United
States
Securities
and Exchange Commission
Washington,
D.C.
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. _____)
Filed by
the Registrant x
Filed by
a Party other than the Registrant ¨
Check the
appropriate box:
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x
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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¨
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Soliciting
Material Pursuant to §240.14a-12
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BAY NATIONAL
CORPORATION
(Name of
Registrant as Specified In Its Charter)
(Name of
Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
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x
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No
fee required.
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¨
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction
applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was
determined):
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(4)
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Proposed
maximum aggregate value of
transaction:
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(5)
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Total
fee paid:
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¨
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Fee
paid previously with preliminary
materials.
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¨
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Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its
filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement
No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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____________
___, 2010
Dear
Stockholder:
On behalf
of the Board of Directors, I cordially invite you to attend a special meeting of
stockholders of Bay National Corporation to be held on _______ __, 2010, at
_____ a.m., local time, at Bay National Corporation’s office located at 2328
West Joppa Road, Lutherville, Maryland 21093.
The
notice of meeting and proxy statement on the following pages contain information
about the meeting. At the special meeting we are asking you to
approve an increase in the number of authorized shares of the Company’s common
stock. The purpose of this increase is to allow us to conduct an
offering of “Units” consisting of one share of our common stock and one warrant
to purchase one share of common stock and ultimately recapitalize Bay National
Corporation and Bay National Bank, as further described in the attached proxy
statement.
It is
imperative that we be able to conduct the proposed offering in order to raise
necessary capital. Given the importance of the matters to be voted on
at the special meeting and the vote required to approve the proposal, as further
described in the proxy statement, every stockholder’s vote is very
important. In order to ensure your shares are voted at the meeting
and to help minimize further mailing costs, please return the enclosed proxy
card at your earliest convenience.
Very
truly yours,
_________________________
Charles
L. Maskell
Chairman
and of the Board of Directors
Bay
National Corporation
2328 West
Joppa Road, Lutherville, Maryland 21093
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
TO BE
HELD _______ __, 2010 at ____ A.M.
_______
__, 2010
A special
meeting of stockholders of Bay National Corporation, a Maryland corporation,
will be held on ____________ __, 2010 at _____ A.M. at Bay National
Corporation’s office located at 2328 West Joppa Road, Lutherville, Maryland
21093 to:
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1.
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Approve
an amendment to Bay National Corporation’s articles of incorporation to
increase the number of authorized shares of the Company’s common stock,
$0.01 par value per share, from 20,000,000 shares to 95,000,000
shares;
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2.
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Adjourn
or postpone the special meeting to a later date or time, if necessary or
appropriate, to solicit additional proxies in the event there are
insufficient votes at the time of such adjournment or postponement to
adopt the proposal to amend the articles of incorporation;
and
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3.
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Act
upon any other matter that may properly come before the meeting or any
adjournment or postponement
thereof.
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Only
stockholders of record of Bay National Corporation common stock at the close of
business on ______________ __, 2010 are entitled to notice of and to vote at the
meeting, or any adjournment or postponement thereof.
Whether
or not you plan to attend the meeting, please indicate your choices on the
matters to be voted upon, date and sign the enclosed proxy and return it in the
enclosed postage-paid return envelope. You may revoke your proxy at any time
prior to or at the meeting by written notice to Bay National Corporation, by
executing a proxy bearing a later date, or by attending the meeting and voting
in person.
By order
of the Board of Directors,
David E.
Borowy
Secretary
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING
TO BE HELD ON ____________ __, 2010
The Proxy
Statement and the form of proxy card for the special meeting are available at
_________________________.
PROXY
STATEMENT
INTRODUCTION
This
Proxy Statement is furnished on or about _______ __, 2010 to Bay National
Corporation’s stockholders in connection with the solicitation of proxies by Bay
National Corporation’s Board of Directors to be used at a special meeting of
stockholders described in the accompanying notice (the “Special Meeting”) and at
any adjournments or postponements thereof. The purposes of the
Special Meeting are set forth in the accompanying notice of special meeting of
stockholders.
If you
are a stockholder of record (i.e. you own the shares directly in your name), you
may attend the Special Meeting and vote in person as long as you present valid
proof of identification at the Special Meeting. If you hold your
shares in Bay National Corporation beneficially but not of record (i.e. the
shares are held in the name of a broker or other nominee for your benefit) you
must present proof of beneficial ownership in order to attend the Special
Meeting, which generally can be obtained from the record holder, and you must
obtain a proxy from the record holder in order to vote your shares if you wish
to cast your vote in person at the Special Meeting. For further
information please contact our Secretary, David E. Borowy, at (410)
494-2580.
SOLICITATION
AND REVOCATION OF PROXIES
The
enclosed proxy is solicited by the Board of Directors of Bay National
Corporation. The Board of Directors selected Warren F. Boutilier and Hugh L.
Robinson II, or either of them, to act as proxies with full power of
substitution at the Special Meeting. The proxy is revocable at any
time prior to or at the Special Meeting by written notice to Bay National
Corporation, by executing a proxy bearing a later date, or by attending the
Special Meeting and voting in person. A written notice of revocation
of a proxy should be sent to the Secretary, Bay National Corporation, 2328 West
Joppa Road, Suite 325, Lutherville, Maryland 21093, and will be effective if
received by the Secretary prior to the Special Meeting. The presence
of a stockholder at the Special Meeting alone will not automatically revoke such
stockholder’s proxy.
