<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
[X] Preliminary Revised proxy statement Rule 14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
First Independence Corporation
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
--------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
--------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
--------------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
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<PAGE> 2
FIRST INDEPENDENCE
CORPORATION
44 MICHIGAN AVE., DETROIT, MICHIGAN 48226
TELEPHONE 313-256-8400
June 30, 2000
To Our Shareholders:
You are cordially invited to attend the 2000 Annual Meeting of
Shareholders of First Independence Corporation, which will be held at 6:00 p.m.
on Thursday, August 3, 2000, at the Livernois Branch office at 12200 Livernois,
Detroit, Michigan.
This letter is accompanied by a notice of annual meeting and Proxy
Statement and a proxy card. The Corporation's Annual Report on Form 10-KSB for
the year ended December 31, 1999, as filed with the Securities and Exchange
Commission, also is enclosed.
At the meeting, shareholders will: 1) elect ten (10) directors to serve
for one year and until their successors are duly elected and qualified, 2) vote
on a proposal to amend the Corporation's Articles of Incorporation to effect a
one-for-sixty reverse stock split (the "Reverse Stock Split") with respect to
the Corporation's common stock, $1 par value per share (the "Common Stock"),
with the result that all the Common Stock owned by all persons who own fewer
than 60 shares of existing Common Stock (approximately 1,800 shareholders) will
be purchased by the Corporation at a price based on $10.50 per share, and the
Corporation no longer will be required to file annual and quarterly reports with
the Securities and Exchange Commission, and 3) transact such other business as
may properly come before the meeting or any adjournment of it.
The accompanying Proxy Statement describes the proposed Reverse Stock
Split and its effects on persons whose existing shares will be purchased by the
Company and on persons who will remain stockholders of the Company.
In connection with the proposed Reverse Stock Split, stockholders
should be aware that Don Davis, Chairman of the Board of the Bank and the
Corporation, beneficially owns 211,376 shares of the Corporation's Common Stock,
which amounts to approximately
<PAGE> 3
62.8% of all of the outstanding Common Stock. Therefore, he is considered an
"affiliate", or control person, of the Corporation. Furthermore, stockholders
should note the following:
(a) Mr. Davis intends to vote his shares in favor of the nominees
for director named in the Proxy Statement and in favor of the
Reverse Stock Split (see "Proposal 2: Reverse Stock Split - 1
Share for 60 Shares - Voting and Approval"; and "Voting on the
Reverse Stock Split; Not Conditioned Upon
Approval of Unaffiliated Stockholder").
(b) The Reverse Stock Split will be approved regardless how
"unaffiliated shareholders," (i.e., those who do not control
the Corporation and its policies as directors, executive
officers or major stockholders) vote on the proposed
transaction. (See "Ownership of Corporation's Equity
Securities", "Election of Directors - Interests of Management"
and "Voting on the Reverse Stock Split; Not Conditioned Upon
Approval of Unaffiliated Stockholders");
(c) All shareholders with less than sixty (60) shares of Common
Stock will receive $10.50 per share for their resulting
fractional interests and their ownership in the Corporation
will be terminated (see "Material Effects of the Proposed
Reverse Stock Split" and "No Fractional Shares; Determination
of Fractional Share Price");
(d) Shareholders do not have dissenters' rights in the proposed
transaction (see "No Dissenter Rights").
The interests of the Corporation's management in the Reverse Stock
Split are described in the accompanying Proxy Statement under the headings
"Ownership of the Corporation's Equity Securities", "Election of
Directors-Interests of Management", "Reasons for the Proposed Reverse Stock
Split", and "Material Effects of the Proposed Reverse Stock Split".
The affirmative vote of a majority of the issued and outstanding shares
of the Common Stock entitled to vote on the Reverse Stock Split is required to
approve the proposed transaction. Don Davis, Chairman of the Board of the
Company and of the Bank, owns 62.8% of the outstanding Common Stock and members
of the Board of Directors own an additional 1.06% of the Common Stock. All of
these persons have indicated their intention to vote in favor of the nominees
for director and for the Reverse Stock Split. As directors, they voted
unanimously to propose the Reverse Stock Split to Stockholders. Thus, the
election of directors and the Reverse Stock Split will be approved no matter how
the unaffiliated Stockholders vote.
There will be no fractional shares of the new Common Stock issued. Any
fractional interests owned by stockholders that are remaining after the 1 share
for 60 Share Reverse Stock Split will be purchased by the Corporation at a price
equal to $10.50 per share of
<PAGE> 4
Common Stock currently owned, and Stockholders who own fewer than sixty (60)
shares no longer will have any ownership interest in the Corporation.
The Board of Directors has determined that the Reverse Stock Split is
fair to, and in the best interests of, the unaffiliated stockholders, including
those persons whose Common Stock will be purchased by the Company. The Board of
Directors recommends that the stockholders vote for the proposed Reverse Stock
Split. There are no dissenters' rights available to dissenting stockholders.
Rights of stockholders are described generally in the accompanying Proxy
Statement at "No Dissenter Rights".
The approval and determination of fairness to unaffiliated stockholders
by the Board was based on a number of factors described in the Proxy Statement
(see "Reasons for the Proposed Reverse Stock Split"; "Recommendations and
Considerations of Board of Directors and Mr. Davis"), including the opinion of
First of Michigan Corporation ("First of Michigan"), to the effect that, based
upon and subject to various considerations set forth in their opinion, as of the
date of the opinion, the amount to be paid to holders of fractional shares of
new Common Stock resulting from the Reverse Stock Split is fair from a financial
point of view. See "No Fractional Shares; Determination of Fractional Share
Price; Opinion of Financial Advisor." In addition, the opinion of First of
Michigan is included as Exhibit A to the Proxy Statement and should be read in
its entirety.
The enclosed notice of annual meeting and the Proxy Statement should be
read carefully. They describe the election of directors and the Reverse Stock
Split. Please sign and date the enclosed proxy card and mail it promptly in the
return envelope whether or not you plan to attend the meeting. If you are
present at the meeting and wish to vote in person, you may withdraw your proxy
and vote in person.
Very truly yours,
Don Davis
Chairman of the Board
<PAGE> 5
IT IS IMPORTANT THAT YOUR SHARES BE VOTED AT THE MEETING. PLEASE SIGN AND DATE
THE ENCLOSED PROXY CARD AND RETURN IT TO THE CORPORATION.
FIRST INDEPENDENCE CORPORATION
44 MICHIGAN AVENUE
DETROIT, MICHIGAN 48226
(313) 256-8400
----------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, AUGUST 3, 2000
The 2000 Annual Meeting of the shareholders of First Independence
Corporation will be held at the Livernois Branch office of First Independence
National Bank of Detroit, 12200 Livernois, Detroit, Michigan, on Thursday,
August 3, 2000 at 6:00 p.m., for the following purposes:
(1) To elect ten (10) directors to hold office until the next annual
meeting and until their successors are elected and qualified.
(2) To vote on a proposal to amend the Corporation's Articles of
Incorporation to effect a one-for-sixty reverse stock split (the "Reverse Stock
Split") with respect to the Corporation's common stock, $1 par value per share
(the "Common Stock"). The effect of the Reverse Stock Split will be to purchase
all the Common Stock owned by all persons who own fewer than 60 shares of the
Common Stock (approximately 1,800 of the Corporation's 2,100 stockholders) for
$10.50 per share currently owned. Those stockholders no longer will have an
ownership interest in the Corporation. In addition, the Corporation no longer
will be required to file reports with the Securities and Exchange Commission and
it expects to reduce costs by approximately Seventy Thousand Dollars
($70,000.00) per year as a result.
The accompanying Proxy Statement describes the proposed Reverse Stock
Split and its effect on persons whose existing shares will be purchased by the
Corporation, and its effect on persons who will remain shareholders of the
Corporation.
The interests of Don Davis, the Corporation's controlling Stockholder
who owns 62.8% of all the Common Stock outstanding and of the Corporation's
management in the Reverse Stock Split are described in the accompanying Proxy
Statement under the headings "Ownership of the Corporation's Equity Securities"
and "Interests of
<PAGE> 6
Management", "Reasons for the Proposed Reverse Stock Split", "Material Effects
of the Proposed Reverse Stock Split", and "Voting on the Reverse Stock Split,
Not Conditioned Upon Approval of Unaffiliated Stockholders".
(3) To transact such other business as may properly come before the
meeting or any adjournment thereof.
Information concerning these matters is set forth in the accompanying
Proxy Statement. Only those common stockholders of record at the close of
business on May 15, 2000 are entitled to notice of and to vote at the Annual
Meeting.
IN ORDER TO ASSURE THAT YOUR SHARES WILL BE REPRESENTED AND VOTED AT
THE ANNUAL MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE RETURN ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY
WITHDRAW YOUR PROXY AND VOTE IN PERSON.
Don Davis
Chairman of the Board
June 30, 2000
<PAGE> 7
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
GENERAL INFORMATION ......................................................................................................1
OWNERSHIP OF THE CORPORATION'S EQUITY SECURITIES .........................................................................3
PROPOSAL 1. ELECTION OF DIRECTORS ........................................................................................4
Nominees for Board of Directors .....................................................................................4
Executive Officers ..................................................................................................7
Executive Compensation ..............................................................................................7
Committees and Meetings of the Board of Directors ...................................................................8
Interest in Certain Transactions ....................................................................................9
PROPOSAL 2. REVERSE STOCK SPLIT--1 Share for 60 Shares ...................................................................9
Summary .............................................................................................................9
The Transaction.................................................................................................9
Reasons for the Transaction ....................................................................................9
No Fractional Shares Issued ....................................................................................9
Effects of the Transaction ....................................................................................10
Fairness of the Price for Fractional Interests ................................................................10
Board Recommendation ..........................................................................................10
Voting and Approval ...........................................................................................10
No Dissenters' Rights..........................................................................................10
Reasons for the Proposed Reverse Stock Split ............................................................................11
Purchase of Small Stockholders' (under 60 shares) Common Stock.................................................11
Reduction of Operating Costs ..................................................................................11
Preserving Capital ............................................................................................11
Material Effects of the Proposed Reverse Stock Split.....................................................................12
Reduction in Number of Stockholders ...........................................................................12
Termination of Registration with Securities and Exchange Commission............................................12
Reduction in the Number of Shares Outstanding .................................................................12
Increase in Percentage of Common Stock (and Earnings Attributable Thereto)
Held by Continuing Stockholders; Decrease in Book Value Per Share.........................................12
Continuing Stockholder Rights .................................................................................13
Preferred Stockholder Rights ..................................................................................13
Effects of the Transaction on Capital..........................................................................13
Capital
First Independence National Bank ...............................................................................14
Interests of Management .................................................................................................14
No Fractional Shares; Determination of Fractional Share Price;
Opinion of Financial Advisor ...................................................................................15
Analysis of Comparable Publicly Traded Companies ...............................................................16
Analysis of Selected Acquisition Transactions ..................................................................17
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
Market Price Analysis .........................................................................................17
Discounted Cash Flow Analysis. ................................................................................17
Recommendations and Considerations of The Board of Directors and Mr. Davis ..............................................18
Illiquid Market for Common Stock; Recent Transactions...........................................................18
Net Book Value; Orderly Liquidation Value. .....................................................................19
Going Concern Values . .........................................................................................19
Financial Advisor's Opinion ....................................................................................19
Voting by Dominant Shareholder. ................................................................................19
Alternative Forms of Transaction. ..............................................................................20
Capital Requirements . .........................................................................................21
Financial Reporting ............................................................................................21
Financial and Economic Factors .................................................................................21
Expense of Public Company ......................................................................................21
Price of Redeemed Fractional Interests. ........................................................................21
Description of Common Stock .............................................................................................22
Funding the Reverse Stock Split .........................................................................................22
Estimated Total Expenses of Reverse Stock Split ................................................................23
Financial Information ...................................................................................................23
Pro Forma (Unaudited)
Condensed Consolidated Balance Sheets ..........................................................................24
Pro Forma (Unaudited)
Condensed Consolidated Income Statements .......................................................................25
Voting on the Reverse Stock Split; Not Conditioned Upon Approval of
Unaffiliated Stockholders ......................................................................................25
Exchange of Stock Certificates ..........................................................................................26
Federal Income Tax Consequences .........................................................................................26
No Dissenter Rights .....................................................................................................26
Resolutions to Effect the Reverse Stock Split ...........................................................................27
ARTICLE III .............................................................................................................27
INDEPENDENT AUDITORS ....................................................................................................28
PROPOSALS BY SHAREHOLDERS ...............................................................................................29
INFORMATION INCORPORATED BY REFERENCE ...................................................................................29
OTHER MATTERS ...........................................................................................................29
Exhibit A - First of Michigan Fairness Opinion...........................................................................30
Exhibit B - List of Comparable Public Companies and Merger and Acquisition transactions..................................32
</TABLE>
<PAGE> 9
FIRST INDEPENDENCE CORPORATION
44 MICHIGAN AVENUE
DETROIT, MICHIGAN 48226
(313) 256-8400
--------------
PROXY STATEMENT
DATED JUNE 30, 2000
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
AUGUST 3, 2000
GENERAL INFORMATION
This Proxy Statement and the accompanying form of proxy and annual
report on Form 10-KSB as filed with the United States Securities and Exchange
Commission are furnished in connection with the solicitation of proxies by the
Board of Directors of First Independence Corporation (the "Corporation") for use
at the annual meeting of shareholders to be held at the Livernois Branch Office,
12200 Livernois, of First Independence National Bank of Detroit, Detroit,
Michigan, at 6:00 p.m. on Thursday, August 3, 2000 (the "Annual Meeting"). The
annual report on Form 10-KSB, and the Form 10-QSB for the first quarter of 2000,
which is filed with the Securities and Exchange Commission, are incorporated
into this Proxy Statement by reference, particularly Management's Discussion and
Analysis of Financial Condition and Results of Operations (beginning at page 6
of the annual report), Report of Independent Auditors (beginning at page 24 of
the annual report), Consolidated Financial Statements (beginning at page 25 of
the annual report) and Management's Discussion and Analysis of Financial
Condition and Results of Operations and Consolidated Financial Statements in the
10-QSB.
