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As filed with the Securities and Exchange Commission on February 21, 1997
Registration No. 333-17317
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MICHIGAN HERITAGE BANCORP, INC.
(Name of small business issuer as in its charter)
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<S> <C> <C>
Michigan 6712 38-3318018
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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21211 Haggerty Road
Novi, Michigan 48375-5306
(810) 380-0779
(Address and telephone number of principal executive
offices and principal place of business or intended principal place of
business)
Anthony S. Albanese, President
Michigan Heritage Bancorp, Inc.
21211 Haggerty Road
Novi, Michigan 48375-5306
(810) 380-0779
(Name, address, and telephone number of agent for service)
Copies to:
Paul R. Rentenbach Gordon R. Lewis
Dykema Gossett PLLC Warner Norcross & Judd LLP
400 Renaissance Center 900 Old Kent Building
Detroit, Michigan 48243 111 Lyon St. N.W.
Fax (313) 568-6915 Grand Rapids, Michigan 49503-2489
Fax (616) 459-2170
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Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A) OF
THE SECURITIES ACT OF 1933, MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED FEBRUARY 21, 1997
PROSPECTUS
1,000,000 SHARES
[MICHIGAN HERITAGE BANCORP, INC. LOGO]
COMMON STOCK
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Michigan Heritage Bancorp, Inc., a Michigan corporation (the "Company"), is
offering for sale 1,000,000 shares of its Common Stock (the "Common Stock"). The
Company is a proposed bank holding company organized to own all of the common
stock of Michigan Heritage Bank, a Michigan banking corporation (in
organization), to be located in Novi, Michigan (the "Bank"). Neither the Company
nor the Bank has ever conducted any business operations other than matters
related to their initial organization and the raising of capital. See
"Business." There has been no public trading market for the Common Stock. Roney
& Co. L.L.C. (the "Underwriter" or "Roney & Co.") has advised the Company that
it anticipates making a market in the Common Stock following completion of the
offering, although there can be no assurance that an active trading market will
develop. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. The Company expects that the
quotations for the Common Stock will be reported on the NASD OTC Bulletin Board
under the symbol "MHBC." The directors and officers of the Company are expected
to purchase 74,100 of the shares of Common Stock at the public offering price.
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THE COMMON STOCK OFFERED BY THIS PROSPECTUS INVOLVES A SIGNIFICANT AMOUNT OF
RISK. SEE "RISK FACTORS" ON PAGE 5 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMPANY'S COMMON STOCK.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND THEY ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER GOVERNMENTAL
AGENCY, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR ANY OTHER GOVERNMENTAL AGENCY, PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1)(2) COMPANY(2)(3)
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Per Share............................. $10.00 $0.70 $9.30
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Total(2).............................. $10,000,000 $700,000 $9,300,000
==================================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities including liabilities under the Securities Act of 1933. See
"Underwriting".
(2) The Company has granted the Underwriter a 30-day option to purchase up to
150,000 additional shares of its Common Stock solely to cover
over-allotments, if any. If the Underwriter exercises such option in full,
the Price to Public, Underwriting Discounts, and Proceeds to the Company
will be approximately $11,500,000, $805,000, and $10,695,000, respectively.
See "Underwriting." The Underwriter has agreed that no Underwriting
Discounts will be incurred by the Company for up to 300,000 shares sold by
the Underwriter under the Company's direction to members of the Board of
Directors, members of their immediate families, and certain other persons.
The Underwriter has no legal obligation to sell shares to such people and no
shares have been reserved for such sales, other than the 74,100 shares to be
purchased by the directors and officers of the Company. See "Underwriting."
If 300,000 shares are so purchased, Underwriting Discounts will be reduced
by, and Proceeds to the Company will be increased by $210,000.
(3) Before deducting estimated offering expenses payable by the Company of
$200,000.
------------------
The shares of Common Stock are offered by the Underwriter subject to prior
sale, when, as and if delivered to and accepted by the Underwriter, and subject
to the right of the Underwriter to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares of
Common Stock will be made in Detroit, Michigan, on or about February , 1997.
------------------
(LOGO)
THE DATE OF THIS PROSPECTUS IS FEBRUARY , 1997.
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[MICHIGAN HERITAGE BANCORP, INC. MAP]
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AVAILABLE INFORMATION
The Company is not currently a reporting company pursuant to the Securities
Exchange Act of 1934 (the "Exchange Act"), but will be required to file reports
pursuant to the Exchange Act following the completion of the offering. The
Company, which will use a December 31 fiscal year, intends to furnish its
shareholders with annual reports containing audited financial information and,
for the first three quarters of each fiscal year, quarterly reports containing
unaudited financial information.
Requests for such documents should be directed to Darryle J. Parker,
Treasurer, 21211 Haggerty Road, Novi, Michigan 48375.
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IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless the context clearly suggests otherwise, references in this Prospectus to
the Company include the Bank. Except as otherwise indicated, all information in
this Prospectus assumes no exercise of the Underwriter's over-allotment option.
THE COMPANY
Michigan Heritage Bancorp, Inc. (the "Company") was incorporated in 1989 as
a Michigan corporation whose primary purpose will be to own and operate Michigan
Heritage Bank (the "Bank") as the Bank's sole shareholder. The Company has been
inactive since its formation. The Bank is organizing as a Michigan banking
corporation with depository accounts to be insured by the Bank Insurance Fund of
the Federal Deposit Insurance Corporation (the "FDIC"). The Bank intends to
provide a focused core of banking services, primarily for small to medium-sized
businesses, as well as individuals. The Bank's lending service will focus
primarily on commercial equipment financing and, to a lesser extent, commercial
real estate loans and commercial term loans to businesses secured by the assets
of the borrower. The Bank intends to originate a number of loans through third
party referral sources such as leasing companies and mortgage brokers, many of
whom are known to management. The Bank's retail strategy is expected to focus on
single-family mortgage loans, home equity loans and, to a lesser extent, other
forms of consumer lending. The Bank intends to offer competitive rates on
various deposit products as well as providing attractive products and services.
The Bank intends to offer its banking services primarily in Oakland and western
Wayne counties, including Novi, Farmington, Farmington Hills, Livonia,
Northville and Northville Township. These services will reflect the Bank's
intended strategy of serving small to medium size businesses as well as
individual customers in its market area. Completion of the offering will be
conditioned on, among other things, the Company and the Bank having received all
necessary regulatory approvals and satisfying certain conditions contained
therein. Management anticipates commencing business in the first quarter of
1997.
MANAGEMENT
The Company has assembled a management team and a Board of Directors that
have strong business experience in the Bank's market area and a shared vision
and commitment to the future growth and success of the Bank.
Richard Zamojski, Chairman and Chief Executive Officer of the Company and
the Bank, has over 20 years of experience in the financial services industry.
Prior to his arrival at the Company, Mr. Zamojski was Chairman and Chief
Executive Officer of a privately-owned financial institution located in
southeastern Michigan which had total assets of approximately $1 billion at the
time of his departure in August 1996. Anthony S. Albanese, President and Chief
Operating Officer of the Company, was President and Chief Operating Officer of
the same financial institution prior to coming to the Company and has over 20
years experience in the financial services industry. Mr. Zamojski and Mr.
