approval of the Amendment,
including proxies properly executed by shareholders of record that do not
contain voting instructions, will be counted in favor of the proposal. A record
shareholder's failure to execute and return a proxy card or otherwise to vote at
the special meeting will have the same effect as a vote "AGAINST" the Amendment.
If a record shareholder abstains from voting, the abstention will also have the
effect of a vote "AGAINST" the Amendment. Additionally, failure of a shareholder
whose shares are held in street name to complete and return voting instructions
as required by the broker or other nominee that holds such shares of record will
have the same effect as a vote "AGAINST" the Amendment.
Accordingly, our Board of Directors urges you to complete, date, and
sign the accompanying proxy form, or such other document as your broker or other
nominee instructs you to use if your shares are held in "street name," and
return it promptly in the enclosed, postage-paid envelope.
Voting by Record Shareholders
If you hold your shares of record in your own name, you can vote your
shares by marking the enclosed proxy form, dating it, signing it, and returning
it to us in the enclosed postage-paid envelope. If you are a shareholder of
record and sign, date, and return your proxy card without indicating how you
want to vote, your proxy will be voted "FOR" approval of the Amendment. If you
are a shareholder of record, you can also attend the Special Meeting and vote in
person.
Voting by Shareholders whose Shares are held in "Street Name"
If you hold your shares in street name with a broker or other nominee,
you can direct their vote by submitting voting instructions to your broker or
nominee in accordance with the procedure on the voting card provided by your
broker or nominee. If you hold your shares in street name, you may attend the
Special Meeting, but you may not vote in person without a proxy appointment from
a shareholder of record.
Brokers or other nominees will not have the authority to vote shares
they hold for you in street name on the Amendment unless you give them specific
instructions on how to vote following the directions they have provided to you
with this Proxy Statement. Although valid proxies submitted by brokers or other
nominees that hold shares in street name as record owners and as to which no
vote is marked (so-called "broker non-votes"), will be included in determining
the number of votes present or represented at the Special Meeting for purposes
of determining a quorum, the shares will not be voted on the Amendment, and will
have the same effect as votes "AGAINST" the Amendment.
Revocation of Proxy by Record Shareholder
If you hold your shares of record in your own name and execute and
deliver a proxy, you may revoke the proxy at any time before it is voted by any
of the following methods:
o by mailing or delivering written notice of revocation to
Community First Bancorporation, 449 Highway 123 ByPass, Seneca,
South Carolina 29678, Attention: Corporate Secretary;
o by submitting a proxy having a later date;
3
o by appearing at the meeting and giving notice of revocation to
the corporate officers responsible for maintaining the list of
shareholders; or
o by giving notice of such revocation in open meeting of the
shareholders.
Your attendance at the Special Meeting will not in itself, constitute
revocation of a proxy. However, if you are a record shareholder and desire to do
so, you may attend the meeting and vote in person, in which case the proxy will
not be used.
Revocation of Proxy by Shareholders whose Shares are held in "Street Name"
If you hold your shares in street name with a broker or other nominee
you may change or revoke your proxy instructions only by submitting new voting
instructions to the broker or other nominee in accordance with the procedures
provided by the broker or other nominee.
Actions to be Taken by the Proxies
Our Board of Directors selected the persons named as proxy agents on
the enclosed proxy form. When the form of proxy enclosed is properly executed
and returned, the shares that it represents will be voted at the meeting. In
each case where you have appropriately specified how the proxy is to be voted,
it will be voted in accordance with your specifications. If you are a
shareholder of record and you return a properly executed proxy card that does
not contain voting instructions, the proxy agents will vote your shares "FOR"
approval of the Amendment to our Articles of Incorporation. Our Board of
Directors is not aware of any other matters that may be presented for action at
the Special Meeting of Shareholders, but if other matters do properly come
before the meeting, the persons named in the proxy intend to vote on such
matters in accordance with their best judgment.
EFFECTIVENESS OF PROPOSED AMENDMENT
If the proposed Amendment is approved by the affirmative vote of
two-thirds of the shares of our common stock outstanding on the record date, the
Amendment will become effective if, and when, Articles of Amendment to our
Articles of Incorporation are filed with the Secretary of State of South
Carolina. Approval of the Amendment by the shareholders will not require that
the Articles of Amendment be filed, and our Board of Directors may decide to
abandon the Amendment after shareholder approval.
Should dissenters' rights be exercised for a substantial number of
shares, our Board of Directors will make a judgment as to whether it is in the
best interest of the Company to proceed with filing the Articles of Amendment or
to abandon the Amendment. In making its judgment, the Board of Directors will
take into consideration the negative impact on the Company's capital and cash
resources of paying dissenters the fair value of their shares. Because such
impact is completely at odds with the purpose of the Amendment, the Board of
Directors encourages shareholders not to exercise dissenters' rights, which are
discussed below.
DISSENTERS' RIGHTS
If the Amendment is approved by shareholders and becomes effective, and
if you comply with the requirements of Sections 33-13-101 et seq. of the South
Carolina Business Corporation Act ("SCBCA"), you have the right to dissent to
adoption of the Amendment and receive the fair value of your shares in cash. As
discussed above under the caption "Effectiveness of Proposed Amendment," the
Amendment will become effective only if (i) it is approved by our shareholders
and (ii) Articles of Amendment to our Articles of Incorporation are filed with
the South Carolina Secretary of State. Accordingly, even if our shareholders
approve the Amendment, if we decide not to file the Articles of Amendment, the
Amendment will not become effective, and you will not be entitled to be paid the
fair value of your shares.
The discussion below summarizes the provisions of Sections 33-13-101 et
seq. of the SCBCA, but it does not grant you any rights that are not provided by
the SCBCA. Your only rights of dissent are those provided by Sections 33-13-101
et seq. of the SCBCA, a copy of which is included as Appendix A to this Proxy
Statement.
4
Pursuant to the provisions of Sections 33-13-101 et seq. of the SCBCA,
if the Amendment becomes effective, you will only be entitled to receive the
fair value of your shares if you:
o prior to the vote at the Special Meeting with respect to the
approval of the Amendment, give us written notice of your intent
to demand payment for your shares of our common stock
(hereinafter referred to as "shares") if the Amendment becomes
effective;
o do not vote in favor of the Amendment, provided that a vote in
favor of the Amendment cast by the holder of a proxy solicited by
us will not disqualify a shareholder from demanding payment for
his shares; and
o comply with the statutory requirements summarized below.
If you perfect your dissenters' rights, you will receive the fair value
of your shares determined as of the effective date of the Amendment.
If you are a record shareholder, you may assert dissenters' rights as
to fewer than all of the shares registered in your name only if you dissent with
respect to all shares beneficially owned by any one beneficial shareholder and
you notify us in writing of the name and address of each person on whose behalf
you are asserting dissenters' rights. The rights of a partial dissenter are
determined as if the shares as to which that holder dissents and that holder's
other shares were registered in the names of different shareholders.
If you are a beneficial owner of shares but do not hold your shares of
record in your name, you may assert dissenters' rights as to shares held on your
behalf only if you dissent with respect to all shares of which you are the
beneficial shareholder or over which you have power to direct the vote, and you
must notify us in writing of the name and address of the record shareholder of
the shares, if known to you.
Voting against the Amendment will not satisfy the written demand
requirement. In addition to not voting in favor of the Amendment, if you wish to
preserve the right to dissent and seek appraisal, you must give a separate
written notice of your intent to demand payment for your shares if the Amendment
is effected. Such written notice should be addressed to Community First
Bancorporation, 449 Highway 123 ByPass, Seneca, South Carolina 29678, Attention:
Corporate Secretary.