This Proxy Statement is being mailed on or about June 30, 2000, to all
holders of record of Common Stock as of the close of business on May 15, 2000.
The cost of this solicitation will be borne by the Corporation. In addition to
solicitation by the use of mail, the directors, and officers of the Corporation,
without additional compensation, may solicit proxies personally or by telephone
or mail. A shareholder giving a proxy in connection with this solicitation has
the power to revoke it at any time prior to its exercise at the Annual Meeting
either by written notice received by the Corporation (Attn: Secretary) at the
address shown above at least 24 hours before the Annual Meeting or by
announcement of revocation at the Annual Meeting.
The purposes of the Annual Meeting are to:
(1) Elect ten (10) directors to serve until the next annual
meeting of shareholders and until their successors are elected
and qualified;
(2) To vote on a proposal to amend the Corporation's Articles of
Incorporation to effect a one-for-sixty reverse stock split
(the "Reverse Stock Split") with respect to the Corporation's
common stock, $1 par value per share (the "Common Stock"); so
that no fractional shares will be issued, the shares of Common
Stock currently owned by persons who own fewer than sixty (60)
shares, and the shares remaining if a Stockholder's shares are
not evenly divisible by sixty (60), all will be purchased at a
price of $10.50 per share. This will result in all the Common
Stock owned by approximately 1,800 of the Corporation's 2,100
shareholders being purchased by the Corporation and those
persons no longer will own an ownership interest in the
Corporation; and
(3) Transact such other business as properly may come before the
meeting or any adjournment thereof.
1
<PAGE> 10
As of May 15, 2000, there were 336,760 shares of the Corporation's
common stock, par value $1.00 per share, outstanding, 4,000 shares of Class A
Preferred Stock, par value $100.00 per share, 3,200 shares of Class B Preferred
Stock, par value $100.00 per share, outstanding, 1,500 shares of Class C
Preferred Stock, Series MI-1, no par value, outstanding, and 262.086 shares of
Class C Preferred Stock, Series 1994-1, no par value, outstanding. Those common
shareholders of record at the close of business on May 15, 2000, are entitled
to vote at the meeting. As of that date, there were approximately 2,100 record
holders of the Corporation's Common Stock. Each share of common stock is
entitled to one vote on each matter presented.
This Proxy Statement contains summaries of material terms of the
changes in the Corporation's Articles of Incorporation which will effect the
Reverse Stock Split. There are no dissenters' rights of Stockholders who vote
against the transaction. For the complete text of Amendments to the Articles of
Incorporation see "Resolutions to Effect the Reverse Stock Split" at page 26.
The affirmative vote of the holders of a majority of the issued and
outstanding shares of Common Stock is required to adopt the Reverse Stock Split.
Only holders of record of shares of the Corporation's Common Stock at the close
of business on May 15, 2000 (the "Record Date") are entitled to notice of and
to vote at the August 3, 2000. Meeting and any and all adjournments and
postponements thereof.
Don Davis, Chairman of the Board of the Corporation and the Bank,
indicated that he intends to vote those shares in favor of the Revenue Stock
Split. Therefore it will be approved no matter how the unaffiliated Stockholders
vote their shares. See "Interests of Management and Voting on the Reverse Stock
Split; Not Conditioned Upon Approval of Unaffiliated Stockholders."
THE BOARD OF DIRECTORS OF THE CORPORATION UNANIMOUSLY RECOMMENDS THAT
THE STOCKHOLDERS VOTE FOR APPROVAL OF THE TEN (10) NOMINEES FOR DIRECTOR AND FOR
APPROVAL AND ADOPTION OF THE REVERSE STOCK SPLIT. See "Interests of Management"
and "Recommendations and Considerations of the Board of Directors and Mr.
Davis".
This Proxy Statement is first being mailed to the Corporation's
shareholders on or about June 30, 2000.
THESE TRANSACTIONS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTIONS OR UPON THE ACCURACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE DATE OF THIS PROXY STATEMENT IS JUNE 30, 2000.
2
<PAGE> 11
OWNERSHIP OF THE CORPORATION'S EQUITY SECURITIES
The following table furnishes information with respect to the
beneficial owners of more than five percent of any class of the Corporation's
equity securities as of May 15, 2000.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP* PERCENT OF CLASS
=======================================================================================================
<S> <C> <C> <C>
Common Stock Don Davis 211,376 62.8
5840 Second Avenue
Detroit, Michigan 48202
Common Stock First Independence Corp. 34,800 10.33
Employee Stock Ownership Plan
44 Michigan Avenue
Detroit, Michigan
Class A Preferred Don Davis 3,000 75.00
5840 Second Avenue
Detroit, Michigan 48202
Class A Preferred Tower Ventures, Inc. 1,000 25.00
12655 North Central Expressway
Dallas, TX 75243
Class B Preferred Dearborn Capital Corp. 2,000 62.50
P.O. Box 1729
Dearborn, Michigan
Class B Preferred Hudson-Webber Foundation 1,200 37.50
333 West Fort Street
Detroit, Michigan
Class C Preferred Michigan State Housing 1,500 100.00
(Series MI-1) Development Authority
1200 6th Street
Detroit, Michigan 48226
Class C Preferred Blue Cross-Blue Shield of Michigan 45.716 17.44
(Series 1994-1) 600 E. Lafayette
Detroit, Michigan 48226
Class C Preferred Dearborn Capital Corp. 89.000 33.96
(Series 1994-1) P.O. Box 1729
Dearborn, Michigan
Class C Preferred Don Davis 29.500 11.26
(Series 1994-1) 5840 Second Avenue
Detroit, Michigan 48202
Class C Preferred Tower Ventures
(Series 1994-1) 12655 North Central Expressway
Dallas, TX 75243 22.959 8.76
</TABLE>
3
<PAGE> 12
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP* PERCENT OF CLASS
=======================================================================================================
<S> <C> <C> <C>
Class C Preferred Motor Enterprises 39.375 15.02
(Series 1994-1) 3044 W. Grand Blvd.
Detroit, Michigan 48202
</TABLE>
* Each owner possesses sole voting and investment power with respect to
the shares shown except as follows. The number of shares of Common
Stock shown for Mr. Davis includes 3,969 shares credited to his
account under the First Independence Corporation Employee Stock
Ownership Plan as of May 15, 2000, for which he only has voting
power. The shares shown for the First Independence Employee Stock
Ownership Trust are voted by the independent Trustee, except that
participants in the First Independence Corporation Employee Stock
Ownership Plan are entitled to direct the Trustee as to the manner of
voting shares allocated to their accounts. As of May 15, 2000, all
shares held by the Trust were allocated to participant's accounts.
Shares of preferred stock are not entitled to vote in the election of
directors, except that shares of Class A Preferred Stock may elect
additional directors in the case of certain dividend arrearage which
does not currently apply.
PROPOSAL 1. ELECTION OF DIRECTORS
NOMINEES FOR BOARD OF DIRECTORS
The Board has established the number of directors at ten (10), but the
Board may change the number from time to time. The ten (10) persons named below
have been nominated by the Board of Directors for election as directors to serve
until the next Annual Meeting and until their successors are elected and
qualified. The Board of Directors of the Corporation is not aware of any other
nominations for director to be made at the Annual Meeting.
It is the intention of the persons named in the enclosed proxy card to
vote such proxies for the election of the nominees named in this Proxy Statement
unless the proxies contain instructions to the contrary, in which case they will
be voted pursuant to such instructions. The Directors of the Corporation intend
to vote all shares beneficially owned by them for the nominees named herein.
Given that Don Davis owns 62.8% and, together he and the other Directors as a
group beneficially own approximately 63.86% of the outstanding shares of Common
Stock entitled to vote, such a vote will elect the nominees no matter how the
votes are cast by the unaffiliated shareholders.
All of the nominees for election to the Board of Directors are citizens
of the United States and, except for Mr. Scott, are currently members of the
Corporation's Board and of the Board of Directors of the Corporation's
subsidiary bank, First Independence National Bank of Detroit (the "Bank"). If
any nominee for any reason is unable or for good cause refuses to serve or be
elected, which is not anticipated, the persons named in the enclosed form of
proxy intend to vote for such other nominees, if any, as may be recommended by
the Board of Directors.
The information below is presented as of May 15, 2000, and is based on
information provided by the persons named.
4
<PAGE> 13
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK OF
BANK CORPORATION PERCENT OF
NAME AND PRINCIPAL OCCUPATION OR DIRECTOR SINCE BENEFICIALLY COMMON
EMPLOYMENT FOR LAST FIVE YEARS (a) AGE OWNED (b) STOCK
=====================================================================================================================
<S> <C> <C> <C> <C>
Rev. Wendell Anthony .......................... 2000 50 334 (d)
Pastor, Fellowship Church, Detroit,
Michigan since 1981; President, Detroit
Branch, NAACP since 1992; member of
Boards of Directors of New Detroit, Inc.,
Detroit Urban League, Michigan
Coalition of Human Rights for more
than 5 years; Chairman of the Interfaith
Council of Religious and Civic Leaders;
Trustee of the General Retirement
System Board of the City of Detroit
Barry Clay..................................... 1996 38 824 (d)
President, Barclay Mortgage Funding
Group (1997 to present), mortgage
lender; Team Leader, Capacity Strategy
and Production Planning Department
(1994-1997)
Don Davis...................................... 1980 61 211,376(b) 62.8
Chairman of the Board of the
Corporation and of the Bank; President,
United Sound Systems, Inc. and
President, Conquistador / Groovesville
Music, Inc., record producers and
recording studios; President, Liberty
Risk Management, Inc., insurance
agency; President Mahogany Investment
Advisors, investment advisory firm
William Fuller................................. 1999 56 379 (d)
President of the Corporation and of the
Bank since 1998; Executive Vice
President, Shore Bank Corporation,
(1995-1998); Senior Vice President,
Shawmut Bank (1989-1995). Member
of Board of Directors of One Stop
Capital Shop, Metro Matrix, Greater
Detroit Area Health Council, and Eureka
Detroit, all community service
organizations
Georgis I. Garmo............................... 1996 61 334 (d)
President, Garmo & Co., P.C., Certified
Public Accountants (1975 - Present)
</TABLE>
5
<PAGE> 14
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK OF
BANK CORPORATION PERCENT OF
NAME AND PRINCIPAL OCCUPATION OR DIRECTOR SINCE BENEFICIALLY COMMON
EMPLOYMENT FOR LAST FIVE YEARS (a) AGE OWNED (b) STOCK
=====================================================================================================================
<S> <C> <C> <C> <C>
Joseph Scott.................................. 55
Retired; Board member, United Way,
Executive, First of America Bank, N.A.
(1992-1998) Community Service
(member, Finance Committee), Detroit
Medical Center (Northwest Regional
Board member), One Stop Capital Shop
of Detroit, Inc. (Treasurer), Urban
Bankers Forum (Vice President), Detroit
Urban League (Treasurer), Detroit
Economic Growth Corporation
(Revolving Loan Fund Committee), and
Southfield Economic Development
Corporation
Dr. Charles E. Morton......................... 1969 74 3,700(b)(c) 1.1
Emeritus Pastor, Metropolitan Baptist
Church; Adjunct Professor of
Philosophy, Oakland University
Jamal Shallal................................. 1996 60 334 (d)
Executive Vice President, Lincorp
Research, Inc., a management consulting
and investment management firm
(1985 - Present)
Geneva J. Williams............................ 1997 51 334 (d)
Executive Vice President and Chief
Operating Officer, United Way
Community Services, Detroit, Michigan
(1995-present); President and Chief
Executive Officer, United Community
Services of Metropolitan Detroit
(1991 - 1995)
Alan C. Young................................. 1996 45 334 (d)
Managing Director, Alan C. Young &
Associates, P.C. (1983 - Present)
All directors and officers as a group (9 219,666 65.2
persons including those named above)
</TABLE>
(a) The Corporation was formed in 1986 and the incumbent directors have
been directors of the Corporation since its formation except those
persons for which a year after 1986 is shown.
6
<PAGE> 15
(b) Each director possesses sole voting and investment power with respect
to the shares shown unless indicated otherwise below. The numbers of
shares shown for Mr. Don Davis include 3,969 shares allocated to his
account under the First Independence Corporation Employee Stock
Ownership Plan for which he has only sole voting power. The number of
shares shown for Dr. Morton includes 300 shares held jointly with his
wife in which they share voting and investment power.
(c) Includes option to purchase up to 3,000 shares of Common Stock at $5
per share for a five-year period ending May 23, 2000. These options
cannot be voted because they were not exercised before May 15, 2000.
(d) Less than one percent.
EXECUTIVE OFFICERS
In addition to Mr. Don Davis listed in the table above, executive
officers of the Corporation, as of December 31, 1999, included William Fuller,
President of the Corporation and the Bank since 1998, Rose Ann Lacy, Senior Vice
President and Chief Financial Officer of the Corporation since 1989 and of the
Bank since 1986, who beneficially owns 1,717 shares of Common Stock and John
Boudreau, Executive Vice President of the Bank from 1997; Senior Vice President
- Administration (1994-1997). At the date of this Proxy Statement, Mr.
Boudreau no longer is employed by the Bank or the Corporation. All the executive
officers are United States citizens.
EXECUTIVE COMPENSATION
The following table presents the cash compensation paid to the
Corporation's officers whose total annual salary and bonus exceeded $100,000 in
1997 - 1999.
