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Note 7 - Common Stock Issuance
 9 Months Ended
Sep. 30, 2012
Stockholders' Equity Note Disclosure [Text Block]
NOTE 7 – COMMON STOCK ISSUANCE

Middlefield Banc Corp. entered into an August 15, 2011 Stock Purchase Agreement with Banc Opportunity Fund LLC.  The Stock Purchase Agreement provides for the purchase by Bank Opportunity Fund of up to 24.99% of our common stock.  The Stock Purchase Agreement was amended by the First Amendment, dated September 29, 2011, the Second Amendment, dated October 20, 2011, the Third Amendment, dated November 28, 2011, the Fourth Amendment, dated December 21, 2011, the Fifth Amendment, dated April 17, 2012, and by the Sixth Amendment, dated August 23, 2012.

As amended by the Fifth Amendment on April 17, 2012, the Stock Purchase Agreement provides for Bank Opportunity Fund’s ownership to reach 24.99% in three stages: (1) ownership of 4.9%, which occurred with the purchase by a Bank Opportunity Fund affiliate of 93,050 shares at $16 per share on April 17, 2012, (2) ownership of 9.9%, which occurred on April 30, 2012 with the purchase by the affiliate of 103,585 shares at $16 per share, and (3) ownership of 24.99% by the purchase of additional shares, currently estimated to be approximately 400,000 additional shares, which cannot occur unless Bank Opportunity Fund obtains regulatory approval, unless our stockholders approve the acquisition of shares by Bank Opportunity Fund, and unless the other conditions contained in the amended Stock Purchase Agreement are satisfied.  The first sale of shares to Bank Opportunity Fund, on April 17, 2012, yielded gross proceeds of $1,488,800 and the second sale, on April 30, yielded gross proceeds of $1,657,360.  Associated issuance costs totaled $816,000 as of September 30, 2012.  As amended by the Sixth Amendment, the purchase price for the additional shares in the third and final stage will be the greater of $19 per share or 75% of tangible book value per share.

Completion of the third and final stage is subject to regulatory approval on the part of the Federal Reserve Bank of Cleveland and the Ohio Division of Financial Institutions.  Additionally, Bank Opportunity Fund cannot own 20% or more of our common stock unless stockholders first approve that ownership level, acting at a special meeting in accordance with the Ohio Control Share Acquisition Act.  As amended by the Sixth Amendment, the deadline for completion of the third and final stage is November 30, 2012, with a 45-day extension beyond that date unless the Federal Reserve or the Ohio Division of Financial Institutions advises Bank Opportunity Fund that the necessary regulatory approvals are unlikely to be received.

Bank Opportunity Fund currently is entitled by the terms of the amended Stock Purchase Agreement to designate one director for service on the board of Middlefield Banc Corp. and on the board of each of its subsidiary banks.  By the terms of the April 17, 2012 Amended and Restated Purchaser’s Rights and Voting Agreement with Bank Opportunity Fund, as amended by the amendment dated as of August 23, 2012, our directors and executive officers are required to vote shares they hold for approval of the acquisition of shares by Bank Opportunity Fund and in favor of election of Bank Opportunity Fund’s director nominee.

Bank Opportunity Fund LLC is a Delaware limited liability company, established by its managing member Bank Acquisitions LLC, also a Delaware limited liability company.  Bank Opportunity Fund was formed to invest primarily in U. S. banks, thrifts, and their holding companies.  Bank Opportunity Advisors LLC, another Delaware limited liability company, is the investment adviser for Bank Opportunity Fund.  Bank Acquisitions LLC as managing member and Bank Opportunity Advisors LLC as investment adviser manage the day-to-day operations and investment activities of Bank Opportunity Fund.  Bank Acquisitions LLC controls Bank Opportunity Fund.

The proposed sale of additional shares to Bank Opportunity Fund is the final part of a private offering of our stock that began in 2010 and continued into 2011.  Relying on the SEC’s private offering exemption in Regulation D Rule 506, we conducted the private offering without registration under the Securities Act of 1933, offering and selling our shares solely to those qualifying as accredited investors, as defined in Regulation D.  The subscription agreement entered into by an institutional investor that purchased 85,200 shares on August 12, 2011 in the private offering provides that – when the sale of shares to Bank Opportunity Fund is completed – the institutional investor will buy more shares from us so that the institutional investor maintains its ownership interest at 4.9%.  The investor may, however, purchase the shares on the open market to maintain the 4.9% ownership interest.  Accordingly, completion of the transaction with Bank Opportunity Fund obligates the institutional investor to purchase additional shares, which we currently estimate to be approximately 33,700 shares.  Because the subscription agreement right to purchase shares at $16 is significantly less than the current trading price for Middlefield Banc Corp. stock, we expect the investor will purchase these shares from us.