If our shareholders approve the Amendment at the Special Meeting, we
must deliver a written dissenters' notice (the "Dissenters' Notice") to all of
our shareholders who have satisfied the foregoing requirements. The Dissenters'
Notice must be sent within 10 days after the effective date of the Amendment and
must:
o state where and when dissenting shareholders should send the
demand for payment and where and when dissenting shareholders
should deposit certificates for the shares;
o inform holders of uncertificated shares to what extent transfer
of these shares will be restricted after the demand for payment
is received;
o supply a form for demanding payment that includes the date of the
first announcement of the terms of the Amendment and requires the
person asserting dissenters' rights (or the beneficial
shareholder on whose behalf he is asserting dissenters' rights)
to certify whether or not he acquired beneficial ownership of the
shares prior to the announcement date;
o set a date by which we must receive the demand for payment (which
date may not be fewer than 30 nor more than 60 days after the
Dissenters' Notice is delivered) and set a date by which
certificates for certificated shares must be deposited, which may
not be earlier than 20 days after the demand date; and
o be accompanied by a copy of Sections 33-13-101 et seq. of the
SCBCA.
A shareholder who receives the Dissenters' Notice must demand payment,
certify whether he (or the beneficial shareholder on whose behalf he is
asserting dissenters' rights) acquired beneficial ownership of the shares before
the date of announcement of the terms of the Amendment as set forth in the
Dissenters' Notice, and deposit such holder's certificates in accordance with
the terms of the Dissenters' Notice. Dissenting shareholders will retain all
other rights of a shareholder until those rights are canceled or modified by
effectiveness of the Amendment. A shareholder who does not comply substantially
5
with the requirements that he demand payment and deposit his share certificates
where required, each by the date set in the Dissenters' Notice, is not entitled
to payment for his shares under Sections 33-13-101 et seq. of the SCBCA.
We may restrict the transfer of uncertificated shares from the date we
receive the demand for payment for them until the Amendment becomes effective or
the restrictions are released as discussed below.
Except as described below, we must upon the effective date of the
Amendment, pay each dissenting shareholder who substantially complied with the
payment demand and deposit requirements described above the amount we estimate
to be the fair value of the shares, plus accrued interest. Our payment must be
accompanied by:
o our balance sheet, income statement and statement of changes in
shareholders' equity as of the end of the fiscal year ending not
more than 16 months before the date of payment, and interim
financial statements, if any;
o our estimate of the fair value of the shares and an explanation
of how the fair value was calculated;
o an explanation of how the interest was calculated;
o a statement of the dissenter's right to demand additional payment
under the SCBCA; and
o a copy of Sections 33-13-101 et seq. of the SCBCA.
If the Amendment does not become effective within 60 days after the
date set for demanding payment and depositing share certificates, we must return
the deposited certificates and release the transfer restrictions imposed on
uncertificated shares. We must send a new Dissenters' Notice if the Amendment
becomes effective after the return of certificates and repeat the payment demand
procedure described above.
A dissenting shareholder may notify us in writing of his or her own
estimate of the fair value of such holder's shares and the interest due, and may
demand payment of such holder's estimate (less any payment made under the
procedure described above) (the "Additional Payment"), if:
o he or she believes that the amount we paid is less than the fair
value of his or her shares or that we have calculated incorrectly
the interest due;
o we fail to make payment within 60 days after the date set for
demanding payment; or
o we, having failed to cause the Amendment to become effective, do
not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days
after the date set for demanding payment.
A dissenting shareholder waives his or her right to demand the
Additional Payment unless he or she notifies us of his or her demand in writing
within 30 days after we make payment for his or her shares.
If a demand for Additional Payment remains unsettled, we must commence
a proceeding in the Court of Common Pleas of Oconee County, South Carolina,
within 60 days after receiving the Additional Payment demand and must petition
the court to determine the fair value of the shares and accrued interest. If we
do not commence the proceeding within those 60 days, we must pay each dissenting
shareholder whose demand for Additional Payment remains unsettled the amount
demanded. We are required to make all dissenting shareholders whose demands for
Additional Payment remain unsettled parties to the proceeding and serve a copy
of the petition upon each of them. The court may appoint appraisers to receive
evidence and to recommend a decision on fair value. Each dissenting shareholder
made a party to the proceeding is entitled to judgment for the amount, if any,
by which the court finds the fair value of his shares, plus interest, exceeds
the amount we paid.
The court in an appraisal proceeding commenced under the foregoing
provision must determine the costs of the proceeding, excluding fees and
expenses of attorneys and experts for the respective parties, and must assess
those costs against us, except that the court may assess the costs against all
or some of the dissenting shareholders to the extent the court finds they acted
6
arbitrarily, vexatiously, or not in good faith in demanding payment. The court
also may assess the fees and expenses of attorneys and experts for the
respective parties against us if the court finds we did not substantially comply
with the requirements of specified provisions of the SCBCA, or against either us
or a dissenting shareholder if the court finds that such party acted
arbitrarily, vexatiously, or not in good faith with respect to the dissenters'
rights provided by the SCBCA.
If the court finds that the services of attorneys for any dissenting
shareholder were of substantial benefit to other dissenting shareholders
similarly situated, and that the fees for those services should be not assessed
against us, the court may award those attorneys reasonable fees out of the
amounts awarded the dissenting shareholders who were benefited. In a proceeding
commenced by dissenters to enforce our statutory liability for our failure to
commence an appraisal proceeding within the 60 day period described above, the
court will assess costs of the proceeding and fees and expenses of dissenters'
counsel against us and in favor of the dissenters.
This is a summary of the material rights of a dissenting shareholder
and is qualified in its entirety by reference to Sections 33-13-101 et seq. of
the SCBCA, included as Appendix A to this Proxy Statement. If you intend to
dissent from approval of the Amendment, you should review carefully the text of
Appendix A and should also consult with your attorney. We will not give you any
further notice of the events giving rise to dissenters' rights or any steps
associated with perfecting dissenters' rights, except as indicated above or
otherwise required by law.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table shows information as of December 20, 2008 about
shares of our common stock beneficially owned by each of our directors and
executive officers. Except as otherwise indicated, to management's knowledge,
all shares are owned directly with sole voting power. Other than as shown below,
no persons were known by management to be the beneficial owners, as defined in
Rule 13d-3 of the Securities and Exchange Commission, of 5% or more of our
common stock.
Name and Amount and Nature
Address of 5% owners of Beneficial Ownership % of Class
-------------------- ----------------------- ----------
Larry S. Bowman, M.D. 107,959 (1) 3.19%
William M. Brown 98,258 (2) 2.91%
Robert H. Edwards 125,303 (3) 3.70%
Blake L. Griffith 163,453 (4) 4.82%
John R. Hamrick 111,366 (5) 3.31%
James E. McCoy 126,729 (6) 3.74%
Frederick D. Shepherd, Jr. 289,088 (7) 8.44%
449 Highway 123 Bypass
Seneca, S.C. 29678
Gary V. Thrift 92,598 (8) 2.73%
James E. Turner 216,984 (9) 6.42%
P. O. Box 367
Seneca, S.C. 29679
Charles L. Winchester 171,307 (10) 5.06%
P. O. Box 456
Salem, S.C. 29676
All Directors, nominees
and executive officers
as a group (10 persons) 1,503,045 (11) 41.24%
- ----------------
7
(1) Includes 41,698 shares jointly owned with Mary M. Bowman, Dr. Bowman's
wife; 16,728 shares owned by Mrs. Bowman; 11,733 shares held as trustee for
Dr. Bowman's children; and 23,045 shares subject to currently exercisable
options.