Bay
National Corporation will bear the costs of soliciting proxies. In
addition to solicitation by mail, officers, employees and directors of Bay
National Corporation may also solicit proxies personally or by telephone. Bay
National Corporation will not specifically compensate our officers, employees or
directors for soliciting such proxies. We may also retain a proxy
solicitation firm to assist us in the solicitation of proxies. Bay
National Corporation will bear all related fees and expenses if such a firm is
retained. Bay National Corporation will reimburse brokers and other
persons for their reasonable expenses in forwarding proxy materials to customers
who are beneficial owners of the common stock of Bay National Corporation
registered in the name of nominees.
A
representative of Stegman & Company, the Company’s independent registered
public accountant, is expected to be present at the Special Meeting and will
respond to appropriate questions and have an opportunity to make a statement if
he or she desires to do so.
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING
TO BE HELD ON __________ ___, 2010.
This
Proxy Statement and the form of proxy card for the Special Meeting and our
Annual Report on Form 10-K for the year ended December 31, 2008 are available at
_______________________.
OUTSTANDING
SHARES AND VOTING RIGHTS
Stockholders
of record at the close of business on December 31, 2009 (the “Record Date”) are
entitled to notice of and to vote at the Special Meeting. As of the
close of business on that date, there were outstanding and entitled to vote
2,154,301 shares of common stock, $0.01 par value per share, each of which is
entitled to one vote.
The
presence, in person or by proxy, of stockholders entitled to cast a majority of
all the votes entitled to be cast at the Special Meeting will be necessary to
constitute a quorum at the Special Meeting. Abstentions and broker
non-votes are counted for purposes of determining the presence or absence of a
quorum for the transaction of business at the Special Meeting.
The
affirmative vote of holders of two-thirds of the outstanding shares of common
stock entitled to vote on the matter is necessary to approve the amendment to
our articles of incorporation to increase the authorized number of shares of our
common stock from 20,000,000 shares to 95,000,000 shares. An
abstention or broker non-vote, as well as the failure to vote (including a
failure to return a signed proxy card), will have the same effect as a vote
against this proposal.
The
affirmative vote of a majority of shares of common stock represented in person
or by proxy at the special meeting and entitled to vote on the proposal is
necessary to approve the proposal to adjourn or postpone the special meeting to
a later date or time, if necessary or appropriate, to solicit additional proxies
in the event there are insufficient votes at the time of such adjournment or
postponement to adopt the proposal to amend the articles of
incorporation. An abstention or broker non-vote is not included in
calculating votes cast with respect to this proposal and will have no effect on
the outcome of this proposal.
A broker
“non-vote” is a proxy received from a broker or nominee indicating that such
person has not received instructions from the beneficial owner or other persons
entitled to vote shares on a particular matter with respect to which the broker
or nominee does not have discretionary power to vote.
All
proxies will be voted as directed by the stockholder on the proxy
form. A proxy, if executed and not revoked, will be voted in the
following manner (unless it contains instructions to the contrary, in which
event it will be voted in accordance with such instructions):
FOR
approval of the proposal to amend our articles of incorporation to increase the
authorized number of shares of common stock from 20,000,000 shares to 95,000,000
shares.
FOR
approval of the proposal to adjourn or postpone the Special Meeting to a later
date or time, if necessary or appropriate, to solicit additional proxies in the
event there are insufficient votes at the time of such adjournment or
postponement to adopt the proposal to amend the articles of
incorporation.
2
Proxies
will be voted in the discretion of the holder on such other business as may
properly come before the Special Meeting or any adjournments or postponements
thereof.
It
is anticipated that Bay National Corporation’s directors and officers will vote
their shares of common stock in favor of the proposals to amend the articles of
incorporation to increase the authorized common stock and to adjourn or postpone
the Special Meeting, if necessary or appropriate, to solicit additional
proxies.
3
SECURITY
OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
The
following table sets forth the beneficial ownership of Bay National
Corporation's common stock as of December 31, 2009 by its directors, named
executive officers, and all directors and officers as a group and persons
believed by management to beneficially own more than five percent of the common
stock. The table includes common stock such persons have a right to acquire
beneficial ownership of within 60 days of December 31, 2009 pursuant to the
exercise of warrants and options or a grant of restricted
stock. Unless otherwise noted below, management believes that each
person named in the table has the sole voting and sole investment power with
respect to each of the shares of common stock reported as beneficially owned by
such person.
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Name
of Beneficial Owner
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Number
of Shares
Beneficially
Owned
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Percentage
of
Class
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R.
Michael Gill
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5,602
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*
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John
R. Lerch (1)
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51,964
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2.41%
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Harold
C. Green(2)
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88,922
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4.13%
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Charles
L. Maskell
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0
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0.00%
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Donald
G. McClure, Jr. (3)
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19,100
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*
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Hugh
W. Mohler (4)
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103,467
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4.71%
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Robert
L. Moore (5)
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14,954
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*
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James
P. O’Conor
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5,767
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*
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H.