We give no assurance that the conditions to completion of the sale of stock to Bank Opportunity Fund will be satisfied by January 14, 2013, which is the final day of the 45-day extension of the November 30, 2012 deadline established by the Sixth Amendment of the Stock Purchase Agreement, or that the transaction will be completed at all.  We are optimistic that Bank Opportunity Fund will obtain regulatory approval for its acquisition of additional shares, however.  We have not yet fixed the date for the special meeting at which we will ask stockholders – in accordance with the Ohio Control Share Acquisition Act – to consider and vote upon the sale of shares to Bank Opportunity Fund.  We currently expect to hold the special meeting before the end of the first quarter of 2013, and we expect to complete the sale of shares to Bank Opportunity Fund promptly after that meeting, assuming stockholders approve the sale.

This summary of the Stock Purchase Agreement, as amended, and related transactions is qualified in its entirety by reference to (1) the Form 8-K Current Report that we filed with the SEC on August 18, 2011, (2) the August 15, 2011 Stock Purchase Agreement (exhibit 10.26 to the Form 8-K Current Report filed on August 18, 2011), (3) the First, Second, Third, and Fourth Amendments of the Stock Purchase Agreement (exhibits 10.26.1, 10.26.2, 10.26.3, and 10.26.4 to our Form 10-K Annual Report for the year ended December 31, 2011), (4) the Form 8-K Current Report that we filed with the SEC on March 27, 2012, (5) the Form 8-K Current Report that we filed with the SEC on April 23, 2012, (6) the Fifth Amendment of the Stock Purchase Agreement and the Amended and Restated Purchaser’s Rights and Voting Agreement (exhibits 10.26.6 and 10.28 to the Form 8-K Current Report filed on April 23, 2012), (7) the Form 8-K Current Report that we filed with the SEC on May 4, 2012, (8) the Form 8-K Current Report that we filed with the SEC on August 7, 2012, (9) the Form 8-K Current Report that we filed with the SEC on August 24, 2012, and (10) the Sixth Amendment of the Stock Purchase Agreement and the Amendment of the Amended and Restated Purchaser’s Rights and Voting Agreement (exhibits 10.26.7 and 10.28.1 to the Form 8-K Current Report filed on August 24, 2012).

Forward-looking statements.  This Form 10-Q includes forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995.  Forward-looking statements include but are not limited to statements about anticipated operating and financial performance, such as loan originations, operating efficiencies, loan sales, charge-offs and loan loss provisions, growth opportunities, interest rates, and deposit growth.  Words such as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “project,” “plan,” and similar expressions are intended to identify forward-looking statements.  These statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation delays in obtaining or failure to receive required regulatory approvals, including approval by the Superintendent of the Ohio Division of Financial Institutions and by the Board of Governors of the Federal Reserve System, the possibility that fewer than the required number of the Middlefield’s stockholders vote in accordance with the Ohio Control Share Acquisition Act to approve the sale of shares to Bank Opportunity Fund, the occurrence of events that would have a material adverse effect on Middlefield as described in the Stock Purchase Agreement, as amended, and other uncertainties associated with the transactions described in this Form 10-Q.  Additional factors that could cause actual results to differ materially are discussed in Middlefield’s filings with the Securities and Exchange Commission, including, without limitation, Middlefield’s Form 10-K Annual Report, its Form 10-Q Quarterly Reports, and its Form 8-K Current Reports.  Forward-looking statements are based on Middlefield’s beliefs, plans, objectives, goals, assumptions, expectations, estimates, and intentions as of the date the statements are made.  You must exercise caution because Middlefield cannot give any assurance that its beliefs, plans, objectives, goals, assumptions, expectations, estimates, and intentions will be realized.  Middlefield does not undertake a duty to update any forward-looking statements in this Form 10-Q.

Additional information and where to find it. This communication may be deemed to be solicitation material.  Middlefield will file with the SEC a proxy statement and other documents regarding the transaction with Bank Opportunity Fund.  MIDDLEFIELD STOCKHOLDERS ARE URGED TO READ ALL RELEVANT DOCUMENTS TO BE FILED WITH THE SEC, INCLUDING MIDDLEFIELD’S PROXY STATEMENT, BECAUSE THE PROXY STATEMENT AND OTHER DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION, INCLUDING INFORMATION ABOUT THE TRANSACTION WITH BANK OPPORTUNITY FUND.  Members of the public will be able to obtain the proxy statement and other relevant documents free of charge at the SEC’s website, http://www.sec.gov, and Middlefield’s stockholders will receive information at an appropriate time about how to obtain the proxy statement and other transaction-related documents for free from Middlefield.  The proxy statement and other documents are not currently available.  Middlefield and its directors, executive officers, certain members of management, and employees may have interests in the transaction or be deemed to be participants in the solicitation of proxies of Middlefield’s stockholders to approve the transaction with Bank Opportunity Fund.  Information regarding the participants and their interest in the solicitation is set forth in the proxy statement filed by Middlefield with the SEC on April 9, 2012, for the 2012 Annual Meeting.  Stockholders may obtain additional information regarding the interests of participants by reading the proxy statement relating to the transaction when the proxy statement becomes available.