(2) Includes 3,790 shares owned by Annie B. Brown, Mr. Brown's wife; and 23,045
shares subject to currently exercisable options.
(3) Includes 30,055 shares jointly owned with Ruth D. Edwards, Mr. Edward's
wife; 7,035 shares owned by Mrs. Edwards; 11,222 shares owned by Robert H.
Edwards LLC; and 30,180 shares subject to currently exercisable options.
(4) Includes 19,477 shares owned by Susan P. Griffith, Mr. Griffith's wife;
113,622 shares jointly owned with Mrs. Griffith; and 30,180 shares subject
to currently exercisable options.
(5) Includes 33,547 shares jointly owned with Frances R. Hamrick, Mr. Hamrick's
wife; 6,839 shares owned by Mrs. Hamrick; and 4,735 shares subject to
currently exercisable options.
(6) Includes 85,714 shares jointly owned with Charlotte B. McCoy, Mr. McCoy's
wife, and 30,180 shares subject to currently exercisable options. Of the
total shares beneficially owned by Mr. McCoy, 67,330 have been pledged as
security.
(7) Includes presently exercisable options to purchase 67,653 shares. Of the
total shares beneficially owned by Mr. Shepherd, 74,443 have been pledged
as security.
(8) Includes 30,180 shares subject to currently exercisable options.
(9) Includes 22,636 shares owned by Patricia S. Turner, Mr. Turner's wife; and
23,045 shares subject to currently exercisable options.
(10) Includes 46,643 shares jointly owned with Joan O. Winchester, Mr.
Winchester's wife; 3,460 shares owned by Mrs. Winchester; 1,906 shares held
as custodian for Mr. Winchester's grandchildren; and 23,045 shares subject
to currently exercisable options.
(11) Includes currently exercisable options to purchase 285,288 shares.
DESCRIPTION OF CAPITAL STOCK AND
CAPITAL PURCHASE PROGRAM
Common Stock
Capitalization
We currently have 10 million shares of authorized voting common stock,
no par value per share. As of the record date, we had 3,394,873 shares of common
stock outstanding. The outstanding shares of common stock are fully paid and
nonassessable.
General voting requirements
The holders of our common stock are entitled to one vote per share in
all proceedings in which action shall be taken by our shareholders, and have
sole voting control over the Company. Our Board is divided into three classes,
which have as nearly equal a number of directors as possible. Approximately
one-third of our directors are elected each year and directors serve three-year
terms. Directors are elected by a plurality of the votes cast by shares present
and entitled to vote at a meeting at which a quorum is present. Except for such
greater voting requirements as may be required by law or our Articles of
Incorporation, as discussed below under the caption "--Additional Rights of our
Common Stock and Preferred Stock," all other matters acted upon by the
shareholders will be approved if a quorum is present and the number of shares
voted in favor of the matter exceeds the number of shares voted against the
matter. Our common stock does not have cumulative voting rights.
In the event any issue of preferred stock is entitled to vote, the
common stock would vote together with the preferred stock, unless the matter
being voted on would change the rights of the preferred stock, or the matter to
be voted on was unique to the preferred stock, in which case it would vote as a
separate group.
8
Dividend Rights
We have never paid cash dividends, and in order to support our
continuing need for capital to support anticipated asset growth and market
expansion, we do not expect to declare or pay cash dividends on our common stock
in the near future. We are not required to pay any dividends on our common
stock. The holders of our common stock are entitled to dividends when, as, and
if declared by our Board of Directors out of funds legally available for
dividends. Under South Carolina law, we may legally declare or pay dividends
only if, after their payment, we can pay our debts as they come due in the usual
course of business, and then only if our total assets equal or exceed the sum of
our liabilities. Our principal source of funds with which to pay cash dividends
is cash dividends our subsidiary bank pays to us. South Carolina banking
regulations restrict the amount of cash dividends the bank can pay to us, and
the bank's payment of cash dividends to us is subject to the prior approval of
the South Carolina Commissioner of Banking.
If the Amendment is approved, the payment of any dividends on our
common stock may be subject to the rights granted to holders of any shares of
the preferred stock we issue, for example, as discussed below under the caption
"--Proposed Issuance of Senior Preferred Stock - Preferences, Limitations and
Relative Rights of the Senior Preferred Stock --Dividend Rights."
No Preemptive Rights
Our shareholders do not have preemptive rights with respect to the
issuance of additional shares, options or rights to any class of our stock. As a
result, the directors may sell additional authorized shares of our common stock
without first offering them to existing shareholders and giving them the
opportunity to purchase sufficient additional shares to prevent dilution of
their ownership interests.
Rights upon liquidation
In the event of our voluntary or involuntary liquidation or
dissolution, or the winding-up of our affairs, our assets will be applied first
to the payment, satisfaction and discharge of our existing debts and
obligations, including the necessary expenses of dissolution or liquidation,
then, if the Amendment is effective, to any issued preferred stock with a
liquidation preference, and then pro rata to the holders of our common stock.
Conversion; Redemption; Sinking Fund
None of our common stock is convertible, has any redemption rights or
is entitled to any sinking fund.
Preferred Stock
Our Articles of Incorporation do not currently authorize us to issue
any shares of preferred stock. The Amendment to our Articles of Incorporation
that you will consider at the Special Meeting will provide for the authorization
of 10 million shares of preferred stock.
If the Amendment is approved and we file Articles of Amendment to our
Articles of Incorporation, our Board of Directors would have the authority,
without approval of our shareholders, from time to time to authorize the
issuance of preferred stock in one or more series with such preferences,
limitations and relative rights, within legal limits, and for such consideration
as our Board of Directors may determine.
Although our Board of Directors has no intention at the present time of
doing so, it could cause the issuance of preferred stock that could discourage
an acquisition attempt or other transactions that some, or a majority of, our
shareholders might believe to be in their best interests or in which the
shareholders might receive a premium for their shares of common stock over the
market price of such shares.
Proposed Issuance of Senior Preferred Stock
If the Amendment is approved and we file Articles of Amendment to our
Articles of Incorporation, and our application is approved, we currently plan to
participate in the U.S. Department of the Treasury's Capital Purchase Program
under the Emergency Economic Stabilization Act of 2008 ("EESA"). Although we
currently have enough capital to meet our foreseeable needs, the additional
9
capital would provide additional protection against unforeseeable effects of a
prolonged continuation of current economic conditions. We do not know the exact
terms of our potential participation at this time. However, the Treasury has
published term sheets which set out the terms of the program for public and
non-public companies as it was contemplated by the Treasury on October 14, 2008
and November 17, 2008, respectively. We applied after the deadline for the
public company program and currently plan to participate in the non-public
company version of the Capital Purchase Program. Although the terms of our
participation, if any, could change, if our application is accepted and we
participate substantially as described in the term sheet for non-public
companies, we would issue between approximately 3,000 and 9,000 shares of Senior
Preferred Stock and warrants to the Treasury for proceeds of between
approximately $3 million and $9 million. Based on the term sheet, the material
terms of our participation in the Capital Purchase Program and the material
terms of the securities we would issue to the Treasury are described below.
Preferences, Limitations and Relative Rights of the Senior Preferred Stock
The Senior Preferred Stock would have the following preferences,
limitations and relative rights.
Dividend Rights. The Senior Preferred Stock will pay cumulative
compounding dividends at a rate of 5% per annum until the fifth anniversary of
the date of issue and thereafter at a rate of 9% per annum.