Victor Rieger, Jr. (6)
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34,807
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1.56%
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Richard
J. Oppitz
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0
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0.00%
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William
B. Rinnier (7)
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15,036
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*
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Edwin
A. Rommel, III (8)
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55,802
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2.59%
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Henry
H. Stansbury (9)
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40,925
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1.90%
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Eugene
M. Waldron, Jr. (10)
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44,242
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2.05%
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Carl
A.J. Wright
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18,132
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*
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David
E. Borowy
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0
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0.00%
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All
directors and executive officers as a group
(15
persons) (10)
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498,720
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22.48%
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NexTier,
Inc. (11)
P.O.
Box 1550
Butler,
Pennsylvania 16003
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174,486
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8.10%
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| * = less than 1% |
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(1)
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Includes
9,900 shares held by LFI partnership, of which Mr. Lerch is a general
partner; 4,400 shares held by Mr. Lerch’s spouse, over which he has shared
voting and investment power; and 550 shares held in trust for the benefit
of Mr. Lerch’s daughter for which Mr. Lerch is
custodian.
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(2)
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Includes
20,000 shares owned by Chamberlain Contractors, of which Mr. Green is a
50% owner.
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(3)
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Includes
3,300 shares issuable upon the exercise of options. Includes 11,000 shares
held in trust for the benefit of Mr. McClure’s children for which Mr.
McClure is a co-trustee and over which he has shared voting and investment
power.
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4
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(4)
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Includes
44,287 shares issuable upon the exercise of options. Includes 1,100 shares
held by Mr. Mohler’s spouse, over which he has shared voting and
investment power.
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(5)
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Includes
3,300 shares issuable upon the exercise of
options.
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(6)
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Includes
1,100 shares held by Mr. Rieger’s spouse, over which he has shared voting
and investment power.
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(7)
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Includes
3,300 shares issuable upon the exercise of options. Includes 3,300 shares
held by Mr. Rinnier’s spouse, over which he has shared voting and
investment power.
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(8)
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Includes
3,300 shares issuable upon the exercise of
options.
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(9)
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Includes
3,300 shares issuable upon the exercise of options. Includes 13,750 shares
held by Mr. Stansbury’s spouse, over which he has shared voting and
investment power.
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(10)
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Includes
3,300 shares issuable upon the exercise of
options.
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(11)
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All
of the named individuals, other than Mr. Oppitz and Mr. Borowy are
directors of Bay National Corporation. Mr. Mohler is a director
and executive officer of Bay National
Corporation.
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(12)
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This
information is based on a Schedule 13G filed with the Securities and
Exchange Commission by NexTier Incorporated on March 28, 2006 and
information from the Company’s transfer
agent.
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Shares
included in the table as beneficially owned that are not outstanding but which
the persons listed have the right to acquire within 60 days of December 31, 2009
pursuant to the exercise of options or otherwise are deemed outstanding for the
purpose of computing the percentage ownership of the person holding such rights
but are not deemed outstanding for the purpose of computing the percentage
ownership of any other person.
PROPOSAL
1: APPROVAL OF AN AMENDMENT TO OUR ARTICLES OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The
Company currently has 20,000,000 shares of common stock
authorized. As of December 31, 2009, _________ shares of common stock
were issued and outstanding and _____ shares of common stock were
reserved for issuance under the Company’s stock incentive plans, including
_____ shares of common stock reserved for issuance under outstanding
awards, including options, issued pursuant to the stock incentive
plans. Therefore, as of December 31, 2009, there were ___________
shares of common stock that were not issued and outstanding or otherwise
reserved for issuance. Because of the limited number of shares of
common stock available to be issued, especially in light of our proposed
securities offering described below, our Board of Directors recommends that
stockholders approve an amendment to the Company’s articles of incorporation in
order to authorize an additional 75,000,000 shares of common stock of the same
class as is presently authorized.
Our
capital position has been negatively impacted by increases in our provision for
loan losses resulting from difficulties in our portfolio of investor-owned
residential real estate loans,
5
deteriorating
economic conditions and industry-wide problems in residential real estate
lending that, in turn, have caused the deterioration in the overall credit
quality of our loan portfolio. We presently are unable to grow our
assets and liabilities significantly in furtherance of our long-term strategy
without additional capital. In addition, during 2008 the Bank lost
its status as a “well-capitalized” financial institution under the prompt
corrective action regulations adopted by the OCC.
Furthermore,
as we have previously disclosed, on April 28, 2009, pursuant to a formal
enforcement action by the Federal Reserve Bank of Richmond (“Reserve Bank”), Bay
National Corporation entered into a written agreement with the Reserve Bank (the
“Reserve Bank Agreement”). Pursuant to the Reserve Bank Agreement,
Bay National Corporation agreed to not make dividends and other distributions,
increase or guarantee any debt or purchase or redeem any of our shares without
the Reserve Bank’s prior written approval, limit indemnification and severance
payments, and take certain other actions. In addition, as we have
also previously disclosed, on February 6, 2009, pursuant to a Stipulation and
Consent to the Issuance of a Consent Order, Bay National Bank consented to the
issuance of a Consent Order issued by the Office of the Comptroller of the
Currency (the “OCC”), the Bank’s primary banking regulator. In
connection therewith, we have adopted a three-year strategic plan that maps out
our strategy for the Bank to restore its higher capitalization, strong earnings,
good asset quality and to also eliminate the concerns raised by the OCC in the
Consent Order. The Consent Order mandates that we raise our capital
levels above the minimum capital needed to meet regulatory requirements, and our
strategic plan contemplates raising funds from new stockholders as a means of
doing so.