Albanese have served together in management and executive capacities for three
financial institutions during the past 20 years. During their most recent
affiliation, the financial institution grew from approximately $120 million in
total assets to approximately $1 billion in total assets and developed from
primarily a mortgage banking institution to a diversified financial institution
offering a full line of commercial and consumer banking products. Mr. Zamojski
and Mr. Albanese have chosen to join the Company at compensation levels below
those earned in their previous positions. See "Management."
The Company has formed a Board of Directors comprised of individuals with a
broad background in business, leasing, real estate and banking. Current
directors include Philip Sotiroff, an attorney with over 30 years of legal
experience in banking and equipment financing, H. Perry Driggs, Jr., an
investment banker with over 20 years of experience in commercial banking,
Phillip Harrison, who has extensive background in equipment financing, and Lewis
George, a real estate developer.
Mr. Zamojski, Mr. Albanese and the other members of the Board of Directors
represent a significant asset to the Company and the Bank. These individuals
have many years of personal experience in the financial
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services industry and, in some cases, have worked together successfully at other
financial institutions. The officer staff currently assembled by the Company
represents a wide range of business, banking and investment knowledge and
experience. The Company believes that these individuals and their relationships
in the Bank's market area should offer the Bank a substantial opportunity to
attract new relationships.
MARKET AREA
The Bank's main office will be located along the rapidly developing
Haggerty Road corridor in the southeast corner of Novi, Michigan. The Bank has
leased a former bank branch building that is being renovated by the Bank. The
communities that will comprise the Bank's primary service area are Novi,
Farmington, Farmington Hills, Livonia, Northville and Northville Township.
Management believes these communities have an expanding and diverse economic
base, which includes a wide range of small to medium-sized businesses engaged in
manufacturing, high technology research and development, computer services and
retail. According to statistics issued by the United States Census Bureau (the
"Census Bureau") in 1990, median annual household incomes for the communities
that comprise the Bank's primary service area are: $47,518 (Novi); $41,040
(Farmington); $51,986 (Farmington Hills); $48,645 (Livonia); $38,629
(Northville); and $55,465 (Northville Township). Further, according to the
Southeastern Michigan Council of Government ("SEMCOG") projections, the
population in the Bank's primary service area is expected to grow from
approximately 265,600 in 1995 to over 280,000 by 2000, an increase in excess of
5.4%.
The Bank's secondary service area will be the remaining portion of Oakland
County not included within the primary service area. According to information
issued by Oakland County, the county is the third wealthiest county in the
nation among counties exceeding one million people and annual household income
more than doubled from $24,700 in 1980 to over $54,400 in 1993. According to
estimates of SEMCOG, population in Oakland County is projected to increase from
1,151,000 in 1995 to over 1,192,000 by 2000, an increase of 3.5%. Oakland County
is also a large banking market. According to available industry data, as of June
30, 1995, total deposits in Oakland County, including banks, thrifts and credit
unions, were approximately $18.4 billion.
The Bank's main office will also serve as the Company's corporate
headquarters. The Company's address will be 21211 Haggerty Road, Novi, Michigan
48375. The Company's telephone number is (810) 380-0779.
THE OFFERING
Securities offered by the
Company....................... 1,000,000 shares of Common Stock. In addition,
the Company has granted the Underwriter an
option to purchase up to an additional 150,000
shares to cover over-allotments. See
"Description of Capital Stock."
Common Stock to be outstanding
after the offering............ 1,000,000 shares (1,150,000 shares if the
over-allotment option is exercised in full).
Use of proceeds by the
Company....................... Capitalization of the Bank and payment of
organization and preopening expenses. See "Use
of Proceeds."
Proposed NASD Over-the-Counter
("OTC") Bulletin Board
Symbol........................ MHBC
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RISK FACTORS
The Common Stock offered hereby involves a high degree of risk and
should be considered only by persons who can afford the loss of their
investment. The following constitute some of the potential risks of an
investment in the Common Stock and should be carefully considered by
prospective investors prior to purchasing shares of Common Stock. The order of
the following is not intended to be indicative of the relative importance of
any described risk nor is the following intended to be inclusive of all risks
of investment in the Common Stock.
LACK OF OPERATING HISTORY
Neither the Company nor the Bank has any operating history. The
business of the Company and the Bank is subject to the risks inherent in the
establishment of a new business enterprise. Because the Company is only
recently formed and the Bank and the Company are in the process of obtaining
the necessary regulatory approvals, subject to the satisfaction of certain
conditions, and the Bank has not commenced banking operations as of the date of
this prospectus, prospective investors do not have access to all of the
information that, in assessing their proposed investment, is available to the
purchasers of securities of a financial institution with a history of
operations.
SIGNIFICANT START-UP LOSSES EXPECTED
As a result of the substantial start-up expenditures that must be
incurred by a new bank and the time it will take to develop its deposit base
and loan portfolio, it is expected that the Bank, and thus the Company, will
operate at a substantial loss during the start-up of the Bank. Accordingly,
neither the Company nor the Bank is expected to be profitable in the first year
of operation. Cumulative losses during the first two years of operation are
expected to be at least $500,000, but there can be no assurance that losses
will not exceed this amount. As a result, it is anticipated that the book
value of the Common Stock will decrease accordingly. Further, there is no
assurance that the Bank will ever operate profitably. If the Company does not
reach profitability and recover its accumulated operating losses and the
non-recoverable portion of its investment in fixed assets, investors will
suffer a significant decline in the value of their shares of Common Stock.
DELAY IN COMMENCING OPERATIONS
Although the Company and the Bank expect to receive all regulatory
approvals and commence business in their facilities during the first quarter
of 1997, there can be no assurance as to when, if at all, these events will
occur. Any delay in commencing operations will increase pre-opening expenses
and postpone realization by the Bank of potential revenues. Absent the receipt
of revenues and commencement of profitable operations, the Company's
accumulated deficit will continue to increase (and book value per share
decrease) as operating expenses such as salaries and other administrative
expenses continue to be incurred.
GOVERNMENT REGULATION AND MONETARY POLICY
The Bank has received preliminary approval from the Commissioner of
the Financial Institutions Bureau of the State of Michigan (the "Commissioner")
to organize and establish the Bank and expects to receive authority to commence
operations in the first quarter of 1997, subject to the satisfaction of certain
conditions. Those conditions include, among other things: (i) that beginning
paid-in capital of the Bank will be not less than $7.5 million; and (ii) a
commitment that the Bank will maintain a ratio of Tier 1 capital to total
assets for the first three years after commencing business of at least 8% and
an adequate valuation reserve in a minimum amount of 1.25% of the Bank's
outstanding loans and leases. Regulatory capital requirements imposed on the
Bank may have the effect of constraining future growth, absent the infusion of
additional capital.
The Bank received conditional approval for the insurance of its
deposits by the FDIC on January 10, 1997, subject to the satisfaction of
certain conditions. Those conditions include, among other things, that (i)
beginning paid-in capital of the Bank will not be less than $7.5 million; (ii)
the Bank becomes a member of the Federal Reserve System;
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and (iii) the Company's application to acquire the stock of the Bank (as
described below) be approved by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"). By letter dated January 29, 1997, the
Bank received conditional approval from the Federal Reserve Board to become a
member of the Federal Reserve System, subject to certain conditions. Those
conditions include, among other things, that the Bank's initial paid-in capital
will not be less than $7.5 million, that the Bank maintain its tangible Tier 1
leverage ratio at 9% or more for the first three years of operations, and that
the Bank may not pay dividends to the Company until after its first three years
of operations and two consecutive satisfactory composite CAMEL ratings, without
prior approval by the federal Reserve Bank of Chicago.