Redemption Provisions. The Senior Preferred Stock may not be redeemed
for a period of three years from the date of issue, except with the proceeds
from one or more cash sales of common or preferred stock which result in
aggregate gross proceeds to us of not less than 25% of the issue price of the
Senior Preferred Stock. After the third anniversary of the date of issue, the
Senior Preferred Stock may be redeemed, in whole or in part, at any time and
from time to time, at our option. All redemptions of the Senior Preferred Stock
will be at 100% of its issue price, plus any accrued and unpaid dividends, and
will be subject to the approval of the Federal Reserve.
Voting Rights and Right to Elect Directors. The Senior Preferred Stock
will be non-voting, other than 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 Senior Preferred Stock, or (iii) any merger, exchange
or similar transaction which would adversely affect the rights of the Senior
Preferred Stock. If dividends on the Senior Preferred Stock are not paid in full
for six dividend periods, whether or not consecutive, the Senior Preferred Stock
will have the right to elect two directors. The right to elect directors will
end when dividends have been paid in full for four consecutive dividend periods.
Liquidation Rights. The Senior Preferred Stock will have a liquidation
preference of $1,000 per share which must be paid before the common stock
receives any proceeds of a liquidation.
Restrictions on Dividends. For as long as any Senior Preferred Stock is
outstanding, no dividends may be declared or paid on junior preferred shares,
preferred shares ranking equally with the Senior Preferred Stock, or common
shares (other than, in the case of equally preferred shares, dividends on a pro
rata basis with the Senior Preferred Stock), nor may we repurchase or redeem any
junior preferred shares, preferred shares ranking equally with the Senior
Preferred Stock or common shares, unless all accrued and unpaid dividends for
all past dividend periods on the Senior Preferred Stock are fully paid. The
Treasury's consent will be required for any increase in common stock dividends
per share until the third anniversary of the date of issue unless, prior to such
third anniversary, the Senior Preferred Stock is redeemed in whole or the
Treasury has transferred all of the Senior Preferred Stock to third parties. In
addition to these restrictions, under the non-public company version of the
program, increases in common stock dividends will be limited to 3% per year
until the tenth anniversary of the issue date, unless, prior to such tenth
anniversary, the Senior Preferred Stock is redeemed in whole or the Treasury has
transferred all of the Senior Preferred Stock to third parties. Additionally,
under the non-public company version of the program, after the tenth anniversary
of the issue date no dividends may be paid as long as the Treasury owns any of
our securities.
Repurchases. The Treasury's consent will be required for any share
repurchases (other than (i) repurchases of the Senior Preferred Stock and (ii)
repurchases of junior preferred shares or common shares in connection with any
benefit plan in the ordinary course of business consistent with past practice)
until the tenth anniversary of the date of issue unless, prior to such tenth
anniversary, the Senior Preferred Stock is redeemed in whole or the Treasury has
transferred all of the Senior Preferred Stock to third parties. In addition,
10
there may be no repurchases of junior preferred shares, preferred shares ranking
equally with the Senior Preferred Stock, or common shares if prohibited as
described above under "--Restrictions on Dividends."
Additional Terms of Participation in the Capital Purchase Program
Additional terms that would apply to us as a result of participation in
the program include the following.
Registration Rights
We will be required to file a shelf registration statement covering the
Senior Preferred Stock as promptly as practicable after the date of issue and,
if necessary, will be required to take all action required to cause such shelf
registration statement to be declared effective as soon as possible. We will
also grant to the Treasury piggyback registration rights for the Senior
Preferred Stock.
Executive Compensation
As a condition to the closing of the issuance of Senior Preferred
Stock, we and our senior executive officers covered by EESA must modify or
terminate all benefit plans, arrangements and agreements (including golden
parachute agreements) to the extent necessary to be in compliance with, and
following the closing and for so long as Treasury holds any of our equity or
debt securities, we will agree to be bound by, the executive compensation and
corporate governance requirements of Section 111 of EESA and any guidance or
regulations issued by the Secretary of the Treasury on or prior to the date of
issue to carry out the provisions of such subsection. As an additional condition
to closing, we and our senior executive officers covered by EESA must grant to
the Treasury a waiver releasing the Treasury from any claims that we and such
senior executive officers may otherwise have as a result of the issuance of any
regulations which modify the terms of benefits plans, arrangements and
agreements to eliminate any provisions that would not be in compliance with the
executive compensation and corporate governance requirements of Section 111 of
EESA and any guidance or regulations issued by the Secretary of the Treasury on
or prior to the date of issue to carry out the provisions of such subsection.
The specific impact of participation in the program on our executive
compensation arrangements is further discussed below under the caption "--
Impact of Participation in the Capital Purchase Program - Company Operations."
Related Party Transactions
The non-public company version of the program would prohibit us from
entering into any related party transactions unless the terms are no less
favorable to us than could be obtained from an unaffiliated third party, and any
permissible related party transactions would have to be approved by our
independent directors.
Warrants
If we participate in the non-public company version of the program, in
addition to the shares of Senior Preferred Stock, we would be required to issue
to the Treasury, for no additional consideration, ten-year warrants to purchase
between 150 shares and 450 shares of our preferred stock (the "Warrant Preferred
Stock"). The exercise price of the preferred stock warrant will be one cent per
share. The Warrant Preferred Stock covered by the warrants will have a
liquidation preference equal to $1,000 per share. The terms of the Warrant
Preferred Stock will be exactly the same as the Senior Preferred Stock, except
the dividend will be 9% instead of 5%, and it may not be redeemed until all of
the Senior Preferred Stock has been redeemed. The Treasury has indicated that it
intends to exercise these warrants immediately.
Impact of Participation in the Capital Purchase Program
Use of Proceeds
If our application is approved and we sell Senior Preferred Stock to
the Treasury, we expect to receive proceeds of between $3 million and $9 million
before the payment of expenses associated with the sale of the Senior Preferred
Stock and warrants, which are estimated to be $25,000 or less. Unless our
agreement with the Treasury requires some other use, we expect to use the amount
we receive to pay the expenses of the sale and, initially, to deposit the rest
11
in a non-interest bearing account with our bank subsidiary, which will use the
funds for additional liquidity. Thereafter, the funds may be contributed to the
bank subsidiary as capital or used for other corporate purposes. However, there
can be no assurance that our application will be approved or if it is approved,
that we will receive an amount within the range estimated above.
Rights of Existing Common Shareholders
Issuance of Senior Preferred Stock and Warrant Preferred Stock will
give holders the right, in case we are ever liquidated, to be paid the
liquidation value of the Senior Preferred Stock and Warrant Preferred Stock out
of our residual assets before any payment is made to the common shareholders.
All dividends due on the Senior Preferred Stock and Warrant Preferred Stock must
be paid before any dividends can be paid on our common stock and the amount of
our common stock dividends cannot be increased in the first three years that the
Treasury owns the Senior Preferred Stock or Warrant Preferred Stock without the
consent of the Treasury. If we do not pay the dividends on the Senior Preferred
Stock or Warrant Preferred Stock in full for six dividend periods, whether or
not consecutive, the holders of the Senior Preferred Stock and Warrant Preferred
Stock will have the right to elect two directors to our board of directors. That
right will continue until all past dividends on the Senior Preferred Stock and
Warrant Preferred Stock are paid in full.