Pursuant
thereto, we intend to conduct a public offering in order to raise required
capital and, ultimately, recapitalize Bay National Corporation and Bay National
Bank. Our Board of Directors believes that it is in the best
interests of Bay National Corporation and our stockholders to raise capital that
exceeds the amount we could raise by selling only the remaining ______________
shares of common stock (or securities exercisable or convertible into such
shares of common stock) currently available under the articles of incorporation.
Our Board of Directors has determined that the most effective way to conduct an
offering that will successfully raise the capital we require is to sell “Units”
consisting of one share of our common stock and one warrant to purchase one
share of common stock. The offering would be conducted as a rights
offering in which each current stockholder of the Company would be issued a
basic subscription right to purchase ten Units for each share of common stock
owned and an over-subscription right to purchase any Units not sold pursuant the
basic subscription rights, followed by a public “reoffering” of any unsold
Units. The board has determined that the sale of 25,000,000 of such
Units is likely to raise the needed capital for the
Company. Therefore, we intend to conduct an offering of 25,000,000
Units, with an over-allotment option of 3,000,000 Units allocated to the sales
agent we intend to retain to assist us in conducting the offering. As
a result, we are asking stockholders to approve the proposed amendment to the
articles of incorporation to authorize an increase in the number of authorized
shares of common stock to an amount that will be sufficient to allow us to issue
the 25,000,000 shares of common stock that would be contained in the 25,000,000
Units (28,000,000 if the sales agent exercises its over-allotment option in
full), the 25,000,000 shares of common stock that would be issuable upon
exercise of the warrants that would be contained in the Units (28,000,000 if the
sales agent
6
exercises
its over-allotment option in full), as well as additional authorized shares of
common stock for future issuances.
Our Board
of Directors has chosen to structure the offering as a rights offering followed
by a reoffering to the public in order to allow our existing stockholders to
acquire shares of our common stock and warrants to purchase common stock through
their purchase of Units based on their pro rata ownership percentage
and provide such stockholders the opportunity to limit their ownership dilution
from the sale of Units to the public.
We would
use the proceeds from such offering to raise equity capital to regain and
maintain our status as a “well-capitalized” financial institution and meet other
applicable capital regulatory requirements, support lending and investment
activities, and for working capital and other general corporate purposes,
although we have not made a specific allocation of the use of any such
proceeds. We believe that the proceeds from the offering, assuming we
sell approximately $15 million worth of the Units, will allow us to maintain our
capital ratios above “well-capitalized” levels under bank regulations, to
respond to any regulatory action requirements related to the OCC Consent Order
and the Reserve Bank Agreement, and to position Bay National to return to
profitability and respond to future business and financing needs and
opportunities in the communities we serve.
While
56,000,000 shares of common stock represents the maximum number of shares we
would issue pursuant to the offering we are currently contemplating, our Board
of Directors believes that it is in the best interests of Bay National
Corporation and our stockholders for the Company to have additional shares of
common stock authorized in order for us to have the flexibility to revise the
terms of the currently contemplated offering or conduct future offerings, if our
Board of Directors believes such action is necessary for us to satisfy the
capital levels required pursuant to the Consent Order and have the funds
necessary to achieve the goals laid out in our three-year strategic
plan.
In
addition, the Board of Directors believes that additional shares of common stock
should be available for issuance by the Board of Directors from time to time for
stock dividends, stock splits, potential acquisitions, future financings,
employee benefit plans and for other proper corporate purposes. Any
such issuances could also be used to discourage, or have the effect of
discouraging, an attempt to acquire control of the Company, whether or not such
a change in control transaction was favored by the majority of the stockholders,
and could enhance the ability of officers and directors to retain their
positions. For example, common stock could be issued to persons,
firms or entities known to be friendly to management. However, the
additional flexibility afforded by the ability to issue the common stock could
enhance the arm’s-length bargaining capability of the Board of Directors on
behalf of the Company’s stockholders in a situation involving a solicitation to
obtain control of the Company without the approval of the Board of
Directors. Other than as discussed herein, at this time the Company
does not have any plan, commitment, arrangement, understanding or agreement,
either oral or written, to issue any shares of the proposed additional common
stock.
Although
the Board of Directors could authorize the issuance of additional shares of
common stock based on its judgment as to the best interest of the Company and
its stockholders, the issuance of additional shares may dilute the ownership of
the Company’s existing stockholders.
7
Approval
of this proposal will permit the Board to issue such additional shares in the
future, pursuant to the proposed offering or otherwise, without further approval
of the stockholders unless otherwise required by law, the rules of The NASDAQ
Stock Market, or our articles of incorporation. We are not asking our
stockholders to make any changes to the number of shares of preferred stock,
$0.01 par value per share, currently authorized under our articles of
incorporation, which will remain at 1,000,000 shares, none of which have been
issued to date. Further, the proposed amendment will not change the
dividend rights, voting rights, liquidation rights or other terms of the common
stock or preferred stock as currently set forth in our articles of
incorporation.
