Opinion ID: 2370284
Heading Depth: 1
Heading Rank: 4

Heading: The Reclassification Proposal

Text: Five weeks later, on April 18, 2005, Stephens circulated to the Board members a document describing a proposed privatization of First Niles (Privatization Proposal). That Proposal recommended reclassifying the shares of holders of 300 or fewer shares of First Niles common stock into a new issue of Series A Preferred Stock on a one-to-one basis (the Reclassification). The Series A Preferred Stock would pay higher dividends and have the same liquidation rights as the common stock, but the Preferred holders would lose all voting rights except in the event of a proposed sale of the Company. The Privatization Proposal claimed that the Reclassification was the best method to privatize the Company because it allowed maximum flexibility for future capital management activities, such as open market purchases and negotiated buy-backs. Moreover, First Niles could achieve the Reclassification without having to buy back shares in a fair market appraisal. On April 20, 2005, the Board appointed Zuzolo to chair a special committee to investigate issues relating to the Reclassification, specifically: (1) reincorporating in a state other than Delaware, (2) changing the Bank's charter from a federal to a state charter, (3) deregistering from NASDAQ, and (4) delisting. However, Zuzolo passed away before any other directors were appointed to the special committee. On December 5, 2005, Powell Goldstein, First Niles' outside counsel specially retained for the Privatization (Outside Counsel), orally presented the Reclassification proposal to the Board. The Board was not furnished any written materials. After the presentation, the Board voted 3 to 1 to direct Outside Counsel to proceed with the Reclassification program. Gantler cast the only dissenting vote. Thereafter, the makeup of the Board changed. Shaker replaced Zuzolo in January of 2006, and Csontos replaced Gantler in April of 2006. From that point on, the Board consisted of Stephens, Kramer, Eddy, Shaker and Csontos. On June 5, 2006, the Board determined, based on the advice of Management and First Niles' general counsel, that the Reclassification was fair both to the First Niles shareholders who would receive newly issued Series A Preferred Stock, and to those shareholders who would continue to hold First Niles common stock. On June 19, the Board voted unanimously to amend the Company's certificate of incorporation to reclassify the shares held by owners of 300 or fewer shares of common stock into shares of Series A Preferred Stock that would have the features and terms described in the Privatization Proposal.