<TABLE>
<CAPTION>
NAME PRINCIPAL POSITION YEAR SALARY BONUS
==========================================================================================================
<S> <C> <C> <C> <C>
Don Davis Chairman of the Board of Directors of the 1999 $172,800 $44,220
Corporation and the Bank; Interim President 1998 $175,000 $20,000
and Chief Executive Officer since 1996 1997 $148,293
John Boudreau Executive Vice President of the Bank and 1998 $104,991 $12,000
Chief Operating Officer
William Fuller President of the Bank and the Corporation 1999 $138,455 $ 5,000
</TABLE>
Mr. Fuller and the Bank entered into an employment contract dated July
20, 1998 for two years under which he was paid $130,000 in the first year of
employment plus $15,000 when he was appointed President by the Board of
Directors. He is being paid $135,000 in the second year of the contract. In
addition, Mr. Fuller receives an automobile allowance of $300 per month and the
same employee benefits afforded to all other employees of the Bank. In the event
of an involuntary termination of Mr. Fuller's employment by the Bank, Mr. Fuller
will be paid sixty days' compensation at his then-existing base rate.
The Corporation and the Bank do not presently have any long-term
incentive compensation plans, except the 1995 Employee Stock Option Plan and a
401-K retirement plan which are described below. The Corporation has not granted
any stock options since 1995 and no officer or director exercised any options
previously granted to him or her.
The Employee Stock Option Plan was adopted in 1995. It authorizes the
issuance of up to 67,352 shares of Common Stock to key salaried employees and
directors of the Corporation as an incentive to such key employees. Options
granted under the Plan may be incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986 or they may be non-qualified
options which do not meet the requirements of that section. The
7
<PAGE> 16
Plan is administered by a stock option committee. At April 14, 2000, there were
64,352 shares available for issuance under the Plan and options were outstanding
and unexercised for 3,000 shares.
The Corporation had an Employee Stock Ownership Plan which is qualified
under Section 401(a) of the Internal Revenue Code of 1986, but it was suspended
in 1996. There have been no contributions to the plan since 1991 and no new
employees have become participants in the Plan since 1994. All shares of stock
in the plan are allocated to the accounts of the participants. Unvested shares
forfeited by terminated employees are reallocated among all Plan participants as
of the last day of the year of forfeiture in the proportion which each
participant's annual compensation bears to the total annual compensation of all
Plan participants. As of December 31, 1999, there were 3,969 shares allocated
under the Plan to Don Davis' account.
The Bank adopted a 401(k) Plan in 1998 in which all full-time employees
may participate after one year of employment. Employees may contribute up to 15%
of their compensation into the plan each year, but not in excess of $10,000 per
year. The maximum amount of contribution to the Plan is established by law and
regulations. The Bank contributes a matching amount on behalf of each
participating and contributing employee equal to 50% of the employee's
contribution each year, but not exceeding 3% of the employee's salary.
Investments in the Plan are directed by each participating employee and they
have a range of investment options including stock, bond and guaranteed interest
investments.
Directors who were not officers were paid the following fees for Bank
Board of Directors and Committee meetings until June 30, 1999: a monthly stipend
of $200; a meeting fee of $240 for each Board meeting; and $100 for each
Committee meeting. Beginning July 1, 1999, each non-employee Director is paid an
annual retainer of $7,500, and $100 for each Bank committee meeting attended.
There is no separate payment for attending Bank Board meetings. After 10 years
of service, Directors will be entitled to a $300/month pension. The pension
becomes payable at the later of age 65 or retirement from the Board. No fees are
paid for attendance at the Corporation's Board or Committee meetings.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The members of the Corporation's Board of Directors also serve as the
members of the Board of Directors for the Bank. The Board of Directors performed
the function of nominating directors and compensation review in 1999. There was
not a separate committee performing these functions. The Committees described
below also function in a similar dual capacity.
The Audit Committee during 1999 was composed of Dr. Charles E. Morton
and Messrs. Shallal, Young and Garmo. The Audit Committee selects the
Corporation's independent auditors, reviews the results of prior audits and
considers issues concerning the current audit. The Committee also considers
procedures for internal control and audits. During 1999, the Committee held four
(4) meetings.
The Executive/Compliance Committee was composed of Don Davis, Dr.
Charles Morton, Georgis Garmo, William Fuller and Barry Clay. The Executive
Committee at times functions as a loan committee, reviewing loan applications
and delinquencies and approving loan applications. The Committee also functions
in lieu of the Corporation's and the Bank's Board between Board meetings. The
Executive Committee met five (5) times in 1999.
The Funding Management Committee members were Messrs. Davis, Dr. Charles
E. Morton, J. Shallal and G. Garmo. The Committee is responsible for reviewing
and maintaining a proper balance between the Bank's liabilities and its assets.
The Committee reviews liquidity, funding needs for loans, the balance between
the Bank's investment portfolio, loans, Federal Funds and other assets, as well
as the condition of liabilities, particularly the terms of deposits. The
Committee met 5 times in 1999.
8
<PAGE> 17
The Board's Marketing Committee members in 1999 were Ms. G. Williams,
William Fuller, Alan F. Young and Don Davis. It helps management develop
marketing strategies and tie marketing to the Bank's strategic plan. In 1999 the
Committee met twice.
The Technology Committee explores ways to improve efficiencies in the Bank
through the use of technology as well as ways to use technology to expand
services and products. The committee was responsible for Y2K compliance in 1999.
Messrs. Shallal, Garmo and Fuller are members. The committee met eight (8) times
in 1999.
In 1999, the Board of Directors of the Corporation met 10 times and the
Board of the Bank met 10 times. Each incumbent member of the Board, attended at
least 75 percent of the total number of meetings held by the Boards and
Committees of which he or she was a member during 1999, except for Mr. Garmo.
INTEREST IN CERTAIN TRANSACTIONS
In the ordinary course of its business, the Bank had, during 1999, and
expects to have in the future, transactions with some of its directors and
officers, and their families and the companies with which they are associated.
All such transactions, which included commitments for loans and loans made by
the Bank, were based on terms, including rates, collateral and repayment terms,
substantially the same as those prevailing at the time for comparable
transactions with other persons, and in the opinion of the Board of Directors
and the management of the Bank such transactions did not and do not involve more
than the normal risk of collectibility or present other unfavorable features.
PROPOSAL 2. REVERSE STOCK SPLIT--1 Share for 60 Shares
Summary
The Transaction. The Board of Directors of the Corporation and Don Davis,
the Corporation's largest stockholder (62.8%) have proposed that the
stockholders approve a one-for-60 reverse stock split of the Common Stock of the
Corporation (the "Reverse Stock Split"). The transaction will be effected by
amending the Corporation's Articles of Incorporation to provide that each
shareholder will receive one share of newly issued Common Stock, par value
$60.00 per share ("New Common Stock") for each sixty (60) shares of the
Corporation's presently issued and outstanding Common Stock owned by such
shareholder. Thus, instead of 336,760 shares presently outstanding, there will
be approximately 5,130 shares of the New Common Stock issued and outstanding
after the Reverse Stock Split. The Common Stock is not traded on any exchange or
established trading market and no such market for the Common Stock is expected
to develop. No dividends have been paid on the Common Stock during the past 10
years.
Reasons for the Transaction. The Board and Mr. Davis are proposing the
Reverse Stock Split in order to provide a means for small stockholders to
receive cash for their Common Stock because there is no trading market for the
Corporation's Common Stock, and to reduce operating costs by reducing the number
of stockholders, thereby yielding savings on mailings and filings with the
Securities and Exchange Commission. Another reason for the form of the
transaction is that the Board of Directors desires to use as little capital as
possible in order to accomplish their two goals and the Board believes that this
Reverse Stock Split will use less capital than any other transaction designed to
achieve the Board's goals.
No Fractional Shares Issued. No fractional shares of New Common Stock will
be issued, so the shares of stockholders who currently own fewer than 60 shares
and shares fewer than 60 (fractional shares) remaining after a shareholder's
shares are converted into new Common Stock will be purchased by the Corporation
for cash. The fractional shares of stockholders remaining after the Reverse
Stock Split also will be purchased for cash based on a price of $10.50 per
share. This price was determined by the Board of Directors unanimously,
including Don Davis, Chairman of the Board and owner of 62.8% of the
Corporation's Common Stock (see "No Fractional Shares; Determination of
9
<PAGE> 18
Fractional Share Price; Opinion of Financial Advisor" and "Recommendations and
Considerations of the Board of Directors and Mr. Davis").
Effects of the Transaction. The result of the Corporation's purchase of
fractional interest after the Reverse Stock Split will be to reduce the number
of stockholders of the Corporation from almost 2100 to 275. This will result in
the Corporation's stock no longer being registered with the Securities and
Exchange Commission under Section 12(g) of the Securities Exchange Act of 1934.
Thus, the Corporation no longer will be required to file reports with the
Securities and Exchange Commission. Another result of the transaction will be
that the continuing stockholders together will own a larger percentage of the
equity of the Corporation (on average, about 9% more) and the book value per
share of their outstanding Common Stock will decline by an average of 1.8%
compared to their March 31, 2000 book value per share, and by approximately 2.4%
compared to their December 31, 1999 book value per share).
Fairness of the Price for Fractional Interests. The Board of Directors,
including of Mr. Davis, has determined that the purchase price for fractional
interests will be based on a price of $10.50 per share of the current Common
Stock, or $630 for each full share of the New Common Stock. The Board arrived at
this price based on several factors such as the lack of liquidity and the
non-existence of a trading market for the Corporation's Common Stock, the book
value of the Corporation's Common Stock, its estimated liquidation value, the
Corporation's historic and present earnings performance, and a comparison of the
Bank and its Common Stock price to other financial institutions whose stock
trades publicly, and an evaluation of prices paid for community banks in certain
mergers or acquisitions. See "No Fractional Shares; Determination of Fractional
Share Price; Opinion of Financial Advisor" and "Recommendations and
Considerations of the Board of Directors and Mr. Davis." The Board sought an
opinion of First of Michigan Corporation as to the fairness of the $10.50 price
from a financial point of view. In arriving at its determination of price, the
Board of Directors did not hire an outside party to negotiate on behalf of the
unaffiliated Stockholders. See "Determination of Fractional Share Price",
"Recommendations and Considerations of the Board of Directors" and "Opinion of
Financial Advisor". The Board unanimously believes that the purchase price for
the fractional interests of the unaffiliated Stockholders based on $10.50 per
existing share of Common Stock is fair to all the unaffiliated Stockholders
(those who are not directors, executive officers or controlling stockholders of
the Corporation) the persons who will no longer be stockholders of the
Corporation, independently of Mr. Davis, as a result of having their fractional
interests purchased by the Corporation, and the persons who will remain as
stockholders because operating costs will have been reduced, resulting in
improved profitability.
Board Recommendation. The amendment to the Corporation's Articles of
Incorporation for the Reverse Stock Split has been adopted unanimously by the
Board of Directors subject to approval of the Corporation's stockholders. Don
Davis, the Board's Chairman, who owns 62.8% of the outstanding Common Stock,
participated in the discussions and decisions of the Board of Directors.
Approval will require the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock. The Board recommends approval of the
proposed Reverse Stock Split. See "Recommendations and Considerations of the
Board of Directors and Mr. Davis". However, because of Mr. Davis' ownership of
62.8% of the Common Stock, the proposal will be approved by the stockholders no
matter how the unaffiliated stockholders vote.
Voting and Approval. Don Davis, Chairman of the Board of the Corporation,
owns 62.8% of the current Common Stock and has indicated that he will vote for
the Reverse Stock Split. The other directors together own 1.06% of the Common
Stock and they also have indicated that they will vote in favor of the proposed
Reverse Stock Split. Neither the Michigan Business Corporation Act, the
Corporation's Bylaws, nor the Board of Directors require that the proposed
Reverse Stock Split be approved separately by the stockholders who are not
officers or Board members or who do not own 10% or more of the Corporation's
Common Stock ("Affiliated Stockholders"). Thus, the Reverse Stock Split can be
approved by Mr. Davis acting alone no matter how the unaffiliated Stockholders
vote.
No Dissenters' Rights. Under applicable Michigan law, there is no
requirement for appraisal in connection with the proposed Reverse Stock Split.
The Michigan Business Corporation Act provides that there shall be no
dissenters'
10
<PAGE> 19
rights of appraisal when there are more than 2000 stockholders of
record entitled to vote on the matter unless the Corporation decides otherwise.
The Board of Directors has not created dissenters' rights of appraisal. The
Board and Mr. Davis believe that the price determined for the purchase of
fractional interests is fair and an appraisal process would not result in
additional benefits to unaffiliated Stockholders or the Corporation and it would
be costly to all parties.
REASONS FOR THE PROPOSED REVERSE STOCK SPLIT.
The Board of Directors and Mr. Davis have proposed the Reverse Stock
Split for three principal reasons: (a) to provide an immediate market and fair
price for small stockholders; (b) to reduce operating costs of the Corporation
by eliminating approximately $70,000 per year of stockholder related costs; and
(c) to preserve the Bank's and Corporation's capital.
Purchase of Small Stockholders' (under 60 shares) Common Stock. There is
no trading market for the Corporation's Common Stock and there has not been one
for 10 years. The Corporation has 336,760 shares of Common Stock outstanding
owned by almost 2,100 stockholders, while 62.8% of the stock is owned by one
person, Don Davis, Chairman of the Board of the Corporation. Also, 10.3% of the
Common Stock is held by the Corporation's Employee Stock Ownership Plan.
Approximately 1,800 stockholders have fewer than 60 shares of Common Stock.
