Mail-Stop 4561
July 21, 2006
Via facsimile and U.S. Mail
Mr. William L. Stephens
Chairman of the Board,
President and Chief Executive Officer
First Niles Financial, Inc.
55 North Main Street
Niles, Ohio 44446-2539
Re: First Niles Financial, Inc.
Preliminary Proxy Statement and Schedule 13E-
3
File No. 0-24849
Filed June 29, 2006
Dear Mr. Stephens:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
The purpose of our review process is to assist you in your
compliance with the applicable disclosure requirements and to
enhance
the overall disclosure in your filing. We look forward to working
with you in these respects. We welcome any questions you may have
about our comments or on any other aspect of our review. Feel
free
to call us at the telephone numbers listed at the end of this
letter.
Preliminary Proxy Statement
Shareholder Letter
1. Revise the second paragraph to indicate which Articles of
Incorporation are to be amended by adding a new Article
Fourteenth.
2. Revise the penultimate sentence in the fourth paragraph to
state
that delisting "will" result in limiting liquidity. In addition,
revise the last sentence to delete the OTCBB as that would require
the Company to be a fully reporting company with the Securities
and
Exchange Commission.
3. Here, on the cover page of the proxy statement, and the summary
term sheet section, prominently disclose that current common
security
holders that are to receive the newly authorized preferred stock
will
receive no additional compensation, will lose their ability to
vote
their shares, will receive even less liquid securities, and will
lose
the benefits of holding Section 12 registered securities. Provide
the same disclosure in each place in the proxy statement where you
discuss what security holders subject to the reclassification will
receive.
4. Revise to refer to the preferred stock as "Series A Preferred
Stock" both herein and throughout the Letter, Notice and Proxy
Statement.
Notice of a Special Meeting....
5. Revise the items listed to reconcile with the proxy card, i.e.,
item (2) is different than number 2 on the proxy card.
Proxy Statement
General
6. Revise to unbundle the first Proposal into two Proposals.
First,
the amendment to the Articles of Incorporation. Second, the
Reclassification of common shares into preferred shares.
7. We note that you are purporting to create two classes of
securities out of what is currently a single class of common
stock,
for the purpose of taking the company private by causing each
"new"
class to be held by less than 300 shareholders of record. In your
response letter, provide your legal analysis as to why the common
stock and preferred stock are truly separate classes for purposes
of
determining eligibility to deregister under Section 12 of the
Securities Exchange Act of 1934. Also, please provide a formal
opinion of counsel that your common stock and your newly
authorized
preferred stock are separate classes of securities under state
law.
Your response should also provide counsel`s legal analysis as to
why
it is opining that your common stock and the newly authorized
class
of preferred stock are in fact separate classes under state law.
In
this regard, the analysis should include a detailed discussion and
comparison of each feature of your common stock and the preferred
stock and why the rights of each class support the opinion of
counsel. Further, the analysis should specifically address that
the
preferred Stock is convertible into common stock upon a change of
control.
8. The staff notes that Eighth Article, Section A.5. and the
Twelfth
Article appears to indicate that reclassification of securities
and
amendments to the Articles for the purpose of reclassifying
securities require an 80% supermajority vote. Please provide a
legal
analysis of why those Articles do not require such a supermajority
vote.
9. Please confirm to us, in a supplemental response, that the
proxy
statement will be sent or given at least 20 calendar days prior to
the meeting date.
Proxy cover page
10. Revise to disclose that there is and will be no attempt by the
Company to control transfers of common or preferred shares and it
is
possible that in the future there again be 300 holders requiring
re-
registration with the Securities and Exchange Commission.
Important Notices
11. Please move this section to later in the filing. The proxy
statement should begin with the Summary Term Sheet.
12. Please delete the first paragraph. It is not material to the
matter that is the subject of the proxy statement.
Summary Term Sheet, page 1
13. Revise the "Dividend Rights" subsection to disclose the date
the
last dividend was declared, the amount and the total amount of
dividends paid during the last 2 full fiscal years.
Effects of the Reclassification, page 3
14. Revise the seventh bullet to indicate that market liquidity
will
be reduced.
15. Revise the eighth bullet to add a beginning sentence
clarifying
that pro forma earnings and book value will not change but due to
accounting rules resulting from the reclassification the
presentation
of basic earnings and book value will change.
Reasons for the Reclassification, page 4
16. In this section more specifically discuss the reasons for the
particular structure. That is, why did the board choose a method
of
going private that result in unaffiliated security holders
receiving
unregistered securities with no voting rights?
Fairness of the Reclassification Transaction; Board
Recommendation,
page 4
17. We note your second bullet on page 5 stating "the advantages
and
disadvantages of the rights, preferences and limitations of the
Series A Preferred Stock will balance in comparison to the
relative
rights of our common stock...." In light of the loss of voting
rights for the Series A Preferred Stock, the loss of listing on
the
Nasdaq, and, the loss of the protections of the Securities and
Exchange Act, we believe that you should support the statement
regarding relative value here. Further, you should provide balance
in
such disclosure, discussing the differences in voting rights, the
loss of the protections of the Securities Exchange Act, the loss
of
Nasdaq listing and the likelihood that any future market listing
will
most likely only be available to the common stock holders.
18. Revise to add a bullet explaining why a fairness opinion was
not
sought.
19. Revise the last bullet to indicate the market price as of the
most recent practicable date.
Effectiveness of the Transaction, page 5
20. Noting that holders may make investment decisions depending on
the status of the Reclassification, please revise to advise as to
how
holders will be notified of any change in the Board`s willingness
to
go forward with the transaction.
Questions and Answers, page 6
21. Revise to add a Q&A as to why a "fairness opinion" was not
sought
by the Company.
Special Factors
Purpose of the Reclassification, page 8
22. Revise herein and throughout the proxy statement to refer to
the
13E-3 transaction rather than the Reclassification.
23. Noting the disclosures in the fourth paragraph regarding
information currently provided to holders that will no longer be
provided, revise to add to the Questions and Answers subsection a
question on information that will no longer be provided to
holders.
Business Combination, page 10
24. Revise to disclose the terms of the definitive offer.
Negative Effects, page 14
25. Revise to indicate all holders will lose liquidity and
eliminate
references to the OTCBB.
Closing Comments
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested information. Detailed cover letters
greatly
facilitate our review. Please understand that we may have
additional
comments after reviewing your amendment and responses to our
comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
Any questions regarding the comments may be directed to
Michael
Clampitt at (202) 551-3434 or to me at (202) 551-3448.
Sincerely,
Jessica Livingston
Attorney
Financial Services Group
CC: Via U.S. Mail and Fax: (404)
James C. Wheeler, Esq.
Powell Goldstein, LLP
One Atlantic Center- 14th Floor
1201 West Peachtree Street, NW
Atlanta, Georgia 30309
Mr. W.L. Stephens
First Niles Financial, Inc.
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