Description
of the Company’s Capital Stock
The
rights of stockholders of Bay National Corporation are governed by the Maryland
General Corporation Law (the “MGCL”) and by our articles of incorporation and
bylaws.
The
following summary description of the material features of our capital stock is
necessarily general and is qualified in its entirety by reference to the
applicable provisions of Maryland law and by our articles of incorporation and
bylaws, copies of which have been filed with the U.S. Securities and Exchange
Commission (“SEC”) and are available at the SEC’s web site at
www.sec.gov.
Our
currently authorized capital stock consists of 20,000,000 shares of common
stock, par value $0.01 per share, and 1,000,000 shares of preferred stock, par
value $0.01 per share. If our stockholders approve the proposed
amendment to our articles of incorporation, our authorized capital stock will
consist of a total of 96,000,000 shares, including 95,000,000 shares of common
stock, par value $0.01 per share, and 1,000,000 shares of preferred stock, par
value $0.01 per share.
In
general, stockholders or subscribers for our stock have no personal liability
for the debts and obligations of Bay National Corporation or the Bank because of
their status as stockholders or subscribers, except to the extent that the
subscription price or other agreed consideration for the stock has not been
paid.
Our
articles of incorporation grant to our Board of Directors the right to classify
or reclassify any unissued shares of common stock from time to time by setting
or changing the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption. Accordingly, our Board of Directors could
authorize the issuance of additional shares of common stock with terms and
conditions which could have the effect of discouraging a takeover or other
transaction that the holders of some, or a majority, of shares of common stock
might believe to be otherwise in their best interests or in which the holders of
some, or a majority, of shares of common stock might receive a premium
8
for their
shares of common stock over the then market price of such shares. As
of the date hereof, other than as described herein, our Board of Directors has
no plans to classify or reclassify any unissued shares of common
stock.
Common
Stock
In
general, each outstanding share of common stock entitles the holder to vote for
the election of directors and on all other matters requiring stockholder action,
with each share entitled to one vote.
Subject
to all rights of holders of any other class or series of stock, holders of our
common stock are entitled to receive dividends if and when our Board of
Directors declares dividends from funds legally available
therefor. In addition, holders of common stock share ratably in the
net assets of Bay National Corporation upon the voluntary or involuntary
liquidation, dissolution or winding up of Bay National Corporation, after
distributions are made to anyone with more senior rights.
Under
Maryland law, we are not permitted to pay dividends if, as a result, we would be
unable to pay our debts as they come due in the ordinary course of business or
our total assets would be less than the sum of our total liabilities plus the
amount that would be needed, if we were to be dissolved at the time the dividend
is paid, to satisfy the preferential rights on dissolution of any stockholders
whose preferential rights on dissolution are superior to those stockholders
receiving the dividend.
Holders
of our common stock have no conversion rights, preemptive rights, exercise
rights or other subscription rights. There are no redemption or
sinking fund provisions that apply to the common stock. All shares of
common stock currently outstanding are fully paid and
non-assessable.
Our
articles of incorporation grant to our Board of Directors the right to classify
or reclassify any unissued shares of common stock from time to time by setting
or changing the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption. Accordingly, our Board of Directors could
authorize the issuance of additional shares of common stock with terms and
conditions which could have the effect of discouraging a takeover or other
transaction that the holders of some, or a majority, of shares of common stock
might believe to be otherwise in their best interests or in which the holders of
some, or a majority, of shares of common stock might receive a premium for their
shares of common stock over the then market price of such shares. As
of the date hereof, our Board of Directors has no plans to classify or
reclassify any unissued shares of common stock.
Preferred
Stock
We are
authorized to issue 1,000,000 shares of preferred stock, par value $0.01 per
share. Shares of preferred stock may be issued from time to time by
the Board of Directors in one or more series. Prior to issuance of
shares of each series of preferred stock, the Board of Directors is required to
fix for each series the designation, preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and terms and
conditions of redemption. The
9
Board of
Directors could authorize the issuance of shares of preferred stock with terms
and conditions that could have the effect of discouraging a takeover or other
transaction that some of our stockholders might believe to be in their best
interests or in which they might receive a premium for their shares of common
stock over the then market price of such shares.
The
proposed amendment to our articles of incorporation would not impact the
preferred stock.
Anti-Takeover Provisions of
Our Articles of Incorporation and Bylaws
General
A number
of provisions of our articles of incorporation and bylaws deal with matters of
corporate governance and certain rights of stockholders. The
following discussion is a general summary of certain provisions of our articles
and bylaws that might be deemed to have a potential “anti-takeover”
effect. The following description of certain of the provisions of our
articles and bylaws is necessarily general and reference should be made in each
case to the articles and bylaws. Our articles and bylaws are
available at the SEC’s web site.
Classification
of the Board of Directors
Our
articles and bylaws provide that we will have not less than three directors
(unless we have less than three stockholders), and that the number of directors
shall be fixed by the Board of Directors. Our Board of Directors is
currently set at 14 directors.