However, because there is no trading market for the Common Stock, one of the
principal advantages of being a "public" company is not realized by the
Corporation's stockholders. Management estimates that there have been fewer than
10 sales of Common Stock in each year since 1995 and stockholders did not have a
"market" valuation to help establish a sale or purchase value for the Common
Stock. Management does not expect that a trading market for the Corporation's
Common Stock will develop in the foreseeable future, particularly in view of the
fact that only approximately 25% of the shares could be traded in any case and
most of such shares are owned as small lots. Thus, the Board of Directors and
Mr. Davis believe that the stockholders will benefit from its immediate purchase
of outstanding small lots of Common Stock.
Reduction of Operating Costs. As a result of the relatively large number
of shareholders of the Corporation, management estimates that it incurs
approximately $70,000 per year in legal, accounting, stock registrar, printing
and mailing costs as shown below. Eliminating these costs would contribute
materially, in the opinion of Don Davis and the Board of Directors, to the
Corporation's profits. Increased profits, could result in increased capital for
the Bank over time. Therefore, the Board of Directors has proposed the Reverse
Stock Split in order to reduce the number of stockholders significantly, thereby
increasing profitability as a result of savings realized by reducing such costs
related to being a registered public company.
<TABLE>
<CAPTION>
Estimated Cost Savings
of Non-Reporting
Company With Less
Than 300 Shareholders
----------------------
<S> <C>
Internal personnel $25,000
Outside Accounting and reviews 12,000
Legal 10,000
Printing & Edgarizing 8,500
Mailing costs 6,000
Stock Transfer fees 8,500
-------
TOTAL: $70,000
</TABLE>
Preserving Capital. The Reverse Stock Split is a means by which the
goals described above can be achieved without the expenditure of a significant
amount of capital. This is because such a large number of persons are small
stockholders owning fewer than 60 shares of stock. These shares will be
purchased automatically thereby reducing the number of stockholders and related
mailing and accounting costs. Thus, the Corporation estimates that only about
$370,000 (which includes costs of the transaction) will have to be expended one
time in order to accomplish the goals described in the paragraphs above.
11
<PAGE> 20
MATERIAL EFFECTS OF THE PROPOSED REVERSE STOCK SPLIT.
The proposed transaction will have various effects on the Corporation
and on persons who are continuing stockholders and persons whose shares will be
purchased resulting in a termination of their interest as stockholders in the
Corporation. Stockholders who are in some position of "control" over the
Corporation because they are officers, directors, or stockholders who own 10% or
more of the Common Stock outstanding ("affiliated stockholders"), such as Mr.
Davis, and stockholders who are not affiliated with the Corporation (which is
the case for all of the stockholders other than Mr. Davis, the Directors and one
officer) are affected by the proposed Reverse Stock Split in the same way,
depending only on whether they continue as shareholders, or their interest as
stockholder is terminated as a result of their resulting fractional interest
being purchased by the Corporation.
Reduction in Number of Stockholders. The proposed transaction will
reduce the number of shareholders from almost 2,100 to about 275. Thus,
approximately 1,800 stockholders own fewer than 60 shares of stock (an estimated
average of approximately 14 shares per person) and they would receive no new
Common Stock because no fractional shares will be issued. They no longer will be
stockholders of the Corporation and will not be entitled to dividends if any are
declared nor will they receive the benefits or suffer the losses of any future
changes in the value of the Common Stock. Management of the Corporation and the
Board and Mr. Davis all believe the reduction in the number of stockholders will
benefit the Corporation by reducing the costs of communicating with a large
number of stock holders and of reporting to the SEC as a public company. See
"Termination of Registration with Securities and Exchange Commission". Instead
such persons will receive payment for their shares at the rate of $10.50 per
share of existing Common Stock ($630.00 per share of new Common Stock).
Termination of Registration with Securities and Exchange Commission. It
is the Corporation's expectation that the Reverse Stock Split will result in the
Corporation's Common Stock no longer being registered under Section 12(g) of the
Securities Exchange Act of 1934. Under that Section and the Commission's rules
promulgated thereunder, a company's stock can become de- registered upon
application by the Company if its total stockholders number fewer than 300.
De-registration of the Corporation's Common Stock will result in the Corporation
no longer being required to file annual or quarterly reports with the Securities
and Exchange Commission. The elimination of legal and accounting costs
associated with quarterly reporting to the SEC and the reduced costs of mailings
to fewer shareholders are expected to yield approximately $70,000 of savings in
operating costs to the Bank and the Corporation each year. See "Reasons for the
Proposed Reverse Stock Split - Reduction of Operating Costs". This increase in
profitability is expected by management to raise capital by a like amount each
year, increasing the soundness of the Bank and, long term, providing a higher
capital base for growth.
Reduction in the Number of Shares Outstanding. The Corporation is
authorized to issue one million shares of Common Stock, $1.00 par value, of
which 336,760 shares were issued and outstanding at the close of business on
March 31, 2000. As proposed, and if effected, the Reverse Stock Split would
reduce the number of issued and outstanding shares of Common Stock to
approximately 5,130 shares, with a par value of $60.00 per share, and would
reduce the maximum number of shares of Common Stock which are authorized to
16,667 shares. The Board does not presently have any plans for issuance of
additional shares of the authorized Common Stock.
Increase in Percentage of Common Stock (and Earnings Attributable
Thereto) Held by Continuing Stockholders; Decrease in Book Value Per Share. The
Reverse Stock Split will increase the percentage of Common Stock ownership of
each continuing Common Stockholder an average of about 9% over the shares they
previously owned. This is because the Corporation is purchasing the fractional
shares of Common Stock resulting from the proposed Reverse Stock Split and fewer
shares will be outstanding after the Reverse Stock Split. Thus, Don Davis' share
of outstanding Common Stock will increase from 62.8% to approximately 68.6%. If
a person owns 1% of the Common Stock outstanding before the Reverse Stock Split
(3,367 shares), such a person would own approximately 1.1% of the outstanding
New Common Stock after the Reverse Stock Split.
12
<PAGE> 21
The amount of the Corporation's earnings attributable to one share of
Common Stock would be increased in the same manner and to the same extent as the
percentage of ownership, whether the stockholder is "affiliated" with the
Corporation or "unaffiliated". The amount of the Corporation's book value owned
by the continuing stockholders will decrease slightly because of the expenses of
the transaction, and because the cost of purchasing the fractional interests is
at a price higher than the book value of the Common Stock. Continuing
stockholders, whether they are "affiliated" or "unaffiliated" stockholders, will
own shares representing less book value of the Corporation than they did before
the Reverse Stock Split: approximately $518.62 per share of Common Stock after
the Reverse Stock Split compared to approximately $528.19 before the
transaction on a pro forma basis as of March 31, 2000, and approximately $489.95
per share of Common Stock after the Reverse Stock Split compared to
approximately $501.95 before the transaction on a proforma basis as of December
31, 1999. The amount of the Corporation's tangible book value attributable to
Mr. Davis' stock before the transaction at March 31, 2000 is $1,860,761 compared
to approximately $1,826,584 after the transaction. The amount of tangible book
value at December 31, 1999 attributable to Mr. Davis' stock before the
transaction is approximately $1,769,200 compared to approximately $1,725,600
after the transaction. While book value per stockholder will decline by an
average of approximately 2.4%, the amount of net income attributable to each
continuing stockholder will increase by approximately 9%. For example, the
amount of net income attributable to Mr. Davis' shares in the first quarter of
2000 was approximately $146,757 before the Reverse Stock Split; after the
transaction, the amount of net income attributable to his shares would be
approximately $160,523. The amount of net income attributable to Mr. Davis'
shares in 1999 before the Reverse Stock Split was approximately $556,000; after
the transaction, the amount of net income attributable to his shares would be
approximately $608,000, or 9.3% higher than before. All unaffiliated and
affiliated stockholders will realize, on average, approximately the same
proportionate changes in stock ownership as Mr. Davis will experience. See "No
Fractional Shares; Determination of Fractional Share Price; Opinion of Financial
Advisor" and "Financial Information."
The par value of the New Common Stock will be sixty dollars ($60.00) per
share. The current Common Stock has a par value of $1.00 per share. As a result,
after the transaction, the total par value of the outstanding stock will decline
by approximately $28,965, because of the estimated number of current shares of
Common Stock which will become fractional interests and will be redeemed.
Continuing Stockholder Rights. Stockholders who will be continuing
holders of Common Stock will have the same stockholder rights regarding voting,
liquidation and dividends after the transaction as they had before the Reverse
Stock Split. However, the Corporation's Common Stock no longer will be
registered with the Securities and Exchange Commission and the Corporation will
not be required to file quarterly, annual or other reports with the Securities
and Exchange Commission.
Preferred Stockholder Rights. The proposed Reverse Stock Split
transaction will have no effect upon the Class A Preferred Stock and Class B
Preferred Stock because those shares are not convertible under any circumstances
into Common Stock and there will not be any change in the terms and conditions
of those two classes of Preferred Stock.
The Articles of Incorporation are proposed to be amended in effecting
the Reverse Stock Split so that the Class C Preferred Stock, Series 1994-1 and
Series MI-1 will be convertible into an appropriate number of shares of the new
Common Stock. The effect of the amendment is to maintain the same limited
relative rights of conversion into Common Stock which those Preferred Series
possess. There is no material adverse effect on the conversion rights of either
such Series of Class C Preferred Stock and there is no change at all in their
rights and preferences.
Furthermore, most of the shares of the Class C Preferred Stock, Series
1994-1 are being entirely redeemed by the Corporation with the last redemption
scheduled to occur in September, 2000. At that time only 68.375 shares of such
Series will remain outstanding subject to a right of the Corporation to redeem
them at a maximum aggregate price of $82,050.
Effects of the Transaction on Capital. In connection with the Reverse
Stock Split, management estimates that approximately 28,965 shares of the
existing Common Stock (pre-Reverse Stock Split) will be redeemed. These are the
fewer than 60 shares of the existing Common Stock which are owned by individual
stockholders before the Reverse Stock Split which would yield only a fractional
share of the new Common Stock after the transaction. The redeemed fractional
shares are expected to be equivalent to approximately 483 shares of the new
Common Stock. The total cash required for this redemption is expected to be
approximately $304,000. In addition, it is estimated that there will be
13
<PAGE> 22
about $66,000 of expenses associated with the transaction. In the Board's
opinion, this will not result in a material reduction in the Bank's capital. An
analysis of the Bank's regulatory capital ratios at March 31, 2000 and December
31, 1999, before the Reverse Stock Split and after adjusting for it on a
proforma basis are shown below. Generally, a bank with these levels of capital
is considered "well capitalized" pursuant to regulations of the Comptroller of
the Currency.
CAPITAL
FIRST INDEPENDENCE NATIONAL BANK
<TABLE>
<CAPTION>
=========================================================================================================
Proforma Adjusted for Reverse
Actual Stock Split (1)
------ ------------
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
March 31, 2000
--------------
Total capital (to risk weighted assets) $8.2 12.79% $7.9 12.38%
Tier 1 capital (to risk weighted assets) 7.4 11.54 7.1 11.12
Tier 1 capital (to average assets) 7.4 7.09 7.1 6.82
December 31, 1999
-----------------
Total capital (to risk weighted assets) $8.1 11.33% $7.8 10.95%
Tier 1 capital (to risk weighted assets) 7.2 10.08 6.9 9.70
Tier 1 capital (to average assets) 7.2 5.32 6.9 5.11
</TABLE>
------------------
(1) Amounts expressed in millions and adjusted to give effect for the estimated
reduction in capital of approximately $304,000 for redemption of fractional
shares. The one-time expenses related to the transaction are not considered
in the proforma regulatory capital table, as they are not considered to have
a continuing impact on the Corporation.
INTERESTS OF MANAGEMENT
Don Davis, Chairman of the Board of the Corporation and the Bank,
beneficially owns 211,376 shares, or 62.8%, of all the currently outstanding
Common Stock. His shares alone are sufficient to vote approval of the Reverse
Stock Split and he has indicated his intention to vote for the proposed
transaction. The Michigan Business Corporation Act ("MCBA") does not require
that the proposed transaction be approved separately by a majority of the
Corporation's stockholders that are not directors, officers or are owners of
more than 10% of the Common Stock (such persons are referred to as "affiliates"
of the Corporation).
During the period since December 31, 1996, Don Davis purchased 14,133
shares of the Common Stock at prices ranging from $5.00 to $7.00 per share in a
total of seven (7) negotiated transactions initiated by stockholders who desired
to sell their Common Stock. William Fuller, President, purchased 379 shares
during the fourth quarter of 1998 at prices varying from $5.00 to $5.50 per
share; and Barry Clay purchased a total of 490 shares in the fourth quarter of
1998 at a price of $5.60 per share. Management of the Corporation is not aware
of any present efforts of any persons to accumulate Common Stock or to obtain
control of the Corporation, except that Mr. Davis has been a willing buyer of
the Corporation's Common Stock from time to time. The proposed Reverse Stock
Split is not intended by the Board of Directors or Mr. Davis to be an
anti-takeover device. The amendment is being sought to reduce costs by reducing
the number of stockholders and to provide a reasonable means for small
stockholders to obtain cash for their investment, while conserving capital of
the Bank and the Corporation.
14
<PAGE> 23
As a result of the proposed Reverse Stock Split, Mr. Davis' share of the
outstanding Common Stock will increase from 62.8% to approximately 68.6% of the
New Common Stock. Thus, he will beneficially own more than two-thirds of the
outstanding New Common Stock. This is a sufficient amount of shares to cause
virtually any shareholder action to be taken.
The table below shows the change in the amounts of the Corporation's
Common Stock outstanding and the amounts that will be owned by Mr. Davis after
the Reverse Stock Split.
