Bayfirst Financial Corp

This proposal asks shareholders to approve the issuance of common shares upon conversion or exchange of the Series D and Series E preferred shares issued in an $80 million private placement, a step required by Nasdaq rules because the conversion would result in the issuance of common stock equal to 20% or more of outstanding shares at an effective price below book or market value. Management seeks this approval to allow the preferred shares to convert or be exchanged into common stock, thereby eliminating the preferred shares’ senior liquidation and dividend preferences and avoiding ongoing high-rate cumulative dividends. Approval would enable the Company to effect a Full Conversion (22,856,000 common shares at an initial conversion price of $3.50 per share), improve the Bank’s regulatory capital ratios, and permit the planned shareholder offering and related registration rights. If shareholders approve the Conversion but not the Articles Amendment, the Company will effect a Partial Conversion pro rata to available authorized shares, leaving remaining preferred shares outstanding with their existing rights. The proposal carries significant dilution risk: pro forma the Full Conversion existing common shareholders would own approximately 15.24% of the issued and outstanding common stock and earnings per share and voting power would be materially reduced. The Securities Purchase Agreement also grants certain investor protections and gross-up rights (notably for Mr. Lehman), and the conversion could be treated as a potential change of control under Nasdaq rules. The Board has balanced the dilution and market-pressure risks against the immediate regulatory capital need and determined that the capital infusion and the ability to stabilize the Bank’s operations outweigh those risks, hence its unanimous recommendation to vote FOR.

This proposal requests shareholder approval to amend the Company’s articles of incorporation to increase authorized common stock from 15,000,000 to 100,000,000 shares, primarily to enable the Full Conversion of Series D and Series E preferred shares into common stock. Management argues the increase is necessary because the Company currently lacks sufficient authorized and unissued shares to effect the conversion and to support the planned shareholder offering; without it, only a Partial Conversion pro rata to available authorized shares would occur and preferred shares would remain outstanding with their dividend and liquidation preferences. The amendment also provides the Board with additional flexibility to issue equity for financings, employee plans, acquisitions, stock dividends/splits, or other corporate purposes without further shareholder approval except where required by law or exchange rules. Shareholders should weigh the immediate capital and regulatory benefits—improved capital ratios and ability to satisfy Nasdaq requirements—against the potential for substantial dilution and reduced per-share metrics for existing shareholders. The Board considered anti-takeover implications and acknowledged that additional authorized shares could be used in future issuances that might dilute an acquiring party, but concluded the positive impact of securing capital and stabilizing the Bank outweighs those concerns. The proposal requires approval by a majority of outstanding shares, meaning abstentions or broker non-votes will have the same effect as votes against; this raises execution risk if shareholders withhold votes. The Board’s unanimous recommendation reflects management’s view that completing the Full Conversion and strengthening the balance sheet is critical to return the Bank to profitability and meet regulatory expectations.

The adjournment proposal seeks shareholder authorization to adjourn the Special Meeting to one or more later dates to solicit additional proxies if there is not a quorum or if there are insufficient votes to approve the Conversion Proposal or the Articles Amendment Proposal. Management views this as a procedural but important safety valve that preserves the Company’s ability to continue soliciting votes—particularly relevant because Proposal 2 requires a majority of outstanding shares and broker non-votes or abstentions effectively count as votes against. Approval would allow the Board to reconvene without restarting the entire notice process, enabling continued engagement with major shareholders and brokers to secure the votes needed for the capital restructuring. If the adjournment proposal fails, the Board may lose the practical ability to extend the meeting, which could prevent achieving approval for the conversion or articles amendment and thus impede the capital infusion and planned restructuring. The Board recommends FOR because the adjournment authority reduces execution risk for the capital raise without itself altering corporate governance or terms of the Private Placement. The vote requires a majority of shares represented in person or by proxy at the meeting and abstentions will count as against the adjournment, so voting participation is critical.