Our
bylaws provide that our directors are divided into three classes -
Class A, Class B, and Class C - each class consisting of a number of directors
as nearly equal in number as possible, and with each director serving for a term
ending on the date of the third annual meeting following the annual meeting at
which such director is elected. A classified Board of Directors
promotes continuity and stability of management, but makes it more difficult for
stockholders to change a majority of the directors because it generally takes at
least two annual elections of directors for this to occur. We believe
that classification of the Board of Directors will help to assure the continuity
and stability of our business strategies and policies as determined by the Board
of Directors.
Extraordinary
Transactions
Pursuant
to the MGCL, a corporation generally cannot (except under and in compliance with
specifically enumerated provisions of the MGCL) consolidate, merge, sell, lease
or exchange all or substantially all of its assets, engage in a share exchange,
or liquidate, dissolve or wind-up unless such acts are approved by the
affirmative vote of at least two-thirds of the shares entitled to vote on the
matter, unless a lesser or greater percentage is set forth in the corporation’s
charter. Our articles of incorporation increase the required vote to
80% of the shares entitled to vote on the matter, except with respect to
liquidation, dissolution and winding-up.
Amendment
of Articles of incorporation
Under the
MGCL, amendments to our articles require the approval of stockholders holding
two-thirds of the shares entitled to vote on the matter.
10
Amendment
of Bylaws
Only our
Board of Directors may amend our bylaws. Our stockholders have no
authority to amend our bylaws.
Removal
of Directors
The MGCL
provides that if a corporation’s directors are divided into classes, a director
may only be removed for cause. Our articles of incorporation further
provide that directors may be removed only upon the affirmative vote of 80% of
all of the votes entitled to be cast on the matter.
Absence
of Cumulative Voting
There is
no cumulative voting in the election of our directors. Cumulative
voting means that holders of stock of a corporation are entitled, in the
election of directors, to cast a number of votes equal to the number of shares
that they own multiplied by the number of directors to be
elected. Because a stockholder entitled to cumulative voting may cast
all of his votes for one nominee or disperse his votes among nominees as he
chooses, cumulative voting is generally considered to increase the ability of
minority stockholders to elect nominees to a corporation’s Board of
Directors. The absence of cumulative voting means that the holders of
a majority of our shares can elect all of the directors then standing for
election and the holders of the remaining shares will not be able to elect any
directors.
Authorized
Shares
As
indicated above, our articles of incorporation authorize the issuance of
21,000,000 shares of capital stock, including 20,000,000 shares of common stock
and 1,000,000 shares of preferred stock, and we are asking our stockholders to
approve an increase in the number of authorized shares of our common stock to
95,000,000 shares, which would increase our total authorized capital stock to
96,000,000 shares. Our Board of Directors may, without stockholder
approval, authorize the issuance of any authorized and unissued shares of our
common stock and preferred stock. This provides our Board of
Directors with flexibility to effect, among other transactions, financings,
acquisitions, stock dividends, stock splits and stock options or other
stock-based compensation. The unissued authorized shares also may be
used by our Board of Directors consistent with its fiduciary duty to deter
future attempts to gain control of us. Also, as indicated above, our
Board of Directors’ right to set the terms of one or more series of preferred
stock has anti-takeover effects.
Anti-Takeover
Provisions of the Maryland General Corporation Law
In
addition to the provisions contained in our articles of incorporation and
bylaws, the MGCL includes certain provisions applicable to Maryland companies
that may have an anti-takeover effect, including, but not limited to, the
provisions discussed below.
11
Business
Combinations
Under the
MGCL, certain “business combinations” between a Maryland corporation and an
“Interested Stockholder” (as described in the MGCL) are prohibited for five
years after the most recent date on which the Interested Stockholder became an
Interested Stockholder, unless an exemption is available. Thereafter
a business combination must be recommended by the Board of Directors of the
corporation and approved by the affirmative vote of at least (i) 80% of the
votes entitled to be cast by holders of outstanding voting shares of the
corporation and (ii) two-thirds of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
Interested Stockholder with whom the business combination is to be effected,
unless the corporation’s stockholders receive a minimum price (as described in
the MGCL) for their shares and the consideration is received in cash or in the
same form as previously paid by the Interested Stockholder for its
shares.
Maryland’s
business combination statute does not apply to business combinations that are
approved or exempted by the Board of Directors prior to the time that the
Interested Stockholder becomes an Interested Stockholder. In
addition, Maryland’s business combination statute does not apply to (i) a
corporation that has fewer than 100 beneficial owners of its stock, unless the
corporation specifically “opts in” to the business combination statute through a
charter provision, or (ii) to a corporation that “opts out” of the business
combination statute through a charter provision. We have not elected
to “opt in” to or “opt out” of Maryland’s business combination statute through a
charter provision.
Control
Share Acquisitions
The MGCL
provides that “control shares” of a Maryland corporation acquired in a “control
share acquisition” have no voting rights except to the extent approved by a vote
of two-thirds of the shares entitled to be voted on the matter, excluding shares
of stock owned by the acquirer or by officers or directors who are employees of
the corporation. “Control shares” are voting shares of stock which,
if aggregated with all other such shares of stock previously acquired by the
acquirer, or in respect of which the acquirer is able to exercise or direct the
exercise of voting power except solely by virtue of a revocable proxy, would
entitle the acquirer to exercise voting power in electing directors within one
of the following ranges of voting power: (i) one tenth or more but less than one
third; (ii) one third or more but less than a majority; or (iii) a majority of
all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
stockholder approval. A “control share acquisition” means the
acquisition of control shares, subject to certain exceptions.