<TABLE>
<CAPTION>
Pre-Split Post-Split*
--------- -----------
<S> <C> <C>
Shares outstanding 336,760 5,130
Shares owned by Don Davis 211,376 3,522
Percent owned by Don Davis 62.8% 68.6%
</TABLE>
--------------------
*Estimated.
The Board of Directors, (excluding Mr. Davis), together with one senior
member of management own 5,290 shares of Common Stock, amounting to 1.57% of the
currently outstanding shares. No director or officer individually owns 1% of the
stock except that director Rev. Charles Morton, in addition to 700 shares owned
by him and his wife, has an option to purchase 3,000 shares at $5 each. Thus, he
could own 3,700 shares. As of May 15, 2000, he had not exercised that option.
See "Election of Directors Nominees for Board of Directors".
NO FRACTIONAL SHARES; DETERMINATION OF FRACTIONAL SHARE PRICE; OPINION OF
FINANCIAL ADVISOR
No scrip or certificates for fractional shares of New Common Stock will
be issued in connection with the Reverse Stock Split. Stockholders who
ostensibly would receive fractional shares because they hold a number of shares
of Common Stock not evenly divisible by 60, upon surrender to the Exchange Agent
of certificates representing their shares, will be entitled to receive a cash
payment for the fractional interest. The Board of Directors, including Mr. Don
Davis, has determined that the amount to be paid would be based on $10.50 for
each share of Common Stock outstanding before the Reverse Stock Split that was
not converted into a new share of Common Stock. Thus, all stockholders who
currently own fewer than 60 shares of Common Stock will not receive any New
Common Stock in the Corporation. They will be paid an amount equal to $10.50 per
share of Common Stock currently owned and no longer will continue as
Stockholders of the Corporation.
Payment for fractional shares of New Common Stock based on a price of
$630.00 per share (equivalent to $10.50 for each current share of Common Stock
that is not converted into new shares of Common Stock) was determined by the
Board of Directors and Mr. Davis after evaluating the Corporation's historic
earnings record, its book value, the nature of its assets, the limited trading
market for its stock, and the stock prices and performance of other community
banks and holding companies considered comparable to the Corporation and its
subsidiary Bank.
The Board, including Mr. Davis, also consulted with First of Michigan, a
division of Fahnestock & Co. Inc., a broker dealer and investment banking firm
founded in 1881, and a member of all major United States stock exchanges.
Fahnestock has 70 retail brokerage offices and three investment banking offices
located in Kansas City (MO), New York and Detroit. First of Michigan issued an
opinion to the effect that the price of $10.50 per share of old Common Stock
(equivalent to $630.00 per share of New Common Stock) is fair from a financial
point of view to the unaffiliated shareholders of the Corporation who will be
paid cash for fractional interests. In selecting First of Michigan to render the
opinion, the Board and Mr. Davis solicited proposals from three independent
investment banking firms and considered price, expertise, understanding of
community banking, and experience in the banking industry. First of
15
<PAGE> 24
Michigan regularly functions as an expert in valuations and in rendering
fairness opinions with respect to banks and bank holding companies and their
securities in connection with corporate reorganizations, acquisitions, mergers
and going private transactions. There has been no other material business
relationship in the past two years between the Corporation, Mr. Davis, or any of
their affiliates and First of Michigan and its affiliates. The report and
opinion of First of Michigan are summarized below and the opinion is reproduced
in its entirety as Exhibit A.
First of Michigan performed several different analyses and, on the basis
of all of them taken together, they rendered their opinion. No one of the
analyses should be relied upon. Their opinion is based on the results of all of
the reviews in the course of which First of Michigan did not assume any
responsibility for any independent verification of information supplied by the
Corporation or available from public sources. First of Michigan assumed that
financial projections prepared by the Corporation were reasonably prepared on
bases reflecting the best currently available estimates and judgments of
management of the Corporation. First of Michigan relied upon the Corporation's
representations regarding its loan portfolio and loan loss reserve. They believe
that their analyses must be considered as a whole and that selecting portions of
the analyses and the factors related to those portions, without considering all
such analyses and factors, could create an incomplete view of the process
underlying the analyses and opinions. The preparation of a financial advisor's
opinion is a complex process involving subjective judgments and is not
necessarily susceptible to partial analyses or summary description. With regard
to the comparative financial and market performance of other public institutions
and with respect to the review of recent mergers and acquisitions of other
entities, no public company or merger and acquisition used as a comparison is
identical to the Corporation and First of Michigan's analyses necessarily
involve complex considerations and judgments concerning the differences, in
financial and operating characteristics of the companies and other factors that
could affect the value of the Corporation's Common Stock.
Analysis of Comparable Publicly Traded Companies. First of Michigan
compared financial information and commonly used valuation measurements for the
Corporation to corresponding information for 14 publicly traded banking and bank
holding companies located in Michigan, Ohio and Indiana with total assets
ranging up to $400 million. These companies were selected based upon their size
range compared to the Corporation and based on the fact that they are "community
banks." A list of the 14 institutions reviewed is attached as Exhibit B. The
mean total assets of the 14 banks was almost $180 million and the median was
$143.6 million compared to the Corporation's $162 million at the end of 1999 and
$123 million at the end of 1998. Total loans of the Corporation were $44.6
million compared to a mean of $128 million and a median of $85 million. The net
income margin of the Corporation was 13.9% compared to a mean of 16.2% and a
median of 19.4% for the 14 banks. Return on assets of the Corporation was .75
while the mean of the 14 banks was .5% and the median was .7%. The Corporation's
loan-to-deposit ratio is 38% while the mean and median of the sample
institutions was 85%. This factor adversely affects the Corporation's ability to
generate earnings but suggests potential for improvement. The Corporation's
efficiency ratio of 73% was less favorable than the mean 62.7% and median of
59.5% of the sample organizations. The "efficiency ratio" is a comparison of the
net overhead expenses to net interest income. Low efficiency ratios show more
efficient operations. The Corporation's non-performing loans and over 90 days
delinquencies were .48% of total assets, while the mean of the sample entities
was .44% of assets and the median was .15% of assets. The financial information
used by First of Michigan in its analysis included, among other things, (i) the
amount of common equity; (ii) operating income; (iii) ratios of common stock
price compared to book value per share. The financial information used was based
on the latest reported 12 month period.
First of Michigan noted that over 65% of the Corporation's deposits are
deposits of large corporations and municipalities which fluctuate significantly
and could move from the Corporation at any time. These deposits cannot be used
to fund higher interest long term loans and this limits growth and profitability
compared to banks that have large volumes of long term deposits from large
numbers of customers.
16
<PAGE> 25
First of Michigan noted that the multiple of the Corporation's proposed
$10.50 per share for fractional interests compared to its tangible book value is
1.25x compared to a mean of 1.3x book and a median of 1.38x book among the 14
banks examined. The ratio of tangible book value to the price being paid for
fractional interests is well within the ranges of trading multiples (.46x to
3.03x) for the 14 banks reviewed. Six of those banks traded below 1x tangible
book value. Two of them were over 1.8x tangible book value. Furthermore, First
of Michigan believed that the stock price ranges of the publicly traded
companies should be discounted by 20% in order to be more comparable to the
value of the Corporation's Common Stock because there is no trading market for
the Corporation's stock and because the shares of Common Stock owned by the
unaffiliated stockholders do not, and cannot, constitute control of the
Corporation.
Analysis of Selected Acquisition Transactions. First of Michigan
reviewed the financial terms, to the extent publicly available, of 18 completed
mergers and acquisitions between January 1998 and March 2000, among banks and
bank holding companies. A list of the 18 transactions is set forth at Exhibit B,
attached. The selected transactions all involved less than a total transaction
value of $50 million, including amounts paid for preferred stock and debt
assumed. Transactional values ranged from .9x book value to 3.3x book value with
the median and mean prices paid among the 18 acquisition transactions both at
1.9x book value. The proposed payment for fractional interests based on $10.50
per share of existing common stock, amounts to 1.25x tangible book value. First
of Michigan noted that the payment of $10.50 is not being made for control of
the business as occurred in the acquisition transactions which were analyzed. It
also is made with respect to shares of stock which are illiquid and for which
there is no trading market. In First of Michigan's opinion, a 20% discount is
required to be taken against the acquisition prices analyzed for these two
factors of illiquidity and no control in order to render them more comparable to
the Corporation.
Market Price Analysis. First of Michigan reviewed the historical prices
of the transactions in the Corporation's stock known to management over the past
3 years. During that period, the sales of Corporation Common Stock have ranged
between $5 per share and $7 per share. First of Michigan noted that there is no
active trading market in the Corporation's stock and that management believes
one is unlikely to develop. The illiquidity of the stock is assumed to have a
bearing upon the amount paid in the privately negotiated transactions which have
occurred since January 1, 1997. First of Michigan observed that the proposed
payment for fractional interests, based on $10.50 per current share of Common
Stock, amounts to a premium of 50% over the amount of the highest transaction
reported to management. The limited number of transactions and the absence of a
trading market result in a substantial discount to what otherwise might be the
Corporation's book value.
Discounted Cash Flow Analysis. First of Michigan performed a discounted
cash flow analysis of the Corporation using financial projections for fiscal
years 2000 through 2003 provided by the management of the Corporation based on
management's assumptions for future performance. The cash flows were discounted
at rates ranging from 19% to 22% determined by reference to the average annual
return for stocks and the two year ave rage annual return for the S&P Bank
Composite. Terminal values were computed using a range of multiples of earnings.
First of Michigan arrived at the discount rates based on its judgment about
selected publicly traded banks, and arrived at terminal values based on its
experience in the valuation of similar institutions and a review of the trading
characteristics of the common stock of selected publicly traded community banks.
This analysis, taken alone, indicated a value for the Corporation's Common Stock
in the range of approximately $10.06 per share. First of Michigan noted that the
Corporation does not have a reliable history of consistent earnings, which has
an effect on the assumed reliability of projected earnings. This discounted cash
flow analysis did not purport to be indicative of actual future results and did
not purport to reflect the prices at which shares of the Corporation's Common
Stock might sell in the future. It was included because it is a widely used
valuation methodology for non-publicly traded companies, but the results of
this methodology are highly dependent upon the numerous assumptions including
earning growth rates, terminal values, discount rates and multiples, as well as
interest rate margins and costs which are affected by general economic factors.
17
<PAGE> 26
While the foregoing summary describes analyses and factors that First
of Michigan deemed material in its presentation to the Board of Directors of the
Corporation, it is not a comprehensive description of all analysis and factors
considered by First of Michigan. The preparation of a fairness opinion is a
complex process involving various determinations as to the most appropriate and
relevant methods of financial analysis and the applications of these methods to
the particular circumstances and the analyses must be taken in their totality
without reliance upon portions or less than the full process. In performing its
analysis, First of Michigan considered general economic, market and financial
conditions and other matters as they existed at the date of their opinion, many
of which are beyond the control of the Corporation. First of Michigan advised
the Board that the opinion is not an appraisal of the Company and is intended to
be used by the Board in connection with evaluating its determination of value to
holders of fractional shares of the Corporation's Common Stock immediately prior
to or following the proposed 1 for 60 Reverse Stock Split. Furthermore, the
determination of the Board and Mr. Davis and the opinion of First of Michigan
are not intended as predictions of the price at which the Corporation's stock
actually may sell at any future time. The decision of the Board to pay for
fractional interests based on $10.50 per current share of common stock is the
result of judgments made by the Board Members as described above, including
future profit expectations, past profit performance, trading prices of other
publicly held community banks, prices at which the Corporation's Common Stock
has been sold, the absence of a trading market and illiquidity of the
Corporation's Common Stock. First of Michigan's opinion also is based on complex
judgments and analysis and is not a prediction of future value.
There can be no assurance that a purchaser of Common Stock of the
Corporation before the Reverse Stock Split actually would pay $10.50 per share.
In fact, a purchaser might be willing to pay more or may only be willing to pay
less than that amount. There also is no assurance that a purchaser of shares in
the Corporation actually would pay $630.00 per share for the New Common Stock
merely because it is the arithmetic equivalent of the estimated value of $10.50
per share of the old Common Stock multiplied by 60 shares of stock. "Market"
prices could be lower or higher. There is not, and is not expected to be a
trading market for the Common Stock and there has not been one in the past 10
years.
If the proposal is approved and effected, stockholders will be
encouraged to surrender their certificates to the Exchange Agent for
certificates evidencing whole shares of the Common Stock plus cash payment for
any fractional interests.
RECOMMENDATIONS AND CONSIDERATIONS OF THE BOARD OF DIRECTORS AND MR. DAVIS
The Board of Directors, including Don Davis, unanimously approved the
Reverse Stock Split and determined, among other things, that the transaction is
fair to, and in the best interests of, the Corporation's unaffiliated
stockholders, including those whose current Common Stock all will be purchased
by the Corporation and those who will continue as stockholders. No unaffiliated
representative was retained by the Board to act on behalf of unaffiliated
security holders. The Board determined that this was not necessary in light of
the fact that six of the eight members of the Board are non-employee directors
who own only 1% of the Common Stock and that all of the non-employee directors
voted in favor of the Reverse Stock Split. The Board and Mr. Davis recommend
that the stockholders approve the transaction. In reaching these conclusions,
the Board consulted with First of Michigan and legal counsel and considered the
factors summarized below.
Illiquid Market for Common Stock; Recent Transactions. The lack of a
trading market and lack of liquidity for the Corporation's Common Stock for
numerous investors with small investments in the Corporation has resulted in
severe illiquidity. The few sale transactions that have occurred have been made
at negotiated prices and in circumstances that may not optimize the prices. As
discussed above ("Interests of Management"), the prices paid by Mr. Davis and
other directors during the past three years ranged between $5.00 and $7.00 per
share over that period and involved a total of approximately 14,000 shares.