Dilution of Common Shareholders
Because the preferential liquidation amount of the Senior Preferred
Stock will equal its gross purchase price, the issuance of the Senior Preferred
Stock will not change the tangible book value of our common stock, pro rated
between the Senior Preferred Stock and our common stock on the basis of their
relative tangible book value. Issuance of Warrant Preferred Stock will cause an
immaterial reduction in the tangible book of our common stock. Because the
Senior Preferred Stock's and the Warrant Preferred Stock's claim on our earnings
is limited to a fixed amount, the tangible book value of our common stock before
the payment of any common stock distributions may increase or decrease in the
future depending on whether or not our earnings exceed the amount required to
pay dividends due on the Senior Preferred Stock and the Warrant Preferred Stock.
As noted above, we will not be able to pay dividends on our common stock unless
we have paid all dividends due on the Senior Preferred Stock and the Warrant
Preferred Stock.
Registration Rights
As discussed above under "-- Additional Terms of Participation in the
Capital Purchase Program," if we sell Senior Preferred Stock to the Treasury, we
will be required to grant registration rights to the Treasury. Those rights
require us, at our expense, to register with the SEC some or all of our
securities that are held by the Treasury in order to permit the Treasury to make
a public offering of those securities. The out-of-pocket cost to us of doing so,
as well as the indirect cost of the time that would have to be spent by our
personnel, could be substantial.
Company Operations
If we sell Senior Preferred Stock and warrants to the Treasury we will
be required to make modifications to the way our executive compensation
arrangements are structured. Specifically, our board of directors will have to
review our incentive compensation arrangements with our senior officers and make
reasonable efforts to ensure that such arrangements do not encourage our senior
executive officers to take unnecessary and excessive risks that threaten the
value of our Company. As long as the Treasury owns our securities, our board
will also have to meet annually with our senior executive officers to review the
relationship between our risk management policies and practices. It will also be
a requirement that any bonus and incentive compensation paid to our senior
executives during the period that the Treasury holds our securities acquired
under the Capital Purchase Program be subject to being repaid to us if the
payments were based on materially inaccurate financial statements or other
performance metric criteria. Further, we will be required, during the period the
Treasury holds our securities acquired under the Capital Purchase Program, to
prohibit severance payments to our senior executive officers in excess of an
amount which is approximately three times the average of their annual
compensation for the prior five years. This requirement will necessitate a
temporary change in the terms of our president's compensation arrangements.
Finally, we will be required not to claim a deduction for federal income tax
purposes of executive compensation that would not be deductible if Section
162(m)(5) of the Internal Revenue Code were to apply to us.
12
All of these requirements are expected to increase our administrative
costs somewhat and are not likely to reduce the compensation paid to our senior
executive officers. Neither are they expected to have any material impact on the
way we operate our business or our financial condition or results of operations.
Capital
If we sell between $3 million and $9 million of Senior Preferred Stock
and warrants to the Treasury, the impact on our capital will be approximately as
follows (using the assumption that the sale had occurred, and the proceeds were
held as cash, on September 30, 2008):
o Our total shareholders equity would increase from $40,790,000
(actual) to $43,790,000 (if $3 million is received) or
$49,790,000 (if $9 million is received).
o Our regulatory capital ratios would increase as shown below:
Actual at $3 million $9 million
Ratio Sept. 30, 2008 Sold Sold
----- -------------- ---- ----
Total capital (to risk-weighted assets) 15.0% 16.0% 18.0%
Tier 1 capital (to risk-weighted assets) 13.8% 14.8% 16.8%
Tier 1 capital (to average assets) 9.5% 10.2% 11.6%
Pro Forma Financial Impact of Senior Preferred Stock
The following tables set forth our financial position as of September
30, 2008 and results of operations for the nine months ended September 30, 2008
and the year ended December 31, 2007:
o on an actual basis; and
o on an as adjusted basis to give effect to the sale of $3 million and
$9 million of Senior Preferred Stock and issuance of warrants to purchase 150
shares and 450 shares, respectively, of Warrant Preferred Stock with a 9%
dividend for $1.50 and $4.50, respectively.
The pro forma financial information below assumes that the warrants are
immediately exercised and that we received proceeds from the sale of Senior
Preferred Stock to the Treasury and deposited the funds into a noninterest
bearing account during the periods presented. This pro forma impact does not
represent the planned use of the proceeds of the sale of Senior Preferred Stock.
If Treasury makes the investment and does not impose limitations on our use of
the funds, we expect ultimately to use these proceeds to increase the capital of
our bank subsidiary or for other corporate purposes. The financial impact and
benefit to us from these uses is expected to be significant, but has not been
included in the pro forma financial information.
These tables should be read in conjunction with the information under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our unaudited condensed consolidated financial
statements for the nine months ended September 30, 2008 included in our
Quarterly Report on Form 10-Q for the quarter then ended, and the information
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our audited consolidated financial statements for
the year ended December 31, 2007 and related notes and other financial
information included in our Annual Report on Form 10-K for the year then ended,
all of which is included in Appendix B to this proxy statement.
The following unaudited pro forma consolidated financial data is not
necessarily indicative of our financial position or results of operations that
actually would have been attained had proceeds from the Capital Purchase Program
been received, or had the warrants been issued and exercised pursuant to the
13
Capital Purchase Program, at the dates indicated, and is not necessarily
indicative of our financial position or results of operations that will be
achieved in the future. We have included the following unaudited pro forma
consolidated financial data solely for the purpose of providing shareholders
with information that may be useful for purposes of considering and evaluating
the proposal to amend our Articles of Incorporation. Our future results are
subject to prevailing economic and industry specific conditions and financial,
business and other known and unknown risks and uncertainties, certain of which
are beyond our control.
14
Condensed Consolidated Balance Sheets
As of September 30, 2008
(Unaudited)
-----------
(Dollars in thousands except share data) $3,000 $9,000
Actual Pro forma Pro forma
------ --------- ---------
Assets
Cash and cash equivalents ........................................................ $ 29,044 $ 32,044 $ 38,044
Securities available for sale .................................................... 110,524 110,524 110,524
Other investments, at cost ....................................................... 13,527 13,527 13,527
Loans, net of allowance for loan losses ($3,503) ................................. 263,572 263,572 263,572
Premises and equipment, net ...................................................... 8,691 8,691 8,691
Bank owned life insurance ........................................................ 8,388 8,388 8,388
Interest receivable .............................................................. 2,557 2,557 2,557
Other assets ..................................................................... 2,062 2,062 2,062
--------- --------- ---------
Total assets ..................................................................... $ 438,365 $ 441,365 $ 447,365
========= ========= =========
Liabilities
Deposits:
Noninterest bearing ......................................................... $ 42,830 $ 42,830 $ 42,830
Interest bearing ............................................................ 340,892 340,892 340,892
--------- --------- ---------
Total deposits ......................................................... 383,722 383,722 383,722
Short-term borrowings ............................................................ 1,500 1,500 1,500
Long-term debt ................................................................... 9,500 9,500 9,500
Accrued interest payable ......................................................... 1,911 1,911 1,911
Other liabilities ................................................................ 942 942 942
--------- --------- ---------
Total liabilities ................................................................ 397,575 397,575 397,575
--------- --------- ---------
Shareholders' Equity
Preferred stock, no par value; 10,000,000 shares authorized pro
forma:
3,000 and 9,000 shares with 5% initial dividend issued and
outstanding pro forma (1) .................................................. - 3,000 9,000
150 and 450 shares with 9% dividend issued and outstanding
pro forma (1) .............................................................. - 150 450
Discount on 5% initial dividend preferred stock (2) (4) .......................... - (177) (532)
Premium on 9% dividend preferred stock (3) (4) ................................... - 27 82
Common stock, no par value; 10,000,000 shares authorized;
3,394,873 shares issued and outstanding as of September 30, 2008 ............. 35,374 35,374 35,374
Additional paid-in capital ....................................................... 681 681 681
Retained earnings ................................................................ 4,654 4,654 4,654
Accumulated other comprehensive income ........................................... 81 81 81
--------- --------- ---------
Total shareholders' equity ....................................................... 40,790 43,790 49,790
--------- --------- ---------
Total liabilities and shareholders' equity ....................................... $ 438,365 $ 441,365 $ 447,365
========= ========= =========
(1) Recorded at the redemption value of the shares issued.