A person
who has made or proposes to make a control share acquisition, upon satisfaction
of certain conditions (including an undertaking to pay expenses and delivery of
an “acquiring person statement”), may compel the corporation’s Board of
Directors to call a special meeting of stockholders to be held within 50 days of
demand to consider the voting rights of the shares. If no request for
a meeting is made, the corporation may itself present the question at any
stockholders’ meeting.
Unless
the charter or bylaws provide otherwise, if voting rights are not approved at
the meeting or if the acquiring person does not deliver an acquiring person
statement within ten days
12
following
a control share acquisition then, subject to certain conditions and limitations,
the corporation may redeem any or all of the control shares (except those for
which voting rights have previously been approved) for fair value determined,
without regard to the absence of voting rights for the control shares, as of the
date of the last control share acquisition or of any meeting of stockholders at
which the voting rights of such shares are considered and not
approved. Moreover, unless the charter or bylaws provides otherwise,
if voting rights for control shares are approved at a stockholders’ meeting and
the acquirer becomes entitled to exercise or direct the exercise of a majority
or more of all voting power, other stockholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of
such appraisal rights may not be less than the highest price per share paid by
the acquirer in the control share acquisition.
Maryland’s
control share acquisition statute does not apply to individuals or transactions
that are approved or exempted (whether generally or specifically) in a charter
or bylaw provision before the control share acquisition occurs. In
addition, Maryland’s control share acquisition statute does not apply to a
corporation that has fewer than 100 beneficial owners of its
stock. We have not exempted any individuals or transactions from the
control share acquisition statute through a charter or bylaw
provision.
Summary of Anti-Takeover
Provisions
The
foregoing provisions of our articles of incorporation and bylaws and Maryland
law could have the effect of discouraging an acquisition of Bay National
Corporation or stock purchases in furtherance of an acquisition, and could
accordingly, under certain circumstances, discourage transactions that might
otherwise have a favorable effect on the price of our common
stock. In addition, such provisions may make Bay National Corporation
less attractive to a potential acquiror and/or might result in stockholders
receiving a lesser amount of consideration for their shares of common stock than
otherwise could have been available.
Our Board
of Directors believes that the provisions described above are prudent and will
reduce vulnerability to takeover attempts and certain other transactions that
are not negotiated with and approved by our board. Our Board of
Directors believes that these provisions are in our best interests and the best
interests of our stockholders. In the Board of Directors’ judgment,
the board is in the best position to determine our true value and to negotiate
more effectively for what may be in the best interests of our
stockholders. Accordingly, the Board of Directors believes that it is
in our best interests and in the best interests of our stockholders to encourage
potential acquirors to negotiate directly with the board and that these
provisions will encourage such negotiations and discourage hostile takeover
attempts.
Despite
the Board of Directors’ belief as to the benefits to us of the foregoing
provisions, these provisions also may have the effect of discouraging a future
takeover attempt in which stockholders might receive a substantial premium for
their shares over then current market prices and may tend to perpetuate existing
management. As a result, stockholders who might desire to participate
in such a transaction may not have an opportunity to do so. The Board
of Directors, however, believes that the potential benefits of these provisions
outweigh their possible disadvantages.
13
The
affirmative vote of holders of two-thirds of the outstanding shares of common
stock entitled to vote on this proposal is required for approval of this
proposal. Therefore, abstentions and broker non-votes, as well as the
failure to vote (including a failure to return a signed proxy card), will have
the same effect as a vote against this proposal.
If
approved, the amendment to the articles of incorporation will become effective
upon the filing of the articles of amendment. If the proposal is not
approved by the requisite stockholder vote, the number of authorized shares of
common stock will remain unchanged.
The
Board of Directors recommends that stockholders vote “FOR” approval of the
amendment to the Company’s articles of incorporation to increase the number of
authorized shares of the Company’s common stock from 20,000,000 shares to
95,000,000 shares.
PROPOSAL
2 –
PROPOSAL
TO ADJOURN OR POSTPONE THE SPECIAL MEETING TO A LATER DATE OR TIME, IF NECESSARY
OR APPROPRIATE, TO SOLICIT ADDITIONAL PROXIES IN THE EVENT THERE ARE
INSUFFICIENT VOTES AT THE TIME OF SUCH ADJOURNMENT OR POSTPONEMENT TO ADOPT THE
PROPOSAL TO AMEND OUR ARTICLES OF INCORPORATION
Although
it is not currently expected, the Special Meeting may be adjourned or postponed
for the purpose of soliciting additional proxies. Any adjournment may
be made without notice if announced at the meeting at which the adjournment is
taken. Whether or not a quorum exists, holders of a majority of the
common stock represented in person or by proxy at the Special Meeting and
entitled to vote on the proposal may adjourn the Special Meeting at any
time. Any adjournment or postponement of the Special Meeting for the
purpose of soliciting additional proxies will allow our stockholders who have
already sent in their proxies to revoke them at any time prior to their use at
the Special Meeting as adjourned or postponed.