By letter dated January 29, 1997, the Company received conditional
approval from the Federal Reserve Board to become a bank holding company
through the acquisition of all of the shares of the Bank's stock, subject to
certain conditions. Those conditions include, among other things, that (i) the
Company's debt-to-equity ratio will not exceed 30%; (ii) no shareholder will
own, control, or hold with power to vote, 10% or more of the shares of the
Company's stock; and (iii) the acquisition will not be consummated before the
15th calendar day or after three months from the date of the Federal Reserve
Board's approval letter.
The Company and the Bank will be subject to extensive state and
federal government supervision, regulation and examination. Existing state and
federal banking laws will subject the Bank to substantial limitations with
respect to loans, purchase of securities, payment of dividends and many other
aspects of its banking business. Recently enacted legislation may adversely
affect the banking industry or the operations of the Bank and may result in
increased competition in the financial services industry. Federal economic and
monetary policy, as well as policy decisions of bank regulatory authorities,
may affect the Bank's ability to attract deposits, make loans and achieve
satisfactory interest spreads. See "Supervision and Regulation."
NO ASSURANCE OF DIVIDENDS
It is anticipated that no dividends will be paid on the Company's
Common Stock for the foreseeable future. The Company will be largely
dependent upon dividends paid by the Bank for funds to pay dividends on its
Common Stock, if and when such dividends are declared. No assurance can be
given that future earnings of the Bank, and resulting dividends to the Company,
will be sufficient to permit the legal payment of dividends to Company
shareholders at any time in the future. See "Supervision and Regulation."
Even if the Company may legally declare dividends, the amount and timing of
such dividends will be at the discretion of the Company's Board of Directors.
The Board may in its sole discretion decide not to declare dividends. These
shares should not be purchased by persons who need or desire dividend income
from this investment. For a more detailed discussion of other limitations on
the payment of cash dividends by the Company. See "Dividend Policy."
COMPETITION
The Company and the Bank will face strong competition for deposits,
loans and other financial services from numerous Michigan and out- of-state
banks, thrifts, credit unions and other financial institutions as well as other
entities which provide financial services, including consumer finance
companies, securities brokerage firms, mortgage brokers, equipment leasing
companies, insurance companies, mutual funds, and other lending sources and
investment alternatives. Some of the financial institutions and financial
services organizations with which the Bank will compete are not subject to the
same degree of regulation as the Bank. Many of the financial institutions
aggressively compete for business in the Bank's proposed market areas. Many of
these competitors have been in business for many years, have established
customer bases, have substantially higher lending limits than the Bank, are
larger and will be able to offer certain services that the Bank does not expect
to provide in the foreseeable future, including trust services, and
international banking services. In addition, most of these entities have
greater capital resources than the Bank, which, among other things, may allow
them to price their services at levels more favorable to the customer and to
provide larger credit facilities than could the Bank. See "Business -- Market
Area" and "Business -- Competition." Additionally, recently passed federal
legislation regarding interstate branching and banking and legislation
affecting the cost of deposit insurance premiums may act to increase
competition in the future from larger out-of-state banks and thrift
institutions. See "Supervision and Regulation -- Recent Regulatory
Developments."
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DEPENDENCE ON MANAGEMENT
The Company and the Bank are, and for the foreseeable future will be,
dependent primarily upon the services of Richard Zamojski, the Chairman of the
Board and Chief Executive Officer of the Company and the Bank, and Anthony S.
Albanese, President and Chief Operating Officer of the Company and the Bank.
If the services of Mr. Zamojski or Mr. Albanese were to become unavailable to
the Company or the Bank for any reason, or if the Company or the Bank were
unable to hire highly qualified and experienced personnel either to replace Mr.
Zamojski or Mr. Albanese or any other proposed employee, or to adequately
staff the anticipated growth of the Bank, the operating results of the Company
and the Bank would be adversely affected. The Company presently does not plan
to maintain "key man" life insurance on its senior executive officers, but may
elect to do so in the future. See "Business --Employees" and "Management."
DISCRETION IN USE OF PROCEEDS
The offering is intended to raise funds to provide for the initial
capitalization of the Bank, purchase leasehold improvements, equipment and
other assets for the Bank's operations, fund loans, provide working capital for
general corporate purposes and pay initial operating expenses. While
management currently has no such plans, if opportunities arise, some of the
proceeds of the offering may also be used to finance acquisitions of other
financial institutions, branches of other institutions or expansion into other
lines of business closely related to banking. However, management will retain
discretion in employing the proceeds of the offering. See "Use of Proceeds."
LENDING RISKS AND LENDING LIMITS
The risk of nonpayment of loans is inherent in commercial banking, and
such nonpayment, if it occurs, would likely have a material adverse effect on
the Company's earnings and overall financial condition as well as the value of
the Common Stock. Because the Bank does not have an operating history, none of
the Bank's customers will have an established credit history with the Bank.
The Bank intends to focus its commercial lending activity in the areas of
equipment financing and, to a lesser extent, commercial real estate loans and
secured term loans to businesses. Consumer lending will focus on single family
mortgage loans, home equity loans, and other forms of consumer lending.
Equipment financing loans typically are dependent on the successful operations
and stability of the borrower. Changes in general economic conditions and the
value of the collateral are also factors when evaluating the potential for risk
of loss. Commercial real estate loans typically involve relatively large loan
balances to single borrowers or groups of related borrowers. The payment
experience of such loans typically is dependent on the successful operation of
the real estate project. The potential for loss may occur due to cash flows
from the properties securing the loans becoming inadequate to service the loan
payments and the value of the collateral not being sufficient to repay the
loan. Consumer loan collections are dependent to a large degree on the
borrower's continuing financial stability and thus are more likely to be
adversely affected by circumstances such as job loss and personal bankruptcy,
as well as general economic conditions.
Management will attempt to minimize the Bank's credit exposure by
carefully monitoring the concentration of its loans within specific industries
and through loan application and approval procedures, but there can be no
assurance that such monitoring and procedures will reduce such lending risks.
Credit losses can cause insolvency and failure of a financial institution, and
in such event, its shareholders could lose their entire investment. The credit
approval policies for the Bank will be designed to provide an effective and
timely response to loan requests and to ensure the maintenance of a sound loan
portfolio. The Bank will manage credit risk and the credit approval process by
adhering to written policies which will generally specify underwriting
standards for each type of loan. All such policies will be reviewed by the
Board of Directors of the Bank.
The Bank's self-imposed lending limit initially will be $1 million
per customer relationship, although its legal lending limit will be $1,125,000
per customer relationship. Accordingly, the size of the loans which the Bank
can offer to potential customers is less than the size of loans which most of
the Bank's competitors are able to offer. This limit initially will affect the
ability of the Bank to seek relationships with the area's larger businesses.
The Bank expects to
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accommodate loan volumes in excess of its lending limit through the sale of
participations in such loans to other banks. However, there can be no
assurance that the Bank will be successful in attracting or maintaining
customers seeking larger loans or that the Bank will be able to engage in
participations of such loans on terms favorable to the Bank.
