EX-5 2 ex5.htm EXHIBIT 5 ex5.htm 
Citizens Financial Corporation
Analysis of “Going Private”
 
1
  
What is meant by “going private”
n   Reducing the number of shareholders of
     record below 300
n  Terminates reporting obligations with the
     SEC

          
n  Terminates requirements of Sarbanes-Oxley
 
2
  
Advantages of Going Private
n Substantial expense savings

          
● Audit
● Legal
● Shareholder communications
● Listing fee and stock transfer
● D&O insurance and fees
n Substantial time savings

          
n Liquidity for small shareholders
 
3
  
Disadvantages of Going Private
n Loss of NASDAQ listing

          
n Loss of SEC and SOX protections

          
n Reduced information

          
n Reduced ability to issue new shares

          
n Reduced ability to use stock for
 acquisitions
 
4
  
Why Now?
n SOX 404 expenses

          
●  Need to be in position to make
    management certification by year end 2007
●  Auditor opinion at year end 2008
 
5
  
Annual Expense Savings
Audit fees (including annual SOX 404 opinion)

            
$300,000

            		
            
Legal fees

            
60,000

            		
            
Shareholder communications

            
16,000

            		
            
NASDAQ listing fee and stock transfer costs

            
37,000

            		
            
D&O insurance and fees

            
74,000

            		
            
     Total hard costs

            
$487,000

            		
            
Internal personnel expense

            
65,000

            		
            
     Total annual savings

            
$552,000

            		
            


            

            

            

            

            

            

            

            

            

            

            

  
 


            

  
 
 
6
  
One-Time Expense Savings
SOX consulting (hard dollars)
$132,000
Internal personnel expense
40,000
     Total one-time savings
$172,000
 
7
  
Shareholder Profile (4/16/07)
Shares
Holders
%
Total Shares
%
0 – 99
1,540
68%
63,666
4%
100 - 199
451
20%
52,355
3%
200 – 299
150
7%
31,662
2%
300 – 399
36
2%
11,352
1%
400 – 499
18
1%
7,451
0%
500+
85
4%
1,421,525
90%
Total
2,280
  
1,588,011
  

 
8
  
Going Private Transactions
n Voluntary
• Tender offer
n Involuntary
• Reclassification
• Cash-out merger
• Reverse stock split
 
9
  
Tender Offer
n Advantages
•  Voluntary termination of interest
n Disadvantages
•  No assurance of getting below 300
   shareholders
•  Larger shareholders could tender, so
   the cash cost could be much greater
 
10
  
Reclassification
n Advantages
•  No cash involved
•  Shareholders maintain an interest
n Disadvantages
•  Unlikely to work with CFC’s number of
   shareholders
•  Involuntary
 
11
  
Cash-out Merger
n Advantages
•  Guarantees reducing shareholders
    under the 300 limit
n Disadvantages
•  Force out
•  More complicated and costly to effect
 
12
  
Reverse Stock Split
n Advantages
•  Guarantees reducing shareholders
 under the 300 limit
•  Relatively simple transaction
n Disadvantages
•  Force out
 
13
  
Legal Cost Comparison
 
#
% Legal
<$50,001
% Legal
>$50,000
Tender offer
6
100%
0%
Reclassification
18
44%
56%
Merger
36
39%
61%
Reverse split
25
64%
36%

 
14
  
Reverse Stock Split - Key
 Decisions
n Ratio
n Fair value for fractional shares
n Procedural fairness
n Financing
n Attorney
n Stock transfer
 
15
  
Ratio
Ratio
Resulting # of
Shareholders
Fractional
Shares
200
290
143,467
225
171
167,992
250
164
165,017
275
147
178,042
300
140
177,967
 
16
  
Fair Value for Fractional Shares
n Market
n Book value
n Liquidation value
n Earnings comparison
n Discounted cash flow
 
17
  
Market Information
n  NASDAQ market has been principal
 outlet for a shareholder to sell
n  Per NASDAQ, 315,499 shares traded in
 12 months ended 5/31/07
n  Closing price on 5/31/07: $6.40
n  1 mo avg close as of 5/31/07: $5.94
n  2 mo avg close as of 5/31/07: $5.85
n  3 mo avg close as of 5/31/07: $5.90
 
18
  
Market Information (cont.)
n  52 wk high/low reported by NASDAQ:
 High - $6.84  Low - $4.20
n  CFC purchases during 2006:
• Q1: 7,157 for average of $6.62
• Q2: 6,000 for average of $6.54
• Q3: 25,104 for average of $6.13
• Q4: 45,356 for average of $6.06
• Price range: High - $6.67  Low - $5.01
 
19
  
Market Information (cont.)
n  Market to book value analysis
 performed 5/31/07:
•  Population:  Public life companies with
 market cap <$200 million - 8 co.s
•  Excluded high and low and averaged
 remaining 6 - average was 78%
•  78% of CFC’s 3/31/07 book value =
 $7.16
•  $7.16 is 12% premium over market
 
20
  
Book Value Information
n CFC book value at 3/31/07: $9.18
 
21
  
Earnings Information
n EPS last 5 years:
• 2002:  ($1.50)
• 2003:  $.42
• 2004:  $.15
• 2005:  $.08
• 2006:  ($.51)
 
22
  
Procedural Fairness
n Items to discuss include:
•   Fairness opinion
•   Independence of Board
•   Representative or advisor retained on
    behalf of the unaffiliated shareholders
•   Independent committee
•   Approval of a majority of the
 unaffiliated shareholders
•   Counsel for unaffiliated shareholders
 
23
  
Procedural Fairness (cont.)
n Actions available to shareholders
• Purchase stock needed to “round up”
• Dissenters’ rights
 
24
  
Financing
n Source of funds
n Amount
n Terms
 
25
  
Other Items
n Attorney
n Stock transfer
n Disclosure
 
 
26