Other transactions during the past three years were among members of families
and the Board did not have any price information. The Board also considered that
the Reverse Stock Split does not create a trading market for the remaining
unaffiliated stockholders, but decided that providing liquidity for over
18
<PAGE> 27
85% of the stockholders without the use of a great amount of capital was a
worthy result while not imposing material additional burdens on the remaining
unaffiliated stockholders.
Net Book Value; Orderly Liquidation Value. The Corporation's
consolidated net book value at March 31, 2000 was $8.80 per share of Common
Stock and at December 31, 1999 was $8.37 per share of Common Stock. The Board
was of the opinion that this range should be a floor on the valuation of the
Common Stock. The Board believed that book value and orderly liquidation value
were approximately the same because the reserve for loan losses is adequate and
most of the loans reprice periodically as a result of floating rates or rates
that are adjustable at various times. Thus, their carrying value should not be
discounted. The rates on the loan portfolio are generally market rates and the
Board believed that the loans do not warrant a premium. The recently appraised
value of the main office approximates its book value and the Bank received an
offer to purchase its Livernois branch in February, 2000 (which offer was not
accepted by the Board of Directors) at a net amount approximately equal to its
book value. Virtually all of the Bank's investment portfolio is marked to market
values.
The Bank's deposits would not be expected to bring a premium in an
orderly liquidation because the majority of them are relatively short term
deposits by municipalities and corporations. In addition, a significant amount
of the Bank's business is derived from customers who want to do business with a
minority-owned enterprise, many of whom receive recognition as a part of their
affirmative action programs in which they intend to do a specified amount of
business with African-American and other minority enterprises. These
relationships are not readily transferable and, therefore, no value was attached
to them.
Going Concern Values. The Board considered various approaches to going
concern values, including the market prices of comparable community
institutions, acquisition values for small banks, and discounted cash flows of
the Corporation's projected net income. These approaches were used also by First
of Michigan and are described above at "No Fractional Shares; Determination of
Fractional Share Price; Opinion of Financial Advisor." In each of these
analyses, the Board considered stock price in relation to tangible book value.
The Board believed it appropriate to pay more than book value for the fractional
interests because the Corporation is a going concern. These going-concern
analyses, taken together with the Corporation's historical earnings and the
absence of a trading market for its Common Stock, constituted the bases used by
the Board in evaluating the Common Stock. In evaluating the stock of the
Corporation as a going concern, the Board concluded that it is appropriate to
take into account for valuation purposes the illiquidity of the Common Stock and
the fact that all transactions, including the proposed one, involve less than a
controlling interest in the Corporation. The Board was advised by First of
Michigan that these factors are considered routinely in valuing stock for tax
purposes as well as in numerous buy-out situations, including buy-sell
agreements.
Financial Advisor's Opinion. First of Michigan delivered its written
opinion dated April 14, 2000, to the effect that, the price to be received by
the stockholders for fractional interests in the New Common Stock is, on the
date of the opinion, fair, from a financial point of view. Their opinion is
based on various assumptions made and matters considered, and it is based on a
review of certain financial information provided by the Corporation and
available publicly with respect to other entities. The Board considered the
analyses by First of Michigan in determining that $10.50 per share of existing
Common Stock is fair from a financial point of view to the unaffiliated
stockholders. The Board is aware that First of Michigan assumed and relied upon,
and did not independently verify, the accuracy and completeness of the financial
and other information provided to First of Michigan, or discussed with, it which
was or publicly available, nor did they independently verify the reasonableness
and accuracy of the financial projections, forecasts and analyses provided to
them, and the assumptions upon which they were based. First of Michigan also did
not conduct a physical inspection, or obtain independent valuations, of the
properties and assets of the Corporation and the Bank. See "No Fractional
Shares; Determination of Fractional Share Price".
Voting by Dominant Shareholder. The Board considered that (i) the
affirmative vote of a majority of the outstanding shares of the Corporation's
Common Stock is required for the approval of the Reverse Stock Split and (ii)
Mr. Don Davis owns 62.8% of the outstanding Common Stock and he has indicated
that all of those shares will be voted in favor of the transaction. In addition,
the other Board members, who own approximately 3,573 shares of Common
19
<PAGE> 28
Stock, (a total of 1.06% of the outstanding Common Stock) have indicated that
they intend to vote their shares in favor of the approval and adoption of the
Merger Agreement. See "Interests of Management".
The Michigan Business Corporation Act ("MBCA") does not require that
the Reverse Stock Split be separately approved by a majority of the
Corporation's stockholders that are not affiliates of the Corporation and the
Board decided not to change the applicable procedure. The Board and Mr. Davis
believe that the procedure for approving the Merger is fair to the unaffiliated
stockholders. Seven of the eight directors individually and together as a group
own only 1% of the Corporation's Common Stock. The Reverse Stock Split has been
evaluated and approved by all of the members of the Board, including the six
members who are not employees of the Corporation or the Bank. The First of
Michigan opinion concludes that the price to be received by unaffiliated
stockholders for their fractional interests is fair to those stockholders from a
financial point of view. The Board and Mr. Davis also considered that the
benefits to be received by the continuing stockholders, by slightly increasing
their ownership percentages in the Corporation, are offset by the reduced book
value of the Corporation and are reasonable. The Board, including all of the
non-employee directors, has determined that the interests of Mr. Davis in the
Reverse Stock Split have not affected the fairness of the consideration to be
paid to the Corporation's stockholders for their fractional interests. He is the
dominant stockholder before and after the transaction. The book value of his
shares, as well as of all other stockholders, will be reduced, but the
Corporation's earnings should be increased by approximately $70,000 per year
after the transaction. See "Interests of Directors in the Reverse Stock Split.
Alternative Forms of Transaction. The Board considered a comparison of
the costs and benefits of the Reverse Stock Split against the costs and benefits
of certain other alternatives potentially available to the Corporation to meet
its objectives of reducing operating costs, creating liquidity and an
opportunity for at least small stockholders (the majority of the Corporation's
stockholders) to realize the value of their Common Stock, and preserving
capital. The Board also considered doing nothing and continuing to operate as a
registered public company with many small stockholders. It has done this for
many years and concluded that it should take steps to increase efficiency and
reduce the costs of being a publicly held entity. The Board and Mr. Davis
believe that the Corporation has not benefitted, and will not benefit, from
being a SEC reporting company in the foreseeable future. Neither the Board nor
Mr. Davis has any plans to offer stock to the public. Thus, no financial benefit
was being realized, in their opinion, from the costs incurred to continue as a
reporting company.
The Bank (and its parent corporation) were organized in 1969 to
establish a community based, minority owned bank which would respond to the
banking needs of the African-American community and to the needs of small
businesses in the Detroit area. Stock was widely held and it was expected and
believed that broad ownership of the Common Stock would provide deposit and loan
business for the Bank. In fact, over the years this has not been the case. Most
of the Bank's business is received from customers who do not own the
Corporation's Common Stock and most of the small stockholders do not have or
refer accounts at the Bank. During the 1990's it has been clear to management
that having numerous small stockholders has not promoted growth of the Bank's
business. Instead, it has been costly for the Corporation to fulfill its
reporting obligations as a public company with registered stock. Furthermore,
there is not a trading market for the Corporation's Common Stock. The result has
been that Stockholders were not able realistically to realize whatever value
their stock represented. In addition, during much of the 1990's decade, until
1995, the Bank was not well capitalized, so it did not have sufficient capital
to purchase stock from Stockholders.
The Board of Directors adopted the Reverse Stock Split as a strategy to
(a) reduce operating costs by approximately $70,000 per year, (b) provide
liquidity for small stockholders, and for a limited amount of the stock owned by
other stockholders, and (c) conserve capital to the greatest degree possible
while achieving the first two objectives. The Board considered a limited tender
offer but decided that it would not assure a significant reduction of operating
costs by eliminating SEC reporting requirements because many of the
Corporation's small stockholders do not respond to correspondence such as proxy
and meeting notices. Thus, there was no expectation that they would respond
timely to a tender offer notice. The Board did not consider a merger or other
business combination with another entity. Such a transaction would require a
stockholder vote and Mr. Davis has made clear that he favors maintaining
20
<PAGE> 29
the Corporation as an independent, African-American owned enterprise.
Furthermore, Mr. Davis' and the Board's opinions are that long-term, the
Corporation's best opportunity is as an independent company, and the proposed
transaction is one realistic way of increasing profitability of the Corporation.
The Board concluded that there was not another strategy besides the Reverse
Stock Split which would accomplish its goals efficiently without using
substantially more capital.
In evaluating various alternative courses of action, the Board continues
to believe strongly that the Corporation serves a useful purpose to the Detroit
metropolitan community and to the African-American community in maintaining its
independence and preserving its identity as an African-American owned
institution. Mr. Davis and the Board agree that this has enabled the institution
to access deposits that it would not otherwise receive at lower rates in many
cases than it would have to pay. They also agree that these opportunities add
value to the Corporation that it would not have if it lost its minority status.
Mr. Davis and the Board believe that the Corporation is the only significant
minority owned financial institution in the City of Detroit. There are few
opportunities to improve the value of the institution through a merger or
combination. In their opinion, the best value to be realized is as an
independent entity.
Capital Requirements. The relatively thin capital of the Corporation
and the Bank limits the amount of Common Stock that can be redeemed without
adversely affecting the operations and potential growth of the Bank. The Reverse
Stock Split requires, in the opinion of the Board, only a relatively small
amount of capital and yet it achieves liquidity for a significant number of
stockholders and reduces operating costs each year so that profits immediately
could be increased by 8-9% annually.
Financial Reporting. The Board will continue to provide adequate
financial information for its continuing stockholders by sending them an annual
report each year. In addition, the Bank files quarterly financial reports with
the Federal Deposit Insurance Corporation which are publicly available.
Financial and Economic Factors. The Board considered information with
respect to the financial condition, results of operations, business and
prospects of the Corporation, as well as the risks and costs involved in
achieving those prospects, and the current state of community banking in
Detroit, including the Board's views regarding the economic and market
conditions affecting the Corporation and banking generally. The Board believes
that the Corporation faces increasing levels of competition for borrowers, and
increasing risks that the current favorable economy might change, resulting in
higher loan defaults and losses and declining collateral values. The Board also
considered positive factors such as the current thriving economy, possible
revitalization of Detroit as a result of increased economic activity in the
City, and possible niches of opportunity among small borrowers by providing
personalized service.
Expense of Public Company. The substantial expenses for regulatory
compliance, stockholder and investor relations and other matters that continued
operation as a public registered company would impose on the Corporation.
Management's estimate of the expenses of being a public company are
approximately $70,000 per year, consisting of $25,000 (about 1/3 of a financial
person's time and benefits), $22,000 for accounting and legal reviews quarterly
and preparation of annual meeting materials, and $23,000 for printing, mailing
and stock transfer costs. See "Reasons for the Proposed Reverse Stock Split -
Reduction of Operating Expenses".
Price of Redeemed Fractional Interests. The $10.50 per current share of
Common Stock that would be paid for the fractional interests in the New Common
Stock represents a premium of approximately 25% over the stated book value of
the Common Stock at December 31, 1999 and a premium of 19% over the March 31,
2000 book value. The Board determined that the purchase price of the fractional
interests is reasonable in light of the small lots of stock, no control premium
being involved, and the lack of significant historical earnings of the
Corporation until the last three years. In addition, transactions known to have
occurred over the past year in the Corporation's Common Stock were at a prices
30% or more below the $10.50 price being offered for the fractional interests.
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<PAGE> 30
The preceding discussion of the information and factors considered by
the Board is not intended to be exhaustive, but includes the material factors
considered by the Board. In reaching their determinations to recommend and
approve the Reverse Stock Split, and in view of the variety of factors
considered by the Board in connection with their evaluation of the proposed
transaction, the Board did not assign specific weights to the various factors
considered by them.
DESCRIPTION OF COMMON STOCK
There were 336,760 shares of Common Stock outstanding as of May 15,
2000. The Common Stock is subordinate in right of liquidation to $720,000 (7,200
shares) of Class A and Class B Preferred Stock and 1,500 shares of Class C
Preferred Stock, Series MI-1 ($1,500,000) and 262.086 shares of Class C
Preferred Stock, Series 1994-1 ($262,086).
No dividends have been paid on the Common Stock in the past 10 years. In
1991, pursuant to the exercise of supervisory authority over the Corporation by
the Federal Reserve Bank of Chicago, the Board of Directors adopted a resolution
providing that it will not declare dividends or distributions to any
shareholders without prior approval of the Federal Reserve Bank of Chicago. The
resolution remains in effect, and prior approval of the Federal Reserve Bank of
Chicago has been received in order to make the redemption payments for
fractional shares of New Common Stock after the Reverse Stock Split.
The Corporation has no business of its own and receives its revenues
from the Bank in the form of dividends. The Bank is subject to regulation by the
Comptroller of the Currency pursuant to the National Bank Act. That Act limits
payment of dividends (12 USC ss.60) to the net profits of a bank remaining after
10% of the net profits of each half year of operations are transferred to
capital surplus, and the dividend paid in any calendar year may not, without the
prior approval of the Comptroller, exceed the net profits of the current year,
plus the net profits of the two preceding years (less the required transfers to
surplus). 12 USC ss.56 provides that dividends may not be paid if undivided
profits have been depleted by losses or otherwise. In other words, dividends may
be paid only from net earnings and not from the Bank's capital. The Bank does
not need approval of the Comptroller in order to declare a dividend to the
Corporation to cover the costs of the Reverse Stock Split.
FUNDING THE REVERSE STOCK SPLIT
The Corporation will obtain the funds necessary to pay cash for the
fractional shares resulting from the proposed Reverse Stock Split from the Bank.