IMPACT OF INTEREST RATES AND ECONOMIC CONDITIONS
The results of operations for financial institutions, including the
Bank, may be materially and adversely affected by changes in prevailing
economic conditions, including declines in real estate market values, rapid
changes in interest rates and the monetary and fiscal policies of the federal
government. See "Supervision and Regulation -- General" and "-- Recent
Regulatory Developments." The Bank's profitability is in part a function of
the spread between the interest rates earned on investments and loans and the
interest rates paid on deposits and other interest-bearing liabilities. In the
early 1990s, many banking organizations experienced historically high interest
rate spreads. More recently, interest rate spreads have generally narrowed due
to changing market conditions and competitive pricing pressure, and there can
be no assurance that such factors will not continue to narrow interest rate
spreads or that the higher interest rate spreads will return. Although
economic conditions in the Bank's market area have been generally favorable,
there can be no assurance that such conditions will continue to prevail.
Substantially all the Bank's loans will be to businesses and individuals in
Southeastern Michigan and any decline in the economy of this area could have an
adverse impact on the Bank. Like most banking institutions, the Bank's net
interest spread and margin will be affected by general economic conditions and
other factors that influence market interest rates and the Bank's ability to
respond to changes to such rates. At any given time, the Bank's assets and
liabilities will be such that they are affected differently by a given change
in interest rates, principally due to the fact that the Bank does not plan to
match the maturities of its loans precisely with its deposits and other funding
sources. As a result, an increase or decrease in rates could have a material
adverse effect on the Bank's net income, capital and liquidity. While
management intends to take measures to mitigate interest rate risk, there can
be no assurance that such measures will be effective in minimizing the exposure
to interest rate risk. See "Supervision and Regulation."
NEED FOR TECHNOLOGICAL CHANGE
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. The Company's
future success will depend in part on its ability to address the needs of its
customers by using technology to provide products and services that will
satisfy customer demands for convenience as well as to create additional
efficiencies in the Bank's operations. Many of the Bank's competitors have
substantially greater resources to invest in technological improvements. Such
technology may permit competitors to perform certain functions at a lower cost
than the Bank. There can be no assurance that the Bank will be able to
effectively implement new technology-driven products and services or be
successful in marketing such products and services to its customers. See
"Business -- Business Strategy."
ANTI-TAKEOVER PROVISIONS
Chapters 7A and 7B of the Michigan Business Corporation Act (the
"MBCA") provide for certain supermajority vote and other requirements on
certain business combinations with interested shareholders and limit voting
rights of certain acquirors of "control shares," as that term is defined in the
MBCA. In addition, federal law requires the approval of the Federal Reserve
Board prior to acquisition of "control" of a bank holding company. These
provisions may have the effect of delaying or preventing a change in control of
the Company without action by the shareholders. As a result, these provisions
could adversely affect the price of the Common Stock by, among other things,
preventing a shareholder of the Company's Common Stock from realizing a premium
which might be paid as a result of a change in control of the Company. See
"Description of Capital Stock - Certain Anti-Takeover Provisions."
8
<PAGE> 10
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation and Bylaws provide for the
indemnification of its officers and directors and insulate its officers and
directors from liability for certain breaches of the duty of care. It is
possible that the indemnification obligations imposed under these provisions
could result in a charge against the Company's earnings and thereby affect the
availability of funds for payment of dividends to the Company's shareholders.
See "Description of Capital Stock -- Indemnification of Directors and
Officers."
DETERMINATION OF OFFERING PRICE; LIMITED TRADING MARKET EXPECTED
The initial public offering price of $10.00 per share was determined
by the Company in consultation with the Underwriter. This price is not based
upon earnings or any history of operations and should not be construed as
indicative of the present or anticipated future value of the Common Stock.
Prior to the offering, there has been no public trading market for the Common
Stock. The price at which these shares are being offered to the public may be
greater than the market price for the Common Stock following the offering. The
Underwriter has advised the Company that, upon completion of the offering, it
intends to use reasonable efforts to initiate quotations of the Common Stock on
the NASD OTC Bulletin Board and to act as a market maker in the Common Stock,
subject to applicable laws and regulatory requirements, although the
Underwriter is not obligated to do so. Making a market in securities involves
maintaining bid and ask quotations and being able, as principal, to effect
transactions in reasonable quantities at those quoted prices, subject to
various securities laws and other regulatory requirements. The development of
a public trading market depends, however, upon the existence of willing buyers
and sellers, the presence of which is not within the control of the Company,
the Bank or any market maker. Market makers on the NASD OTC Bulletin Board are
not required to maintain a continuous two-sided market, are required to honor
firm quotations for only a limited number of shares, and are free to withdraw
firm quotations at any time. Even with a market maker, factors such as the
limited size of the offering, the lack of earnings history of the Company and
the absence of a reasonable expectation of dividends within the near future
mean that there can be no assurance of an active and liquid market for the
Common Stock developing in the foreseeable future. Even if a market develops,
there can be no assurance that a market will continue, or that shareholders
will be able to sell their shares at or above the price at which these shares
are being offered to the public. Purchasers of Common Stock should carefully
consider the limited liquidity of their investment in the shares being offered
hereby.
REGULATORY RISK
The banking industry is heavily regulated. Many of these regulations
are intended to protect depositors, the public, and the deposit insurance funds
administered by the FDIC, not shareholders. Applicable laws, regulations,
interpretations and enforcement policies have been subject to significant, and
sometimes retroactively applied, changes in recent years, and may be subject to
significant future changes. There can be no assurance that such future changes
will not adversely affect the business of the Company. In addition, the burden
imposed by federal and state regulations may place banks in general, and the
Company specifically, at a competitive disadvantage compared to less regulated
competitors. See "Supervision and Regulation."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares
of Common Stock offered hereby are estimated to be $9,300,000 ($10,695,000 if
the Underwriter's over-allotment option is exercised in full), after deduction
of the underwriting discounts and commissions, but before deducting estimated
offering expenses of $200,000. The Underwriter has agreed that no underwriting
discounts or commissions will be incurred by the Company up to 300,000 shares
sold by the Underwriter to members of the Board of Directors, their immediate
families or certain other designated individuals. If such persons purchase
300,000 shares, underwriting discounts and commissions will be reduced by, and
proceeds to the Company will be increased by $210,000.
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<PAGE> 11
The Company expects to contribute approximately $7.5 million of the net
proceeds of the offering to the Bank by purchasing all of the Bank's common
stock to be issued. This purchase of the Bank's stock is intended to provide
the Bank with the capital required by regulators to commence operations. The
Bank plans to use approximately $30,000 for leasehold improvements and
$350,000 to purchase furniture, fixtures and equipment and other necessary
assets for the Bank's operations. The Company expects to use approximately
$120,000 of the net proceeds to pay for preopening and organizational expenses
of the Bank. These preopening and organizational costs were financed on an
interim basis from loans made to the Company by certain of the Bank's
organizers. It is anticipated that these loans will be repaid by the Company
promptly following the completion of the offering. Preopening income may offset
some of these expenses. It is currently anticipated that the balance of the
net proceeds received by the Bank will be used to fund investments in loans and
securities and for payment of operating expenses. The remaining net proceeds
(plus any net proceeds as a result of the exercise of the Underwriter's
over-allotment option) initially will be invested by the Company in investment
grade securities and otherwise held by the Company as working capital for
general corporate purposes and to pay operating expenses, as well as for
possible future capital contributions to the Bank. The funds will also be
available to finance possible acquisitions of other branches or expansion into
other lines of business closely related to banking, although the Company
presently has no plans to do so.