(2) Pro forma amounts include discount recorded at issuance of preferred stock
of $177 and $532.
(3) Pro forma amounts include premium recorded at issuance of preferred stock
of $27 and $82.
(4) Discount and premium were computed using the fair value of the preferred
stock assuming a 12% discount rate (market rate) and an expected life upon
issuance of five years. The premium and discount were allocated between the
Senior Preferred Stock and the Warrant Preferred stock based on their
relative estimated fair values.
15
Condensed Consolidated Statements of Operations
Nine Months Ended September 30, 2008
(Unaudited)
-----------
(Dollars in thousands except per share data) $3,000 $9,000
Actual Pro forma Pro forma
------ --------- ---------
Interest income (1) ....................................................... $ 18,629 $ 18,629 $ 18,629
Interest expense .......................................................... 9,741 9,741 9,741
---------- ---------- ----------
Net interest income .............................................. 8,888 8,888 8,888
Provision for loan losses ................................................. 1,375 1,375 1,375
---------- ---------- ----------
Net interest income after provision for loan losses .............. 7,513 7,513 7,513
---------- ---------- ----------
Other income .............................................................. 1,868 1,868 1,868
Other expense ............................................................. 5,830 5,830 5,830
---------- ---------- ----------
Income before income taxes ....................................... 3,551 3,551 3,551
Income tax expense ........................................................ 1,037 1,037 1,037
---------- ---------- ----------
Net income ....................................................... 2,514 2,514 2,514
========== ========== ==========
Net income attributable to preferred shareholders (2) ..................... - 142 427
---------- ---------- ----------
Net income available to common shareholders ............................... $ 2,514 $ 2,372 $ 2,087
========== ========== ==========
Earnings per common share - basic (3) ..................................... 0.71 0.67 0.59
========== ========== ==========
Earnings per common share - diluted (3) ................................... 0.68 0.64 0.56
========== ========== ==========
Average basic common shares outstanding (3) ............................... 3,534,926 3,534,926 3,534,926
========== ========== ==========
Average diluted common shares outstanding (3) ............................. 3,703,561 3,703,561 3,703,561
========== ========== ==========
(1) Funds received from issuance of preferred stock are assumed to be included
in non-interest bearing cash. Subsequent deployment of the funds is
anticipated but the timing is uncertain.
(2) The pro forma amounts include dividends paid on the preferred stock of $123
and $368 and net accretion and amortization of the discount and premium
recorded at issuance of $19 and $59. The discount and premium are accreted
and amortized using a constant effective yield method over a five year
term, which is the expected life of the preferred stock upon issuance.
(3) Actual and pro forma per common share amounts and average amounts of common
shares outstanding have been retroactively adjusted to reflect a 5% common
stock dividend declared on November 20, 2008.
Year Ended December 31, 2007 (Unaudited)
----------------------------------------
(Dollars in thousands except per share data) $3,000 $9,000
Actual Pro forma Pro forma
------ --------- ---------
Interest income (1) ....................................................... $ 23,578 $ 23,578 $ 23,578
Interest expense .......................................................... 13,230 13,230 13,230
---------- ---------- ----------
Net interest income .............................................. 10,348 10,348 10,348
Provision for loan losses ................................................. 594 594 594
---------- ---------- ----------
Net interest income after provision for loan losses .............. 9,754 9,754 9,754
---------- ---------- ----------
Other income .............................................................. 2,206 2,206 2,206
Other expense ............................................................. 7,132 7,132 7,132
---------- ---------- ----------
Net income before tax expense .................................... 4,828 4,828 4,828
Income tax expense ........................................................ 1,497 1,497 1,497
---------- ---------- ----------
Net income ....................................................... $ 3,331 $ 3,331 $ 3,331
========== ========== ==========
Net income attributable to preferred shareholders (2) ..................... - 190 570
---------- ---------- ----------
Net income available to common shareholders ............................... $ 3,331 $ 3,141 $ 2,761
========== ========== ==========
Earnings per common share - basic (3) ..................................... 0.97 0.92 0.80
========== ========== ==========
Earnings per common share - diluted (3) ................................... 0.91 0.86 0.76
========== ========== ==========
Average basic common shares outstanding (3) ............................... 3,432,494 3,432,494 3,432,494
========== ========== ==========
Average diluted common shares outstanding (3) ............................. 3,652,016 3,652,016 3,652,016
========== ========== ==========
(1) Funds received from issuance of preferred stock are assumed to be included
in non-interest bearing cash. Subsequent deployment of the funds is
anticipated but the timing is uncertain.
(2) The pro forma amounts include dividends paid on the preferred stock of $163
and $490 and net accretion and amortization of the discount and premium
recorded at issuance of $27 and $80. The discount and premium are accreted
and amortized using a constant effective yield method over a five year
term, which is the expected life of the preferred stock upon issuance.
(3) Actual and pro forma per common share amounts and average amounts of common
shares outstanding have been retroactively adjusted to reflect a 5% common
stock dividend declared on November 20, 2008. No Assurances as to Issuance
of Preferred Stock
16
As noted above, although we intend to apply to participate in the
Capital Purchase Program, our application may not be accepted or it may not be
accepted on the terms described above. We may or may not also decide to issue
preferred stock whether or not we participate in the Capital Purchase Program.
Accordingly, there can be no assurance that we will ever issue any preferred
stock and, if we do, what its terms will be.
Additional Rights of our Common Stock and Preferred Stock
Statutory Matters
Business Combination Statute. The South Carolina Business Combinations Statute
provides that a 10% or greater shareholder of a resident domestic corporation
cannot engage in a "business combination" (as defined in the statute) with such
corporation for a period of two years following the date on which the 10%
shareholder became such, unless the business combination or the acquisition of
shares is approved by a majority of the disinterested members of such
corporation's board of directors before the 10% shareholder's share acquisition
date. This statute further provides that at no time (even after the two-year
period subsequent to such share acquisition date) may the 10% shareholder engage
in a business combination with the relevant corporation unless certain approvals
of the board of directors or disinterested shareholders are obtained or unless
the consideration given in the combination meets certain minimum standards set
forth in the statute. The law is very broad in its scope and is designed to
inhibit unfriendly acquisitions but it does not apply to corporations whose
articles of incorporation contain a provision electing not to be covered by the
law. Our Articles of Incorporation do not contain such a provision. An amendment
of our Articles of Incorporation to that effect would, however, permit a
business combination with an interested shareholder although that status was
obtained prior to the amendment. This statute will only apply to us as long as
we continue to have a class of securities registered under Section 12 of the
Securities Exchange Act of 1934.
Control Share Acquisitions. The South Carolina law also contains provisions
that, under certain circumstances, would preclude an acquiror of the shares of a
South Carolina corporation who crosses one of three voting thresholds (20%,
33-1/3% or 50%) from obtaining voting control with respect to such shares unless
a majority in interest of the disinterested shareholders of the corporation
votes to accord voting power to such shares.
