Bayfirst Financial Corp

This proposal asks shareholders to approve the issuance of shares of common stock in excess of 20% of the Company’s outstanding common stock that would result from converting or exchanging the Series D and Series E preferred shares issued in a private placement. Management and the Board are seeking this approval to comply with Nasdaq rules that require shareholder approval for issuances equal to 20% or more of outstanding common stock at a price below the greater of book or market value and to satisfy specific conditions in the Securities Purchase Agreement. The Private Placement (4,000 shares Series D and 4,000 shares Series E for aggregate gross proceeds of $80 million) is intended to shore up the Bank’s capital ratios and avoid regulatory enforcement action; the proposed conversion would convert the preferred instruments into common shares at an initial conversion rate of 2,857 common shares per preferred share (implying issuance of 22,856,000 common shares on a Full Conversion). Approval would eliminate preferred-stock preferences (11% cumulative dividends, senior liquidation preference, and enhanced preference on change-of-control), improve regulatory capital and liquidity, and enable a subsequent shareholder public offering targeted to existing shareholders at $3.50 per share. The Company notes substantial dilution risk: existing shareholders’ ownership would fall to approximately 15.24% on a Full Conversion and the market price could be pressured by resale. If shareholders approve this proposal but not the articles amendment, a Partial Conversion would occur (pro rata conversion only to the extent of authorized shares), leaving some preferred shares outstanding with their rights intact. The Board weighed the dilutive effects against the necessity of improving capital, addressing operating losses and regulatory concerns, and concluded the benefits outweigh the drawbacks; it unanimously recommends a FOR vote. Procedurally, approval requires a majority of votes cast at the Special Meeting; abstentions and broker non-votes do not count as votes cast for this proposal.

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, a change the Board says is required to permit the Full Conversion of the Series D and Series E preferred shares issued in the Private Placement. Management seeks this amendment because, without sufficient authorized but unissued shares, the Company cannot complete the Full Conversion and would be limited to a Partial Conversion that could leave preferred shares outstanding with cumulative dividend and liquidation preferences. The amendment would enable issuance of up to 22,856,000 common shares upon Full Conversion (plus any other future issuances) and thus is a gating condition for the capital structure changes contemplated by the Securities Purchase Agreement. The Board emphasizes that the increased authorization also provides flexibility to use equity for future financings, employee equity programs, dividends, or strategic transactions, which it considers important to restore the Bank’s capital position and support growth. The Company discloses material dilution risks to existing shareholders, including reduced percentage ownership, voting power, book and market value per share, and earnings per share, and notes the potential for share issuances to have incidental anti-takeover effects. The proposal requires the affirmative vote of a majority of outstanding shares, and abstentions or broker non-votes will effectively count as votes against; the Board unanimously recommends a FOR vote. In sum, the Board frames the Amendment as necessary to execute the Private Placement conversion mechanics and to provide corporate flexibility, while acknowledging significant dilution and governance implications for current shareholders.

The Adjournment Proposal is a procedural proposal that would permit the Company to adjourn the Special Meeting to one or more later dates to solicit additional proxies if there are insufficient votes to establish a quorum or to approve either the Conversion Proposal or the Articles Amendment Proposal. Management is seeking this authority as a contingency to ensure it can continue soliciting votes until the critical capital-raising proposals can be approved; this is particularly important given the high vote thresholds and the substantive consequences of Proposals 1 and 2. The proposal does not change substantive corporate rights but materially affects the timetable and ability to obtain approvals: if adopted, the Board could temporarily pause final action and continue outreach to shareholders, increasing the probability of securing necessary votes. If the Adjournment Proposal fails, the Board may be unable to adjourn to solicit further proxies, which could leave the Series D and Series E outstanding and the Company without the intended capital relief. The approval standard is a majority of shares represented in person or by proxy at the Special Meeting (whether or not a quorum is present); abstentions count as votes against. The Board recommends a FOR vote as a standard procedural safeguard to facilitate completion of the capital transactions approved in the other proposals.