DIVIDEND POLICY
The Company initially expects that Company and Bank earnings, if any,
will be retained to finance the growth of the Company and the Bank and that no
cash dividends will be paid for the foreseeable future. If the Bank achieves
profitability and recovers its operating deficit, the Company may consider
payment of dividends. However, the declaration of dividends will be at the
discretion of the Board of Directors and there is no assurance that dividends
will be declared at any time. If and when dividends are declared, the Company
will be dependent largely upon dividends paid by the Bank for funds to pay
dividends on the Common Stock. It is also possible, however, that the Company
might at some time in the future pay dividends generated from income or
investments and from other activities of the Company.
Under Michigan law, the Bank will be restricted as to the maximum
amount of dividends it may pay on its Common Stock. A Michigan state bank may
not declare dividends except out of net profits then on hand after deducting
its losses and bad debts and then only if the bank will have a surplus
amounting to at least 20% of its capital after the payment of the dividend. A
Michigan state bank may not declare or pay any cash dividend or dividend in
kind until the cumulative dividends on its preferred stock, if any, have been
paid in full. If the surplus of a Michigan state bank is at any time less than
the amount of its capital, before the declaration of a cash dividend or
dividend in kind, it must transfer to surplus not less than 10% of its net
profits for the preceding half-year (in the case of quarterly or semi-annual
dividends) or the preceding two consecutive half-year periods (in the case of
annual dividends). The ability of the Company and the Bank to pay dividends is
also affected by various regulatory requirements and policies, such as the
requirement to maintain adequate capital above regulatory guidelines. See
"Supervision and Regulation." Such requirements and policies may limit the
Company's ability to obtain dividends from the Bank for its cash needs,
including funds for acquisitions, payment of dividends by the Company and the
payment of operating expenses.
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<PAGE> 12
CAPITALIZATION
The following table sets forth the capitalization of the Company as it
is projected to be immediately after the sale of the 1,000,000 shares of Common
Stock offered hereby and the application of the estimated net proceeds. See
"Use of Proceeds."
<TABLE>
<S> <C>
Shareholders' equity (1):
Common Stock, no par value,
4,500,000 shares authorized;
1,000,000 shares issued and
outstanding $9,300,000
----------
Preferred Stock, no par value,
500,000 shares authorized;
no shares issued and outstanding $ 0
Retained earnings (deficit) $ (100,000)
----------
Total shareholders' equity $9,200,000
==========
</TABLE>
- --------------------
(1) Organization expenses of approximately $120,000 will be amortized over
a 60-month period.
BUSINESS
BACKGROUND
The liberalization in recent years of Michigan's branch banking laws,
together with the expansion of interstate banking, has led to substantial
consolidation of the banking industry in Michigan and especially the
Metropolitan Detroit area in which the Bank is located. In the past several
years, many of the financial institutions within the primary market area of the
Bank have either been acquired by or merged with larger financial institutions
or out-of-state financial institutions. According to Sheshunoff Information
Services Inc., since 1990, over 70 bank branches have closed within the Bank's
primary and secondary market areas. In many cases, when these consolidations
occurred, local boards of directors were dissolved and local management
relocated or in some cases terminated. This has in some cases resulted in
policy and credit decisions being centralized away from the local management of
the financial providers in the Bank's primary and secondary market areas.
In the opinion of the Company's management, this situation has created
a favorable opportunity for a new bank with local management and directors.
Management of the Company believes that such a bank can attract those customers
who wish to conduct business with a locally managed institution that
demonstrates an active interest in their business and personal financial
affairs. The Company believes that a locally managed institution will be able
to deliver more timely responses to customer requests, provide customized
financial products and services, and offer the personal attention of the Bank's
senior banking officers.
The Company was incorporated in 1989 as a Michigan business
corporation, will hold all of the Bank's issued and outstanding stock, and will
engage in the business of a bank holding company under the federal Bank Holding
Company Act of 1956, as amended. On November 25, 1996, the Bank received an
order from the Commissioner preliminarily approving the application to
establish the Bank, subject to certain conditions set forth in its order. The
Bank received conditional approval of its application for FDIC deposit
insurance on January 10, 1997. By letter dated January 29, 1997, the Bank
received conditional approval from the Federal Reserve Board to become a
member of the
11
<PAGE> 13
Federal Reserve System, subject to certain conditions set forth in its letter.
By letter dated Janauary 29, 1997, the Company received conditional approval
from the Federal Reserve Board to become a bank holding company through the
acquisition of all of the shares of the Bank's stock, subject to certain
conditions set forth in its letter. The Bank and the Company expect to have all
conditions to the Commissioner's, the FDIC and the Federal Reserve Board
approvals satisfied in the first quarter of 1997 to the extent they are
required to be met before commencing business. The Bank intends to commence
business as soon as reasonably practical upon completion of the offering and
satisfaction of conditions to which certain of its regulatory approvals are
subject. See "Risk Factors -- Delay in Commencing Operations" and "Risk Factors
- -- Government Regulation and Monetary Policy."
The Company will own all of the issued and outstanding stock of the
Bank. Prior to the completion of the offering, the Company will have only one
share of Common Stock outstanding with such share being held by Richard
Zamojski. Following completion of the offering and before commencement of
operations, the Bank intends to complete the furnishing of its facility,
certain training of its staff and the purchase, lease and installation of
equipment necessary to transact a banking business. Correspondent banking
relationships and other arrangements for services will be completed as
necessary.
The Company's principal office is located at 21211 Haggerty Road,
Novi, Michigan 48375, and its telephone number is (810) 380-0779.
BUSINESS STRATEGY AND PLAN OF OPERATION
The Bank intends to provide a focused range of business and consumer
financial services to serve small to medium-sized business customers as well as
individuals. The foundation of this strategy will be to emphasize the skills
which management has developed over the past 20 years and management's
commitment to the Bank's primary market area. The Bank's core business
activities will consist primarily of attracting deposits from the general
public and using such deposits, together with borrowings and equity capital, to
originate or purchase commercial equipment leases, commercial real estate
loans, residential mortgage loans, land contracts and home equity loans.
Richard Zamojski, Chairman and Chief Executive Officer of the Company and the
Bank, and Anthony S. Albanese, President and Chief Operating Officer of the
Company and the Bank, each have over 20 years experience in the financial
services industry. Prior to coming to the Company, Mr. Zamojski was Chairman
and Chief Executive Officer and Mr. Albanese was President and Chief Operating
Officer of a privately-owned financial institution located in southeastern
Michigan. During their tenure, the institution grew from approximately $120
million in total assets to approximately $1 billion in total assets and
developed from primarily a mortgage banking institution to a fully diversified
financial institution offering a full line of commercial and consumer banking
products. The Bank's executive officers and non-executive staff will be
committed to providing outstanding customer service and banking products. The
Bank intends to compete aggressively for its banking business through a
systematic program of direct calling on both customers and referral sources
such as attorneys, accountants and other business people, many of whom the
management has come to know during their professional careers.
COMMERCIAL EQUIPMENT FINANCING (LEASE DISCOUNTING). During the past 20
years, the executive officers have developed significant expertise and
experience in various forms of commercial equipment financing. One such method
of equipment financing on which the Bank intends to focus is lease discounting.