The legislation provides that, if authorized by the articles of incorporation or
bylaws prior to the occurrence of a control share acquisition, the corporation
may redeem the control shares if the acquiring person has not complied with
certain procedural requirements (including the filing of an "acquiring person
statement" with the corporation within 60 days after the control share
acquisition) or if the control shares are not accorded full voting rights by the
shareholders. We are not authorized by our Articles of Incorporation or Bylaws
to redeem control shares.
The provisions of the Control Share Acquisitions Act will only apply to us as
long as we continue to have a class of securities registered under Section 12 of
the Securities Exchange Act of 1934.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We expect that representatives from J. W. Hunt and Company, LLP,
Certified Public Accountants, our independent registered public accounting firm,
will be present and available to answer appropriate questions at the Special
Meeting, and will have the opportunity to make a statement if they desire to do
so.
OTHER MATTERS
The Board of Directors knows of no other business to be presented at
the Special Meeting of shareholders. If matters other than those described
herein should properly come before the meeting, the persons named in the
enclosed form of proxy intend to vote at such meeting in accordance with their
best judgment on such matters. If you specify a different choice on your proxy,
your shares will be voted in accordance with the specifications so made.
17
FORWARD-LOOKING STATEMENTS
Statements contained in this Proxy Statement that are not purely
historical are forward-looking statements, including, but not limited to,
statements regarding our expectations, hopes, beliefs, intentions or strategies
regarding the future. Actual results could differ materially from those
projected in any forward-looking statements as a result of a number of factors,
including those detailed in this Proxy Statement. The forward-looking statements
are made as of the date of this Proxy Statement and we undertake no obligation
to update or revise the forward-looking statements, or to update the reasons why
actual results could differ materially from those projected in the
forward-looking statements.
We caution you not to place undue reliance on any forward-looking
statements made by us, or on our behalf in this Proxy Statement or in any of our
filings with the Securities and Exchange Commission ("SEC") or otherwise.
Additional information with respect to factors that may cause the results to
differ materially from those contemplated by forward-looking statements is
included in our current and subsequent filings with the SEC. See "Where You Can
Find More Information" below.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith we file reports,
proxy statements and other information with the SEC. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the SEC at 100 F Street, N.E., Washington, DC 20549.
Copies of such materials can also be obtained at prescribed rates by writing to
the Public Reference Section of the SEC at 100 F Street, N.E., Washington, DC
20549. In addition, such reports, proxy statements and other information are
available from the Edgar filings that can be obtained through the SEC's Internet
Website (http://www.sec.gov).
SHAREHOLDER PROPOSALS
If you wish to submit proposals for the consideration of the
shareholders at our 2009 Annual Meeting you may do so by sending them in writing
to Community First Bancorporation, 449 Highway 123 ByPass, Seneca, South
Carolina 29678, Attention: Corporate Secretary. You must send or deliver such
written proposals in time for us to receive them prior to December 1, 2008, if
you want us to include them, if otherwise appropriate, in our proxy statement
and form of proxy relating to that meeting. If we do not receive notice of a
shareholder proposal prior to February 15, 2009, the persons named as proxy
agents in the proxy materials relating to the 2009 Annual Meeting will use their
discretion in voting the proxies when such proposal is raised at that meeting.
18
Condensed Consolidated Balance Sheets
As of September 30, 2008
(Unaudited)
-----------
(Dollars in thousands except share data) $3,000 $9,000
Actual Pro forma Pro forma
------ --------- ---------
Assets
Cash and cash equivalents ........................................................ $ 29,044 $ 32,044 $ 38,044
Securities available for sale .................................................... 110,524 110,524 110,524
Other investments, at cost ....................................................... 13,527 13,527 13,527
Loans, net of allowance for loan losses ($3,503) ................................. 263,572 263,572 263,572
Premises and equipment, net ...................................................... 8,691 8,691 8,691
Bank owned life insurance ........................................................ 8,388 8,388 8,388
Interest receivable .............................................................. 2,557 2,557 2,557
Other assets ..................................................................... 2,062 2,062 2,062
--------- --------- ---------
Total assets ..................................................................... $ 438,365 $ 441,365 $ 447,365
========= ========= =========
Liabilities
Deposits:
Noninterest bearing ......................................................... $ 42,830 $ 42,830 $ 42,830
Interest bearing ............................................................ 340,892 340,892 340,892
--------- --------- ---------
Total deposits ......................................................... 383,722 383,722 383,722
Short-term borrowings ............................................................ 1,500 1,500 1,500
Long-term debt ................................................................... 9,500 9,500 9,500
Accrued interest payable ......................................................... 1,911 1,911 1,911
Other liabilities ................................................................ 942 942 942
--------- --------- ---------
Total liabilities ................................................................ 397,575 397,575 397,575
--------- --------- ---------
Shareholders' Equity
Preferred stock, no par value; 10,000,000 shares authorized pro
forma:
3,000 and 9,000 shares with 5% initial dividend issued and
outstanding pro forma (1) .................................................. - 3,000 9,000
150 and 450 shares with 9% dividend issued and outstanding
pro forma (1) .............................................................. - 150 450
Discount on 5% initial dividend preferred stock (2) (4) .......................... - (177) (532)
Premium on 9% dividend preferred stock (3) (4) ................................... - 27 82
Common stock, no par value; 10,000,000 shares authorized;
3,394,873 shares issued and outstanding as of September 30, 2008 ............. 35,374 35,374 35,374
Additional paid-in capital ....................................................... 681 681 681
Retained earnings ................................................................ 4,654 4,654 4,654
Accumulated other comprehensive income ........................................... 81 81 81
--------- --------- ---------
Total shareholders' equity ....................................................... 40,790 43,790 49,790
--------- --------- ---------
Total liabilities and shareholders' equity ....................................... $ 438,365 $ 441,365 $ 447,365
========= ========= =========
(1) Recorded at the redemption value of the shares issued.
(2) Pro forma amounts include discount recorded at issuance of preferred stock
of $177 and $532.
(3) Pro forma amounts include premium recorded at issuance of preferred stock
of $27 and $82.
(4) Discount and premium were computed using the fair value of the preferred
stock assuming a 12% discount rate (market rate) and an expected life upon
issuance of five years. The premium and discount were allocated between the
Senior Preferred Stock and the Warrant Preferred stock based on their
relative estimated fair values.
15
Condensed Consolidated Statements of Operations
Nine Months Ended September 30, 2008
(Unaudited)
-----------
(Dollars in thousands except per share data) $3,000 $9,000
Actual Pro forma Pro forma
------ --------- ---------
Interest income (1) ....................................................... $ 18,629 $ 18,629 $ 18,629
Interest expense .......................................................... 9,741 9,741 9,741
---------- ---------- ----------
Net interest income .............................................. 8,888 8,888 8,888
Provision for loan losses ................................................. 1,375 1,375 1,375
---------- ---------- ----------
Net interest income after provision for loan losses .............. 7,513 7,513 7,513
---------- ---------- ----------
Other income .............................................................. 1,868 1,868 1,868
Other expense ............................................................. 5,830 5,830 5,830
---------- ---------- ----------
Income before income taxes ....................................... 3,551 3,551 3,551
Income tax expense ........................................................ 1,037 1,037 1,037
---------- ---------- ----------
Net income ....................................................... 2,514 2,514 2,514
========== ========== ==========
Net income attributable to preferred shareholders (2) ..................... - 142 427
---------- ---------- ----------
Net income available to common shareholders ............................... $ 2,514 $ 2,372 $ 2,087
========== ========== ==========
Earnings per common share - basic (3) ..................................... 0.71 0.67 0.59
========== ========== ==========
Earnings per common share - diluted (3) ................................... 0.68 0.64 0.56
========== ========== ==========
Average basic common shares outstanding (3) ............................... 3,534,926 3,534,926 3,534,926
========== ========== ==========
Average diluted common shares outstanding (3) ............................. 3,703,561 3,703,561 3,703,561
========== ========== ==========
(1) Funds received from issuance of preferred stock are assumed to be included
in non-interest bearing cash. Subsequent deployment of the funds is
anticipated but the timing is uncertain.