It is expected that approximately $304,000 will be needed to pay for such
fractional shares, plus about $66,000 for administrative expenses such as
investment banking fees, transfer agent costs, new stock certificates and legal
and accounting fees. The table below summarizes expected expenses and costs of
the proposed transaction.
22
<PAGE> 31
Estimated Total Expenses of Reverse Stock Split
<TABLE>
<CAPTION>
<S> <C>
Purchase of Fractional Interests $ 304,300
Filing Fees 55
Attorney Fees 12,500
Accounting Fees 10,000
Appraisal Fees 32,500
Printing and Postage* 9,000
Miscellaneous 1,645
---------
Total $ 370,000
</TABLE>
--------------------
* Printing and postage costs due to the transaction are considered only
for printing and mailing new stock certificates. The incremental cost
of printing and mailing the proxy statement is negligible because these
costs will be incurred for the annual meeting in any case.
The Bank's Board of Directors intends to declare and pay a dividend to
the Corporation of approximately $370,000 to fund the fractional share payments
plus transaction expenses.
The Corporation has obtained the prior approval of the Federal Reserve
Bank of Chicago for the Reverse Stock Split and the resulting redemptions of
fractional shares of Common Stock. This prior approval is required pursuant to
the 1991 Formal Resolution between the Corporation and the Federal Reserve Bank
of Chicago.
FINANCIAL INFORMATION
The Corporation's unaudited consolidated financial statements as of
March 31, 2000 and for the three months ended March 31, 2000 and 1999 are
included in Form 10-QSB as filed with the United States Securities and Exchange
Commission. The Consolidated Financial Statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations included in the
Form 10-QSB as of and for the three months ended March 31, 2000 and 1999 are
incorporated herein by reference.
The Corporation's audited financial statements for the years ended
December 31, 1999 and 1998 are included in the 1999 Annual Report to
stockholders on Form 10-KSB which accompanies this Proxy Statement and as filed
with the United States Securities and Exchange Commission. Those financial
statements and the notes thereto are found in the Form 10-KSB beginning at page
23 of the 10-KSB and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" is set forth in the Annual Report, Form
10-KSB beginning at page 6. The Consolidated Financial Statements and
Management's Discussion and Analysis of Operations are incorporated herein by
reference.
The following unaudited pro forma condensed consolidated balance sheets
and income statements for the Corporation reflect the Reverse Stock Split
transaction as if it were consummated as of and for the three months ended
March 31, 2000 and as of and for the year ended December 31, 1999, assuming, in
each case, that $304,000 would be expended for the purchase of fractional
shares. The one-time expenses related to the transaction are not considered in
the proforma financial statements, as they are not considered to have a
continuing impact on the Corporation.
23
<PAGE> 32
Pro Forma (Unaudited)
Condensed Consolidated Balance Sheets
As of March 31, 2000 and December 31, 1999
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks (1) $ 7,342,028 $ 8,643,521
Federal funds sold 17,770,000 48,800,000
------------- -------------
Total cash and cash equivalents 25,112,028 57,443,521
Securities available for sale 56,925,618 47,098,310
Securities held to maturity (fair value of $1,002,500 and $2,007,300
at March 31, 2000 and December 31, 1999) 1,006,341 2,009,320
Federal Home Loan Bank and Federal Reserve Bank stock 465,300 465,300
Loans, net 44,738,118 47,569,211
Premises and equipment, net 4,120,207 3,778,476
Accrued interest receivable and other assets 3,488,096 3,506,339
------------- -------------
Total assets $ 135,855,708 $ 161,870,477
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits,
Noninterest-bearing $ 50,890,116 $ 53,071,541
Interest-bearing 50,273,033 64,565,358
------------- -------------
Total deposits 101,163,149 117,636,899
Securities sold under agreements to repurchase 27,860,874 33,754,604
Accrued interest payable and other liabilities 789,072 703,581
Secured borrowings under loan participation agreements - 3,879,882
Long-term debt 900,000 900,000
------------- -------------
Total liabilities $ 130,713,095 $ 156,874,966
Mandatorily redeemable shares under ESOP, at fair value 365,400 365,400
Shareholders' equity
Preferred Stock 2,482,086 2,482,086
Common stock, $60 par value; 16,667 shares authorized; 5,130
shares issued and outstanding; 4,550 shares outstanding after
reduction for 580 mandatorily redeemable shares under ESOP (1), (2) 273,000 273,000
Capital surplus (1) 1,764,142 1,764,142
Retained earnings (1) 1,507,267 1,273,456
Accumulated other comprehensive income (loss) (1,249,282) (1,162,573)
------------- -------------
Total shareholders' equity 4,777,213 4,630,111
------------- -------------
Total liabilities and shareholders' equity $ 135,855,708 $ 161,870,477
============= =============
</TABLE>
------------------------------
(1) As of March 31, 2000 and December 31, 1999, total cash and due from
banks was reduced by $304,000 to give effect to the repurchase of
fractional shares; common stock was reduced by 331,630 shares, or
$28,960, and capital surplus was reduced by $275,040 to give effect to
the repurchase of the fractional shares (28,960 pre reverse split
shares or 483 post reverse split shares, valued at $10.50 per share
before the reverse split or $630.00 after the reverse split). The
one-time expenses related to the transaction are not considered in the
pro forma balance sheets, as they are not considered to have a
continuing impact on the Corporation.
(2) The par value of common stock has been updated to $60 per share, from
$1 per share as a result of the transaction.
24
<PAGE> 33
Pro Forma (Unaudited)
Condensed Consolidated Income Statements
For the three months ended March 31, 2000
and the year ended December 31, 1999
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Total interest income (1) $2,199,372 $8,095,935
Total interest expense 838,964 2,909,849
---------- ----------
NET INTEREST INCOME 1,360,408 5,186,086
Provision for loan losses 30,000 105,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,330,408 5,081,086
Total noninterest income 526,032 1,332,284
Total noninterest expenses (1) 1,470,169 5,370,096
---------- ----------
INCOME BEFORE FEDERAL INCOME TAXES 386,271 1,043,274
Federal income tax expense 135,360 71,910
---------- ----------
NET INCOME(1) 250,911 971,364
Preferred stock dividends 17,100 81,975
---------- ----------
INCOME ATTRIBUTABLE TO COMMON STOCK $ 233,811 $ 889,389
========== ==========
Basic earnings per common share $ 32.71 $ 173.37
Diluted earnings per common share $ 32.55 $ 172.61
Book value per share $ 518.62 $ 489.95
Ratio of earnings to fixed charges, including deposit interest (2) $ 1.46 1.36
Ratio of earnings to fixed charges, excluding deposit interest (2) $ 1.99 1.84
</TABLE>
-------------------------------------
(1) The pro forma impact on interest income for the three months
ended March 31, 2000 and the year ended December 31, 1999 due to a
reduction in interest earning assets as a result of the $304,000
decrease in cash is not considered significant to this transaction. The
one-time expenses related to the transaction are not considered in the
proforma income statement, as they are not considered to have a
continuing impact on the Corporation.
(2) At March 31, 2000, the ratio of earnings to fixed charges was
1.46, including deposit interest, and it was 1.99, excluding deposit
interest. At December 31, 1999, the ratio of earnings to fixed charges
was 1.36, including deposit interest, and it was 1.84, excluding
deposit interest. For purposes of this calculation, interest expense on
securities sold under agreements to repurchase is not considered
deposit interest expense.
VOTING ON THE REVERSE STOCK SPLIT; NOT CONDITIONED UPON APPROVAL OF UNAFFILIATED
STOCKHOLDERS
The holders of the Common Stock will vote on the proposed amendment to
the Articles of Incorporation to effect the Reverse Stock Split. A majority of
the outstanding 336,760 shares of Common Stock is necessary to approve the
Reverse Stock Split proposal. The Board of Directors recommends a favorable vote
on this proposal for the reasons stated above at "Reasons for the Proposed
Reverse Stock Split". In making its recommendation, the Board considered various
factors summarized at "No Fractional Shares; Determination of Fractional Share
Price". No other class of stock is required to vote on the proposed Reverse
Stock Split.
The proposed Reverse Stock Split is not conditioned upon the approval of
a majority of the unaffiliated stockholders of the Corporation. Nevertheless,
the Board has concluded that the procedure for approving the transaction is
procedurally fair to unaffiliated stockholders for the following reasons: The
MBCA does not require that the transaction be separately approved by
unaffiliated stockholders; the transaction was evaluated and unanimously
approved by the Board, 6 of 8 of whom are not employees or major stockholders;
and the Board received the opinion of First of Michigan that the cash payment to
be received by the stockholders is fair from a financial point of view.
25
<PAGE> 34
The Corporation's Board of Directors own 63.86% of its outstanding
Common Stock, of which Don Davis, the Chairman of the Board, runs 62.8%, and
intend to vote all of those shares in favor of the proposal. Thus, their votes
alone are sufficient to approve the proposal.
EXCHANGE OF STOCK CERTIFICATES
If the Reverse Stock Split is approved by the Corporation's
stockholders, the Corporation will instruct its transfer agent to act as its
exchange agent (the "Exchange Agent") and to act for holders of Common Stock in
implementing the exchange of their certificates.
Commencing on the effective date of the Reverse Stock Split (the
"Effective Date"), stockholders will be notified and requested to surrender to
the Exchange Agent their certificates representing shares of all Common Stock in
exchange for certificates representing new Common Stock. One share of New Common
Stock will be issued in exchange for each sixty (60) shares presently issued and
outstanding shares of Common Stock. Beginning on the Effective Date, each
certificate representing shares of the Corporation's Common Stock will be
deemed, for all corporate purposes, to evidence ownership of shares of new
Common Stock.
No fractional shares will be issued. The Exchange Agent will cause
payment to be made to stockholders when their share certificates are transmitted
to the Exchange Agent.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is general and each shareholder's facts and
circumstances could affect the proper tax treatment of the transaction as it
relates to them. Shareholders should consult their own tax advisors for specific
tax advice for their own circumstances.
The Reverse Stock Split generally should not result in the recognition
of gain or loss (except in the case of cash payment received for fractional
shares as described below). The holding period of the shares of New Common Stock
will include the stockholders' holding periods for the shares of Common Stock
exchanged therefore, provided that the shares of Common Stock were held as a
capital asset. The adjusted basis of the shares of New Common Stock will be the
same as the adjusted basis of the Common Stock exchanged therefor, reduced by
the basis applicable to the sale of fractional shares described below.
A stockholder who receives cash for fractional shares will recognize a
gain or loss, as the case may be, measured by the difference between $10.50 for
each old share of Common Stock that was not converted into new shares of Common
Stock and the shareholder's basis for each share of his old Common Stock. The
gain or loss could be a capital gain or loss if such stockholder's Common Stock
was held as a capital asset and the capital gain or loss would generally be
long-term capital gain or loss to the extent the stockholder's holding period
for the Common Stock exceeds twelve months. Each stockholder is urged to consult
with his or her own tax advisor for tax advice appropriate to the stockholder's
own facts and circumstances.
NO DISSENTER RIGHTS
Under applicable Michigan law, stockholders are not entitled to
dissenter's rights of appraisal with respect to the Reverse Stock Split. This is
provided for specifically in MCL 450.1762(2)(a) in cases where shares are held
of record by more than 2000 persons.
Shareholders have statutory rights to assert claims against
corporations under Michigan law MCL 451.810 if they believe that the corporation
has used any untrue statement of a material
26
<PAGE> 35
fact or any omissions to state a material fact necessary in order to make the
statements made, in the light of the circumstances under which they are made,
not misleading, in connection with the offer or sale of a security.
RESOLUTIONS TO EFFECT THE REVERSE STOCK SPLIT
To effect the one-for-sixty reverse stock split of the Common Stock of
the Corporation, shareholder approval is sought to amend various portions of
Article III of the Corporation's Articles of Incorporation. The effect of all of
the amendments is merely to accomplish the Reverse Stock Split. The numbers of
shares of Common Stock authorized to be issued are proportionately reduced, but
the number of shares of other classes of stock authorized to be issued are not
increased or decreased. The rights of continuing shareholders of any class of
stock will remain the same as they are before the Reverse Stock Split
transaction.
The first paragraph of Article III of the Corporation's Articles of
Incorporation relating to the authorized capital stock will be replaced with the
following two paragraphs:
ARTICLE III
"The authorized amount of capital stock of this Corporation shall be
16,667 shares of common stock of the par value of $60 each, 2,500 of
which shares may be issued without voting rights; 4,000 shares of Class
A Preferred Stock of the par value of $100 each; 3,200 shares of Class
B Preferred Stock of the par value of $100 each; and 100,000 shares of
Class C Preferred Stock without par value, all classes of preferred
stock to have the rights and preferences set forth in this Article; but
said capital stock may be increased or decreased from time to time, in
accordance with the provisions of the laws of the State of Michigan."
"Each sixty (60) shares of the corporation's Common Stock, $1.00 par
value per share, issued and outstanding as of the close of business on
the date this Certificate of Amendment is filed shall be converted into
one (1) share of the corporation's new Common Stock, $60.00 par value
per share, so that each share of the corporation's Common Stock issued
and outstanding is hereby converted and reclassified. No fractional
interests resulting from such conversion shall be issued, but in lieu
thereof, stockholders who ostensibly would be entitled to receive
fractional shares because they hold a number of shares not evenly
divisible by sixty (60) will be entitled, upon surrender to the
Exchange Agent of certificates representing such shares, to receive
cash in the amount of $10.50 for each of those shares fewer than sixty
(60) held by such stockholders that remain after dividing their total
shares by sixty; provided, however, that stockholders who are directors
of the Corporation's banking subsidiary, which is a national bank,
shall not be entitled to a redemption of their fractional interests if
such redemption would result in their owning less than $1000 par value
of shares of the Corporation's Common Stock. In such case, such a
director shall purchase a fractional interest of new Common Stock
sufficient to round up his or her stock ownership to a whole share so
that the par value of the total whole share of common Stock owned will
equal $1000 or more.