Lease discounting is sometimes confused with direct leasing. Under a direct
lease, the leasing company acts as lessor and actually owns the equipment,
leases it to a third party and takes back the equipment at the end of the lease
and assumes the accompanying residual risk. Under a lease discounting loan,
the Bank will not be the lessor, but rather the Bank will be a funding source
to the leasing company ("Lessor"). Under lease discounting the Bank will make
a loan to the Lessor based on the discounted value of the lease payment stream
and will take an assignment of the lease payments which will then be made
directly to the Bank. The Lessor continues to own the equipment and assumes
the residual risk. Lease discount loans are in most cases full pay-out
transactions, and typically are dependent on the successful operations and
stability of the borrower. In addition, the Bank assumes no direct residual
risk on the equipment, which means that the Bank is not dependent on the
liquidation of the equipment at the end of the lease discount loan term to
realize its expected rate of return. The Bank simply discounts a stream of
payments and services the loan.
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<PAGE> 14
The Bank intends to concentrate on the middle market range, where the
management team has the bulk of its experience. This range is characterized by
loan transactions between $25,000 and $500,000 involving lessees generally
having a net worth of $500,000 to $5 million. Equipment underlying the Bank's
equipment financing will include, without limitation, computer, medical,
transportation, office, graphic and printing equipment and machine tools. The
Company will lend to the Lessor, take an assignment of the lease payments to
repay the loan and take a security interest in the underlying collateral.
A typical lease discount loan generally is structured along the
following lines. The Lessor and lessee (the user of the equipment and ultimate
repayment source) build a relationship over a period of time such that the
lessee communicates its financing needs to the Lessor. The lessee selects the
desired equipment and vendor and agrees on the purchase price with the vendor.
The Lessor obtains financial information on the lessee and provides
this to a funding source, such as the Bank, for credit approval. Upon
satisfactory review, the Bank approves the lessee, sets the rate at which the
lease will be discounted and dollar amount of the loan. Once the equipment is
delivered to the lessee by the vendor, the appropriate documentation is
presented to the Bank for review and funding.
After satisfactory review of the documents and verification that the
equipment has been delivered to the lessee, the Bank typically obtains a
non-recourse note from the Lessor and discounts the lease by funding the
present value of the stream of payments. The loan proceeds are used to pay the
vendor for the equipment and the Lessor its profit on the transaction.
Non-recourse means the Bank must collect on its loan first from the lease
payment stream which has been assigned to the Bank and then from the underlying
collateral. The Lessor is under no obligation to make payments on the loan
except in the case of fraud or misrepresentation. The lessee is notified of
the transfer of the lease to the Bank, instructions are given to begin
remitting payment directly to the Bank and Uniform Commercial Code financing
statements are filed indicating that a purchase money security interest has
been obtained.
By dealing through Lessors in the leasing brokerage community, the
Company anticipates it will be able to reduce costs and keep lending and
support staff at lower levels, unlike other financial institutions which
typically would finance this type of equipment through a direct loan which
requires a larger staff of loan officers and support staff.
Because the Bank expects to be able to generate a significant volume
of commercial equipment lease paper, it is anticipated that the Bank will
pursue alternative sources of funding to compliment funds generated through
deposit gathering. Line of credit facilities with regional and national
lending institutions may be pursued to add funding capacity to the Bank. The
Bank will also endeavor to establish a network of local community banks that
may purchase loans or participate in its loan portfolios. These funding
sources are expected to allow the Bank to service its customer relationships,
build its own loan portfolio and generate fee and servicing revenue
simultaneously.
OTHER COMMERCIAL LENDING. The Bank expects to offer commercial real
estate lending services to customers in its primary service area, secondary
service area and in southeastern Michigan in general. The Bank anticipates
generating business through its affiliations with commercial real estate
brokers and on a direct basis with owners of commercial properties. These
loans generally would be secured by apartment buildings or owner-occupied
properties.
The Bank recognizes that commercial real estate lending generally
involves a higher degree of risk than residential real estate lending. In
order to help manage and reduce these risks, management intends to use strict
underwriting standards in its commercial real estate lending business. Bank
policy will govern adherence to specified loan to value ratios, income ratios
and insurance and escrow requirements. These ratios and requirements will
depend on a variety of factors, including general economic conditions, the
value of the collateral and the creditworthiness of the borrower, designed to
protect the Bank's assets consistent with prudent banking practices. The Bank
expects to require personal guarantees and bank depository relationships for
most commercial real estate borrowers.
The Bank also plans to offer loans secured by all assets of the
customer, including personal assets, and backed by the personal guarantee of
the customer. Loans of this nature are secured in this manner to offset a
perceived higher
13
<PAGE> 15
level of risk. This risk is evaluated based upon information about specific
borrowing circumstances including financial position, collateral values and
other factors and estimates that are subject to change over time. These loans
will be reviewed and monitored on a basis designed to ensure that all relative
matters affecting the ability to collect the loan will be consistently
identified and reviewed by Bank management. The Bank does not anticipate
offering loans secured only by accounts receivable and inventory.
RESIDENTIAL MORTGAGE LENDING. The Bank intends to originate
residential mortgage and home equity loans in its primary service area in
particular, its secondary service area in general and also in other areas of
southeastern Michigan. The credit risks associated with this type of lending
are a function of a borrower's financial condition and earnings capacity, as
well as the underlying market values of the real estate securing the loans.
Where there are concerns about these factors, private mortgage insurance may be
required. Fixed rate loans of this type also have an interest rate risk factor
in that rising interest rates will result in a reduction of the loan's market
value. Management will seek to penetrate this market by capitalizing on
management's collective knowledge of these markets and its relationship with
correspondent brokers and other sources of residential mortgage loans. To a
lesser degree, the Bank will offer mortgage loans and other loan products
directly to the general public through its main office.
The majority of loans acquired or originated are expected to be
conventional mortgage loans secured by residential properties and comply with
requirements for sale to Federal National Mortgage Association or the Federal
Home Loan Mortgage Corporation, which include specific loan-to-value ratios and
other lending criteria. While some variable rate residential loans are
expected to be retained by the Bank, the majority of all conforming residential
loans are expected to be held for a short period of time (generally less than
60 days) and then sold to secondary market investors. It is intended that
these loans would be sold on a non-recourse basis and the Bank generally
expects to obtain purchase commitments from investors prior to funding the
loans. As a result of efforts in this area, the Bank plans to retain a portion
of the loan origination fee paid by the borrower and receive fees as
compensation for selling the loans to secondary market investors.
Through its mortgage lending activity, the Bank also expects to
acquire or originate non-conforming residential mortgage loans, which are
considered to bear a higher degree of credit risk. These loans would not meet
government agency standards for a variety of reasons. The structure of these
loans would typically be a variable rate basis. Although a private secondary
market exists for these loans, the Bank expects to retain the majority in its
portfolio due to their interest rate sensitivity and rates of return.
LAND CONTRACT LENDING. The Bank also intends to acquire land
contracts. A land contract is a private lending arrangement between a buyer
and seller of residential real estate, whereby the seller of real estate
contractually agrees to transfer title to the real property when the buyer
completes paying for it. These land contracts would be acquired from the land
contract sellers on a discounted non-recourse basis with financing terms on a
fixed rate basis and amortization period generally ranging from 5 to 15 years.
It is expected that these land contracts typically would come from rural
outstate environments as well as urban locations where conventional methods of
financing are not available in many cases. It is anticipated that this type of
lending offers a higher rate of return on investment as well as a higher degree
of risk. To compensate for this risk, reserves would be set aside at the time
of acquisition and held by the Bank during the term of the land contract.