(2) The pro forma amounts include dividends paid on the preferred stock of $123
and $368 and net accretion and amortization of the discount and premium
recorded at issuance of $19 and $59. The discount and premium are accreted
and amortized using a constant effective yield method over a five year
term, which is the expected life of the preferred stock upon issuance.
(3) Actual and pro forma per common share amounts and average amounts of common
shares outstanding have been retroactively adjusted to reflect a 5% common
stock dividend declared on November 20, 2008.
Year Ended December 31, 2007 (Unaudited)
----------------------------------------
(Dollars in thousands except per share data) $3,000 $9,000
Actual Pro forma Pro forma
------ --------- ---------
Interest income (1) ....................................................... $ 23,578 $ 23,578 $ 23,578
Interest expense .......................................................... 13,230 13,230 13,230
---------- ---------- ----------
Net interest income .............................................. 10,348 10,348 10,348
Provision for loan losses ................................................. 594 594 594
---------- ---------- ----------
Net interest income after provision for loan losses .............. 9,754 9,754 9,754
---------- ---------- ----------
Other income .............................................................. 2,206 2,206 2,206
Other expense ............................................................. 7,132 7,132 7,132
---------- ---------- ----------
Net income before tax expense .................................... 4,828 4,828 4,828
Income tax expense ........................................................ 1,497 1,497 1,497
---------- ---------- ----------
Net income ....................................................... $ 3,331 $ 3,331 $ 3,331
========== ========== ==========
Net income attributable to preferred shareholders (2) ..................... - 190 570
---------- ---------- ----------
Net income available to common shareholders ............................... $ 3,331 $ 3,141 $ 2,761
========== ========== ==========
Earnings per common share - basic (3) ..................................... 0.97 0.92 0.80
========== ========== ==========
Earnings per common share - diluted (3) ................................... 0.91 0.86 0.76
========== ========== ==========
Average basic common shares outstanding (3) ............................... 3,432,494 3,432,494 3,432,494
========== ========== ==========
Average diluted common shares outstanding (3) ............................. 3,652,016 3,652,016 3,652,016
========== ========== ==========
(1) Funds received from issuance of preferred stock are assumed to be included
in non-interest bearing cash. Subsequent deployment of the funds is
anticipated but the timing is uncertain.
(2) The pro forma amounts include dividends paid on the preferred stock of $163
and $490 and net accretion and amortization of the discount and premium
recorded at issuance of $27 and $80. The discount and premium are accreted
and amortized using a constant effective yield method over a five year
term, which is the expected life of the preferred stock upon issuance.
(3) Actual and pro forma per common share amounts and average amounts of common
shares outstanding have been retroactively adjusted to reflect a 5% common
stock dividend declared on November 20, 2008. No Assurances as to Issuance
of Preferred Stock
16
Community First Bancorporation
Computation and Allocation of TARP Preferred Stock Discount and Premium
As of September 30, 2008
Using Excel Goal Seeking
Amount of Senior TARP Funds Received ............................ 9,000,000.00
Amount of Warrant TARP Funds Received (Liquidation Value) ....... 450,000.00
Amount of Warrant TARP Funds Received (Cash Received Amount) .... 4.50
Discounted Cash Flow Model - Senior Preferred Stock
Cash Flow Relative % to
Incremental Discounted at Total Fair
Borrowing Incremental Value of Allocated Allocated Cash Allocated
(Discount) Borrowing Preferred Redemption Proceeds (Discount)
Year Dividend Rate Cash Flow Rate Rate Stock Amount Received Premium
---- ------------- --------- ------------ ------------- ----------- ---------- -------------- -----------
0 0.00% 9,000,000 12.00%
1 5.00% (450,000) (401,786)
2 5.00% (450,000) (358,737)
3 5.00% (450,000) (320,301)
4 5.00% (450,000) (285,983)
5 5.00% (450,000) (255,342)
5 5.00% (9,000,000) (5,106,842)
-----------
(6,728,991) 94.37% 8,918,100.00 (9,450,000.00) (531,900.00)
-----------
Discounted Cash Flow Model - Warrant Preferred Stock
Cash Flow
Incremental Discounted at
Borrowing Incremental
(Discount) Borrowing
Year Dividend Rate Cash Flow Rate Rate
---- ------------- --------- ------------ -------------
0 0.00% 450,000 12.00%
1 9.00% (40,500) (36,161)
2 9.00% (40,500) (32,286)
3 9.00% (40,500) (28,827)
4 9.00% (40,500) (25,738)
5 9.00% (40,500) (22,981)
5 9.00% (450,000) (255,342)
---------
(401,336) 5.63% 531,900.00 449,995.50 81,904.50
---------- ------ ------------- -------------- -----------
Total Fair Value of Preferred Stock 7,130,327 100.00% 9,450,000.00 (9,000,004.50) (449,995.50)
========== ====== ============= ============== ============
Community First Bancorporation
Computation and Allocation of TARP Preferred Stock Discount and Premium
As of September 30, 2008
Using Excel Goal Seeking
Amount of Senior TARP Funds Received ............................. 3,000,000.00
Amount of Warrant TARP Funds Received (Liquidation Value) ........ 150,000.00
Amount of Warrant TARP Funds Received (Cash Received Amount) ..... 1.50
Discounted Cash Flow Model - Senior Preferred Stock
Cash Flow Relative % to
Incremental Discounted at Total Fair
Borrowing Incremental Value of Allocated Allocated Cash Allocated
(Discount) Borrowing Preferred Redemption Proceeds (Discount)
Year Dividend Rate Cash Flow Rate Rate Stock Amount Received Premium
---- ------------- --------- ------------ ------------- ----------- ---------- -------------- -----------
0 0.00% 3,000,000 12.00%
1 5.00% (150,000) (133,929)
2 5.00% (150,000) (119,579)
3 5.00% (150,000) (106,767)
4 5.00% (150,000) (95,328)
5 5.00% (150,000) (85,114)
5 5.00% (3,000,000) (1,702,281)
-----------
(2,242,997) 94.37% 2,972,700.00 (3,150,000.00) (177,300.00)
-----------
Discounted Cash Flow Model - Warrant Preferred Stock
Cash Flow Relative to
Incremental Discounted at Total Fair
Borrowing Incremental Value of Allocated Allocated Cash Allocated
(Discount) Borrowing Preferred Redemption Proceeds (Discount)
Year Dividend Rate Cash Flow Rate Rate Stock Amount Received Premium
---- ------------- --------- ------------ ------------- ----------- ---------- -------------- -----------
0 0.00% 150,000 12.00%
1 9.00% (13,500) (12,054)
2 9.00% (13,500) (10,762)
3 9.00% (13,500) (9,609)
4 9.00% (13,500) (8,579)
5 9.00% (13,500) (7,660)
5 9.00% (150,000) (85,114)
---------
(133,779) 5.63% 177,300.00 149,998.50 27,301.50
----------- ------ ----------- ------------- -----------
Total Fair Value of Preferred Stock 2,376,776 100.00% 3,150,000.00 (3,000,001.50) (149,998.50)
========== ====== ============ ============= ===========