OTHER
BUSINESS
The
management of Bay National Corporation does not intend to present any other
matters for action at the Special Meeting, and the Board of Directors has not
been informed that other persons intend to present any matters for action at the
Special Meeting. However, if any other matter should properly come
before the Special Meeting, the persons named in the accompanying form of proxy
intend to vote thereon, pursuant to the proxy, in accordance with their judgment
of the best interests of Bay National Corporation.
STOCKHOLDER
PROPOSALS FOR THE 2010 ANNUAL MEETING
In order
to be included in the proxy materials for Bay National Corporation’s 2010 annual
meeting of stockholders, stockholder proposals submitted to Bay National
Corporation in compliance with SEC Rule 14a-8 (which concerns shareholder
proposals that are requested to be included in a company’s proxy statement) must
be received in written form at Bay National
14
Corporation’s
executive offices on or before December 29, 2009. In order to curtail
controversy as to compliance with this requirement, shareholders are urged to
submit proposals to the Secretary of Bay National Corporation by Certified
Mail—Return Receipt Requested.
Pursuant
to the proxy rules under the Securities Exchange Act of 1934, as amended, Bay
National Corporation’s stockholders are notified that the deadline for providing
us with timely notice of any stockholder proposal to be submitted outside of the
Rule 14a-8 process for consideration at the 2010 annual
meeting of stockholders
will be March 14, 2010. As to all such matters which we do not have
notice on or prior to that date, discretionary authority to vote on such
proposal will be granted to the persons designated in Bay National Corporation’s
proxy related to the 2010 annual meeting of stockholders.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The
following information, which was included in Bay National Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2008, previously mailed to
our stockholders, and a copy of which has been delivered with this proxy
statement, is incorporated herein by reference:
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·
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The
consolidated balance sheets of Bay National Corporation and subsidiary as
of December 31, 2008 and 2007, and the related consolidated statements of
operations, changes in stockholders’ equity, and cash flows for each of
the three years in the period ended December 31, 2008, and the notes
thereto, appearing on pages 62-97 of the Annual
Report;
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·
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Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
which appears on pages 26-59 of the Annual Report;
and
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·
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure, appearing on page 98 of the Annual
Report.
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15
Appendix
A
The first
paragraph of Article FIFTH of the Corporation’s articles of incorporation is
hereby amended and restated in its entirety as follows:
FIFTH:
The total authorized capital stock of the Corporation is Ninety-Six Million
(96,000,000) shares, consisting of Ninety-Five Million (95,000,000) shares of
common stock, with a par value of $0.01 per share, and One Million (1,000,000)
shares of preferred stock, with a par value of $0.01 per share. The
aggregate par value of all authorized shares is Nine Hundred Sixty Thousand
Dollars ($960,000).
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X
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PLEASE
MARK VOTES
AS
IN THIS EXAMPLE
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 |
REVOCABLE
PROXY BAY NATIONAL CORPORATION |
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REVOCABLE
PROXY FOR
SPECIAL
MEETING OF SHAREHOLDERS
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___DAY,
_____ __ 2010
SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS
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THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”
EACH
OF THE LISTED PROPOSALS
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The
undersigned hereby appoints Warren F. Boutilier and Hugh L. Robinson II,
and each of them, to vote all of the shares of Bay National Corporation
standing in the undersigned's name at the Special Meeting of Stockholders,
to be held at 2328 West Joppa Road, Lutherville, Maryland, 21093, on
____day, _____ __, 2010 at ____ a.m., local time. The undersigned hereby
revokes any and all proxies heretofore given with respect to such
meeting.
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This
proxy will be voted as specified above. If no choice is specified, the
proxy will be voted “FOR” approval of the amendment to the articles of
incorporation to increase the number of authorized shares of common
stock from 20,000,000 shares to 95,000,000 shares and FOR
approval of the proposal to adjourn or postpone the special meeting to a
later date or time, if necessary or appropriate, to solicit additional
proxies in the event there are insufficient votes at the time of such
adjournment or postponement to adopt the proposal to amend the articles of
incorporation. If any other business is presented at the Special Meeting,
this revocable proxy will be voted in the discretion of the
proxies.
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For
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Against
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Abstain
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1.
Approve an amendment to Bay National Corporation’s articles of
incorporation to increase the number of authorized shares of the Company’s
common stock, $0.01 par value per share, from 20,000,000 shares to
95,000,000 shares.
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[ ] | [ ] | [ ] | |||||||||||
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For
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Against
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Abstain
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2.
Adjourn or postpone the Special Meeting to a later date or time, if
necessary or appropriate, to solicit additional proxies in the event there
are insufficient votes at the time of such adjournment or postponement to
adopt the proposal to amend the articles of incorporation.
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[ ] | [ ] | [ ] | |||||||||||
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Please
be sure to sign and date this Proxy in the box below.
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Date
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___Shareholder
sign above______________Co-holder (if any) sign
above______
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Detach
above card, sign, date and mail in postage paid envelope provided.
BAY
NATIONAL CORPORATION
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(Please
sign exactly as your name appears. When signing as an executor,
administrator, guardian, trustee or attorney, please give your title as
such.
If
signer is a corporation, please sign the full corporate name and then an
authorized officer should sign his name and print his name and title below
his signature. If the shares are held in joint name, all joint owners
should sign.)
PLEASE
DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE.
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IF YOUR
ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED BELOW AND
RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.