Lending programs of this type help provide financing to disadvantaged borrowers
and at the same time help the Bank to fulfill its responsibilities as mandated
by the Community Reinvestment Act (the "CRA"). Generally, loan to value ratios
will be predicated on the strength of the borrower and the overall
circumstances of the transaction.
Management expects that initially approximately 75% of the total loans
will be in commercial loans, and that the remaining loans will be composed of
residential mortgage lending (including land contracts), commercial real estate
lending and consumer lending (including home equity loans), in that order of
concentration.
DEPOSITS AND RETAIL BANKING. The Bank plans to offer its retail
customers a variety of deposit accounts and loan products. The Bank plans on
taking advantage of increasing population and rising income levels in the
growing areas of its primary and secondary market areas, including Wayne,
Oakland, Livingston, Washtenaw and Macomb
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<PAGE> 16
counties. Bank personnel will be trained to offer a variety of deposit
options. These options are expected to include demand deposit accounts,
regular savings accounts, NOW accounts, money market demand accounts and
certificates of deposit. On the lending side, bank representatives expect to
provide products including home equity loans, lines of credit, bridge loans and
residential mortgage loans.
The Bank plans to operate its retail operations within its
headquarters facilities with both teller and drive-up service capabilities.
The retail service area within the main office occupies approximately 1,500
square feet.
The Bank's deposit funding strategy will be to offer a rate structure
slightly higher than the competition because of its anticipated low overhead.
One of the elements of the Bank's strategy will be to increase deposits at a
rate that is consistent with its growth in earning assets and to maintain a
stable rate of core deposits to time deposits so that the Bank can obtain a
lower cost and more stable source of funds.
Additionally, the Bank plans to offer a range of products and
services, including telephone banking and automated bill paying services to
individuals in the Bank's market area. Computer banking may be offered at a
later date. The Bank does not intend initially to use proprietary automated
teller machines ("ATM"), but does intend to issue ATM/debit cards that will
allow users access to third-party electronic funds transfer networks. The
management team plans to regularly review these products and services to remain
competitive in the marketplace.
INVESTMENTS. The principal investment of the Company is expected to
be its purchase of all of the common stock of the Bank. Funds retained by the
Company from time to time may be invested in various debt instruments,
including but not limited to obligations of or guaranteed by the United States,
general obligations of a state or political subdivision thereof, bankers'
acceptances or certificates of deposit of U.S. commercial banks, or commercial
paper of U.S. issuers rated in the highest category by a nationally-recognized
investment rating service. Although the Company is permitted to make limited
portfolio investments in equity securities and to make equity investments in
subsidiary corporations engaged in certain non-banking activities which may
include real estate-related activities, such as mortgage banking, community
development, real estate appraisals, arranging equity financing for commercial
real estate and owning and operating real estate used substantially by the Bank
or acquired for its future use, the Company has no present plans to make any
such equity investment. See "Supervision and Regulation -- The Company --
Investments and Activities." The Company's Board of Directors may alter the
Company's investment policy without shareholder approval.
The Bank may invest its funds in a wide variety of debt instruments
and may participate in the federal funds market with other depository
institutions. Subject to certain exceptions, the Bank is prohibited from
investing in equity securities. Under one such exception, in certain
circumstances and with the prior approval of the FDIC, the Bank could invest up
to 10% of its total assets in the equity securities of a subsidiary corporation
engaged in certain real estate-related activities. The Bank has no present
plans to make such an investment. Real estate acquired by the Bank in
satisfaction of or foreclosure upon loans may be held by the Bank, subject to a
determination by a majority of the Bank's Board of Directors at least annually
of the advisability of retaining such property, for a period not exceeding 60
months after the date of acquisition, or such longer period as the Commissioner
may approve. The Bank is also permitted to invest an aggregate amount not in
excess of its capital in such real estate as is necessary for its accommodation
in the transaction of its business. The Bank has no present plans to make any
such investment. The Bank's Board of Directors may alter the Bank's investment
policy without shareholder approval.
MARKET RESPONSIVENESS. The management team will monitor the
performance of each part of the Bank's business strategy. The strategy may
change based on market conditions and acceptance of the strategy and as the
executive officers evaluate new opportunities. The Bank expects to respond to
changes in the marketplace by focusing attention and resources on those areas
that show the greatest potential for growth. While the Bank expects to
concentrate on the business strategy as described above, market forces may
dictate alterations that cannot be predicted at this time.
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<PAGE> 17
MARKET AREA
Management believes that recent changes in the local banking industry,
including mergers and acquisitions involving both commercial banks and thrift
institutions, resulted in a decrease in the level of service for small to
medium-sized business customers in the Bank's market area. Management believes
that there continues to be the perception in the local business community that
many of the larger financial institutions are not as focused on providing
personal service to small to medium-sized businesses. Accordingly, management
believes that there are increased market opportunities for the Bank to serve
these businesses.
The Bank's primary service area will be Novi, Farmington, Farmington
Hills, Livonia, Northville, and Northville Township. The communities of Novi,
Farmington, Farmington Hills and parts of Northville and Northville Township
are located within Oakland County, Michigan, and the communities of Livonia and
parts of Northville and Northville Township are located within Wayne County,
Michigan.
Management believes that the communities that comprise the Bank's
primary service area have a stable and diverse economic base, which includes a
wide range of small to medium-sized businesses engaged in manufacturing, high
technology research and development, computer services and retail. According
to statistics issued by the Census Bureau in 1990, median annual household
incomes in the communities that comprise the Bank's primary service area are:
$47,518 (Novi); $41,040 (Farmington); $51,986 (Farmington Hills); $48,645
(Livonia); $38,629 (Northville); and $55,465 (Northville Township). Further,
according to SEMCOG, the population in the Bank's primary service area is
expected to grow from approximately 265,600 in 1995 to over 280,000 by 2000, an
increase in excess of 5.4%.
The Bank's secondary service area will be the remaining portion of
Oakland County not included within the primary service area. According to
information issued by Oakland County, the county is the third wealthiest county
in the nation among counties exceeding one million people and average annual
household income more than doubled from $24,700 in 1980 to over $54,400 in
1993. According to SEMCOG, population in Oakland County is projected to
increase from 1,151,000 in 1995 to over 1,192,000 by 2000, an increase of 3.5%.
Oakland County is also a large banking market. According to available industry
data, as of June 30, 1995, total deposits in Oakland County, including banks,
thrifts, and credit unions, were approximately $18.4 billion.
COMPETITION
There are many thrifts, credit unions and bank offices located within
the Bank's primary and secondary market areas. Most are branches of larger
financial institutions which, in management's view, are managed with a
philosophy of strong centralization. The Bank will face competition from the
thrifts, credit unions and other banks as well as finance companies, insurance
companies, mortgage companies, securities brokerage firms, equipment leasing
companies, mutual funds, money market funds and other providers of financial
services. Most of the Bank's competitors have been in business a number of
years, have established customer bases, are larger and have higher lending
limits than the Bank. The Bank will compete for loans principally through its
ability to communicate effectively with its customers and to understand and
meet their needs. Management believes that its personal service philosophy
will enhance its ability to compete favorably in attracting individuals and
small businesses. The Bank will actively solicit retail customers and will
compete for deposits by offering customers personal attention, professional
service, computerized banking and competitive interest rates.