Subsections (1) and (2) of Article III, Section 3.2(A)(g) of the
Corporation's Articles of Incorporation, regarding Class C Preferred Stock,
Series 1994-1, will be amended to provide as follows:
"(1) Sale; Right of First Refusal. If any holder of the Series 1994-1
Stock desires to sell the Series 1994- 1 Stock it owns, it shall first
give written notice to the Corporation at least 90 days prior to the
proposed sale. The notice shall state the price, the terms, the numbers
of shares sought to be sold and the proposed purchaser. The Corporation
shall have the right at any time during such 90 day period to purchase
some or all of the shares proposed to be sold at a price equal to the
lower of the proposed purchase price per share or the redemption price
as determined from time to time pursuant to
27
<PAGE> 36
paragraph (f) above. If the Corporation does not exercise its right to
purchase such Series 1994-1 Stock, the selling holder may convert the
Series 1994-1 Stock into common Stock, based on the then applicable
redemption price pursuant to section (f) above (but no fractional
shares shall be issued and they shall be paid for in cash based on the
applicable stock price), and sell such Common Stock to the proposed
purchaser at the agreed purchase price. In such event, the purchaser
shall be required to execute an investment letter prepared by the
Corporation or its counsel which represents that the Common Stock is
being acquired for investment and not with a view to distribution
thereof, and acknowledging that such stock is not registered under
federal or state securities laws, is not freely transferrable, and is
subject to restrictions on transfer. The certificates issued to the
purchaser shall bear a legend to such effect."
"(2) Sale; Conversion. In the event that the Corporation decides to
make a public offering of Common Stock pursuant to an effective
registration statement, it shall so notify the holders of the Series
1994-1 Stock and if any such holder desires to sell any of the shares
in connection with such public offering, the holder shall deliver a
written demand to the Corporation within thirty (30) days of the date
of the Corporation's notice of the offering and shall cooperate with
the Corporation in connection with the registration of the offering. In
such sale, each share to be sold shall be converted automatically into
3.333 shares of the Corporation's Common Stock (except no fractional
shares shall be issued and they shall be paid for in cash based on the
applicable stock price), which shall be registered for sale in the
offering. The Series 1994-1 Stock (after conversion into Common Stock)
shall be sold to subscribers after the first $600,000 of the
Corporation's newly issued shares of Common stock are sold. The
Corporation shall bear the costs of the offering."
The first sentence of the second paragraph of Article III, Section 3.2
B(7) of the Corporation's Articles of Incorporation regarding the Class C
Preferred Stock, Series MI-1, will be amended to provide as follows:
"In the event that the holder attempts at any time to make a transfer
of some or all of the Series MI-1 Stock, upon transfer, ipso facto, and
without any other action by any party, the Series MI-1 Stock shall be
converted automatically into 2,272 shares of new non-voting Common
Stock ("transferred stock") plus a right to receive an immediate cash
payment of $430."
The third paragraph of Article III, Section 3.2 B(7) of the Articles of
Incorporation will be amended to provide as follows:
"If the holder of the Series MI-1 Stock and the Corporation agree in
writing, the Series MI-1 Stock may be converted into a right to receive
an immediate cash payment of $430 plus 2,272 shares of voting Common
Stock as part of a public offering of the Corporation's securities in
which the holder of the Series MI-1 Stock shares pro rata in the costs
of such offering. The conversion shall not occur until the sale of the
Common Stock in the public offering."
INDEPENDENT AUDITORS
The Board of Directors has selected Crowe, Chizek and Company, LLP, as
its independent auditors for 2000 as it did for 1999. A representative of that
firm is expected to be present at the meeting, will have the opportunity to make
a statement if he desires to do so, and will be available to respond to
appropriate questions.
28
<PAGE> 37
PROPOSALS BY SHAREHOLDERS
Proposals by shareholders of the Corporation intended to be presented
at the next annual shareholders' meeting to be held in 2000 must be received by
the Corporation no later than January 31, 2000. Proposals must comply with
applicable laws and regulations and shall be delivered to 44 Michigan Avenue,
Detroit, Michigan 48226, Attention: Secretary. Any proposal which is mailed to
the Corporation should be mailed by certified or registered mail return receipt
requested.
INFORMATION INCORPORATED BY REFERENCE
The Corporation's Annual Report on Form 10-KSB for the year ended
December 31, 1999 accompanies this Proxy Statement and is incorporated fully
herein by reference. Shareholders are urged to review the Form 10-KSB for
financial information regarding the Corporation and its wholly owned subsidiary,
First Independence National Bank of Detroit and the report of its independent
accountants (page 23 of the 10-KSB) as well as Management's Discussion and
Analysis (page 6 of the 10-KSB) of the Corporation's performance during 1999 and
1998 and its financial condition as of December 31, 1999 and 1998.
OTHER MATTERS
The Corporation's management knows of no other matters to be presented
for action at the meeting. It is the intention of the persons named in the
accompanying form of proxy to vote the shares represented thereby in accordance
with the directions of management on any matters properly brought before the
meeting which are not set forth in the Notice of the Meeting and in this Proxy
Statement.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors and certain officers, and persons who own more than ten
percent of the Corporation's Common Stock to file with the SEC initial reports
of beneficial ownership and reports of changes in beneficial ownership of the
Corporation's equity securities. These officers, directors and greater than
ten-percent shareholders are required by SEC regulation to furnish the
Corporation with copies of these reports. To the Corporation's knowledge, based
solely on review of the copies of such reports furnished to the Corporation and
written representations that no other reports were required, all of Section
16(a) filing requirements applicable to its officers, directors, and greater
than ten-percent beneficial owners were complied with during the past two years.
SHAREHOLDERS ARE URGED TO DATE AND SIGN THE ENCLOSED
PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE PAID ENVELOPE.
29
<PAGE> 38
EXHIBIT A
[FIRST OF MICHIGAN LETTERHEAD]
April 14, 2000
Board of Directors
First Independence Corporation
44 Michigan Avenue
Detroit, Michigan 48226
PERSONAL & CONFIDENTIAL
-----------------------
Dear Board of Directors:
Our engagement calls for First of Michigan Corporation ("FoM") to render an
opinion to the Board of Directors of First Independence Corporation ("First
Independence" or the "Company") as to the fairness of the price per share (the
"Value") to be paid to holders of fractional shares of the Company's Common
Stock following a proposed one-for-60 reverse stock split (the "Transaction").
The Value to be paid to fractional shareholders following the proposed
Transaction will be based on $10.50 per share of Common Stock owned prior to
the Transaction. This report presents our conclusions on a valuation and is
not intended for publication and may not be reproduced or disclosed to any
outside party in whole or in part without the written permission of FoM. This
analysis may be reviewed only by the Board of Directors, officers, and
employees of First Independence and their respective designees.
In arriving at our opinion, we have:
I. Reviewed the Company's 10-KSB for the year ended December 31, 1998 and a
draft of the 10-KSB for the year ended December 31, 1999;
II. Reviewed the Company's 10-QSB for quarters ended March 31, June 30, and
September 30, 1999;
III. Reviewed the Company's audited financial statements for the years ended
December 31, 1994 through 1997;
IV. Reviewed public information with respect to certain other similar bank
holding companies, the securities of which are publicly traded;
V. Reviewed the financial terms of certain comparable business combinations
involving bank holding companies;
VI. Performed a discounted cash flow model of the Company as set forth in the
projections of management and the Company;
VII. Reviewed the historical stock prices and trading volumes of shares of the
Company's common stock and compared it with those of certain publicly
traded companies which we deemed to be reasonable similar to the Company;
30
<PAGE> 39
VIII. Conducted discussions with the senior management of the Company
concerning the business and future prospects of the Company; and
IX. Reviewed such other financial and industry data and performed such
other analysis and taken into account such other matters as we deemed
necessary or appropriate.
The results of this study are based upon information provided by the management
of the Company and certain independently obtained industry information. We
were supplied with audited financial statements of the Company for years ended
December 31, 1994 through 1998 as well as draft audited financial statements
for the year ended December 31, 1999. We did not make an independent
examination of these statements or other information, which appears elsewhere
in this report. Finally, a limited review was conducted of the industry in
which the Company operates.
In conducting our investigation and in arriving at the conclusions expressed
herein, we have principally taken into account an analysis of accounting and
financial information. The nature of the industry, particular characteristics
of First Independence, qualitative evaluations of Company personnel and their
ability to adjust to and profitably work within changing economic
situations, changing industry situations, and changing technology were not
examined in great detail consistent with our engagement instructions.
Based on the foregoing, it is our opinion that the Value to be paid to the
holders of fractional shares of the Company's common stock, as of April 14,
2000 is fair to such holders, from a financial point of view. In arriving at
this value, we have considered the industry in which the Company operates the
Company's historical profitability, its recent earnings trends, and its
fundamental long-term earnings potential. We have not placed undue reliance on
any one of the valuation methodologies.
Respectfully submitted,
First of Michigan,
a division of Fahnestock & Co. Inc.
31
<PAGE> 40
EXHIBIT B
PUBLIC COMPANIES
----------------
Combanc, Inc.
Southern Michigan Bancorp.
Community Central Bank Corp.
St. Joseph Capital Corp.
Dearborn Bancorp, Inc.
Tri-State 1st Bank
GLB Bancorp, Inc.
United Bancorp, Inc.
Heartland Bancshares, Inc.
University Bancorp, Inc.
Macatawa Bank Corp.
Mercantile Bank Corp.
Metrobancorp.
Michigan Heritage Bancorp.
MERGERS & ACQUISITION TRANSACTIONS
----------------------------------
Acquiror/Target
---------------
Savannah Bancorp, Inc/Bryan Bancorp of Georgia, Inc.
Emclair Financial/Peoples Savings Financial
Susquebanna Bancshares/Cardinal Bancorp.
Patriot Bank Corp/First Lehigh Corp.
Cooper Life Sciences, Inc./Berkshire Bank
First Federal Savings/Mid-Iowa Financial
First Sterling Bank, Inc./Georgia Bancshares, Inc.
First Banking Co. of Southeast/Wayne Bancorp
Fifth Third Bancorp/South Florida Bank Hldg. Corp.
F&M National/Security Bank Corp
Crown Group, Inc./Delaware First Financial Corp
Banterra Corp./Heartland Bancshares, Inc.
CNB Bancshares, Inc./Adirondack Financial Services
Carolina First Corp./Citizens First National Bank
FSB Bancorp/First Bank of Philadelphia
CCB Financial Corp/Stone Street Bancorp, Inc.
Union Financial Bancshares, Inc./South Carolina Community
Peoples Bancorp of Washington/Three Rivers Financial Corp.
32
<PAGE> 41
FIRST INDEPENDENCE CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL SHAREHOLDERS' MEETING, THURSDAY, AUGUST 3, 2000
I, the undersigned shareholder of the First Independence Corporation,
hereby appoint Don Davis, Alan C. Young, and Dr. Charles E. Morton, and each of
them, my proxies, with power of substitution to vote all of the Common Stock of
said Corporation standing in my name on its books on May 15, 2000, at the annual
meeting of the shareholders to be held on Thursday, August 3, 2000, at 6:00 p.m.
or at any and all adjournments thereof, on the proposals contained in the Notice
of said meeting, and on any other business properly coming before the meeting.
The proxyholders shall have all the powers I would possess if present
personally. I revoke all proxies previously given by me for any meeting of
shareholders of the Corporation.
If no direction is made with respect to a proposal, this proxy will be
voted FOR such proposal. In their discretion, the proxies are authorized to vote
on such other matters as may properly come before the meeting, including the
election of any person as Director where a nominee named in the Proxy Statement
dated June 30, 2000, is unable to serve or will not serve.
PLEASE VOTE, DATE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED
ENVELOPE.
Note: Please sign exactly as name(s) appear(s) on stock records. When signing as
attorney, administrator, trustee, guardian or corporate officer, please so
indicate.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
-------------------------------------- ----------------------------------
-------------------------------------- ----------------------------------
-------------------------------------- ----------------------------------
================================================================================
DETACH CARD
X PLEASE MARK VOTES AS IN THIS EXAMPLE
1. ELECTION OF DIRECTORS
For Withhold Authority For all Except
--- --- ---
REV. WENDELL ANDERSON, BARRY CLAY, DON DAVIS, GEORGIS I. GARMO, DR. CHARLES
E. MORTON, JOSEPH SCOTT, JAMAL SHALLAL, GENEVA J. WILLIAMS, ALAN C. YOUNG.
To withhold authority to vote for any individual nominee, mark the "For All
Except" box and strike a line through the nominee's name in the list above.
2. AMENDING THE ARTICLES OF INCORPORATION TO EFFECT THE 1 FOR 60 SHARE REVERSE
STOCK SPLIT.
For Against Abstain
--- --- ---
RECORD DATE SHARES: I (we) acknowledge receipt of the Notice of Annual Meeting
and Proxy Statement dated June 30, 2000, and ratify all
that the proxies or either of them or their substitutes
may lawfully do by virtue hereof and revoke all former
proxies.
UNLESS OTHERWISE SPECIFIED, THE PROXIES ARE APPOINTED TO VOTE FOR
THE ELECTION OF ALL DIRECTORS AND TO VOTE FOR AMENDING THE
ARTICLES OF INCORPORATION OF THE CORPORATION TO EFFECT THE
ONE-FOR-SIXTY SHARE REVERSE STOCK SPLIT OF THE CORPORATION'S
COMMON STOCK.
Please be sure to sign and date this Proxy.
--------------------------- ----------- ---------------------------- -----------
Shareholder sign here Date Co-owner sign here Date