BANK PREMISES
The Bank has leased a 3,000 square foot building at 21211 Haggerty
Road, Novi, Michigan, for use as the Bank's main office and the Company's
headquarters. The lease term extends until June 30, 2002, at an annual rent of
$45,000. The building was originally built in 1988 to be a bank branch and has
one drive-up window and three drive-up bays. The building has substantial
on-site parking. There is one entrance/exit on Haggerty Road as well as a rear
exit to Orchard Hill Place. Access to the main office is available to Oakland
and Wayne County residents by using I-275, I-96, I-696 and Grand River Avenue.
As a condition to entering into the lease, Mr. Albanese was required to provide
16
<PAGE> 18
a letter of credit to the landlord which can be drawn on if the Bank terminates
the lease prior to the expiration of the lease term.
EMPLOYEES
Upon commencement of operations, the Bank expects to employ
approximately 11 full-time employees, including its executive officers, teller
staff and other support positions. Management will encourage all employees to
share management's goal of high-quality customer service. Mr. Zamojski and Mr.
Albanese intend to actively monitor the performance of the non-executive staff
through programs and procedures they have developed, adopted, implemented and
operated over the past 20 years.
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and officers of the Company as of the date hereof, and
the contemplated directors and officers of the Bank upon completion of this
offering, are as follows:
<TABLE>
<CAPTION>
POSITION WITH DIRECTOR TERM POSITION(S)
NAME AND AGE THE COMPANY EXPIRES WITH THE BANK
------------ ------------- ------------- -------------
<S> <C> <C> <C>
Richard Zamojski, 45 Chairman of the Board, Chief Executive Officer, 1999 Chairman of the Board,
and Director Chief Executive Officer,
and Director
Anthony S. Albanese, 49 President, Chief Operating Officer and Director 1998 President, Chief Operating
Officer and Director
H. Perry Driggs, Jr., 60 Director 1999 Director
Lewis N. George, 58 Director 1998 Director
Phillip R. Harrison, 41 Director 1997 Director
Philip Sotiroff, 58 Director 1997 Director
Darryle J. Parker, 47 Secretary, Treasurer and Chief N/A Secretary, Treasurer and
Financial Officer Chief Financial Officer
</TABLE>
Under Federal law and regulations and subject to certain exceptions,
the addition or replacement of any director, or the employment, dismissal or
reassignment of a senior executive officer, of the Bank occurring within two
years of the chartering of the Bank, its acquisition by the Company, or any
change in control of the Bank or the Company (or at any time that the Bank is
not in compliance with applicable minimum capital requirements or is otherwise
in a troubled condition) is subject to prior notice to and disapproval by the
FDIC.
The Company's Articles of Incorporation provide that the number of
directors, as determined from time to time by the Board of Directors, shall be
no less than five and no more than twelve. The Board of Directors has
presently fixed the number of directors at six. The Articles of Incorporation
further provide that the directors shall be divided into three classes, Class
I, Class II, and Class III, with each class serving a staggered three-year term
and with the number
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<PAGE> 19
of directors in each class being as nearly equal as possible. The initial terms
of the Class I, Class II, and Class III directors have been established at
one year, two years, and three years, respectively. The subsequent terms of
each class of director will be three years.
Darryle J. Parker is employed by the Company and the Bank as Secretary,
Treasurer and Chief Financial Officer of the Company and the Bank. Mr. Parker
has over 23 years of experience in the financial services industry and worked
with Mr. Zamojski and Mr. Albanese prior to coming to the Company.
It is anticipated that the entire Board of Directors of the Bank will
be elected annually by its shareholder, the Company. Officers of the Company
and the Bank will be appointed annually by their respective Boards of Directors
and perform such duties as are prescribed in the Bylaws or by the Board of
Directors. There are no family relationships among any of the Company's
directors, officers or key personnel.
None of the executive officers or staff are subject to any agreements
with former employers that restrict their right to fully perform their duties
with the Company or the Bank.
EXPERIENCE OF DIRECTORS AND OFFICERS
The experience and backgrounds of the directors and officers, and their
proposed positions with the Company, are summarized below.
RICHARD ZAMOJSKI was employed by Sterling Bank & Trust, F.S.B. ("Sterling" )
from 1990 to August, 1996 where he attained the position of Chairman of the
Board and Chief Executive Officer. Mr. Zamojski was responsible for the
overall strategic plan of Sterling and was the chief liaison with the ownership
of the privately held Bank. Mr. Zamojski also had specific responsibility for
mortgage banking, human resources and the financial and accounting functions of
the Bank. Mr. Zamojski was chairman of the Operations Committee and served as
a member of the Executive, Trust, Loan and Credit, and Compensation Committees.
He also is a member of the Equipment Leasing Association, the Mortgage Banker's
Association of Michigan, the Builders Association of Southeastern Michigan and
the Michigan Mortgage Brokers Association, where he also served as a past
director. Previously, Mr. Zamojski was employed by Whirlpool Financial
Corporation ("Whirlpool") attaining the position of Vice President-Marketing
and member of the Board of Directors (1984-1989), and Michigan National Leasing
Corporation, where he was Group Vice President until the acquisition of the
business by Whirlpool in 1984. Mr. Zamojski received his Bachelor of Science
degree in Accounting from Central Michigan University in 1973 and a Masters in
Business Administration with a concentration in Finance from the University of
Michigan in 1975. He is a resident of Brighton, Michigan.
ANTHONY S. ALBANESE was employed by Sterling from 1990 to May, 1996 where he
attained the position of President and Chief Operating Officer and was a member
of the Board of Directors. He also acted as the CRA Officer and was a member
of the Oakland County CRA Committee. Mr. Albanese oversaw the day to day
lending, loan purchasing, loan servicing and trust operations of Sterling with
credit approval authority of $1,000,000. Mr. Albanese was also Chairman of the
Electronic Data Processing Committee and a member of the Asset/Liability,
Trust, Operations, Executive and Loan and Policy Committees. He also served
on the IBM Community Bank Advisory Council, was a member of the Equipment
Leasing Association, the Mortgage Bankers Association and the Builders
Association of Southeastern Michigan. Previous thereto, he was employed by
Whirlpool attaining the position of Vice President-Operations and was a member
of the Board of Directors (1984-1989), and Michigan National Leasing
Corporation, where he was a Group Vice President until the acquisition of the
business by Whirlpool in 1984. Mr. Albanese received an Associate in Science
degree in General Business in 1973 and a Bachelor of Science degree in
Accounting in 1977 from Detroit College of Business. He served in the U.S.
Army Security Agency (Military Intelligence) from 1965 to 1969 with service in
Viet Nam during 1966-67. He is a resident of Northville, Michigan.
DARRYLE J. PARKER has been in the banking industry in excess of 23 years, and
during the past 17 years has served as chief financial officer and/or
controller involving all phases of financial planning, analysis, and
accounting. He was most recently the Treasurer at Sterling (1993-1995) and,
prior to that, attained the positions of Assistant Vice President
18
<PAGE> 20
and Controller at Heritage Federal Savings Bank, Taylor, Michigan (1992-93),
Vice President and Controller at Security Bank and Trust, Southgate, Michigan
(1990-1991), and Vice President and Cashier at Security Bank of Monroe, Monroe
Michigan (1970-1989). Mr. Parker has an Associate of Science, Monroe County
Community College (1976), a Bachelor of Business Administration in Accounting
from Ohio University (1986), a Masters in Business Administration from Michigan
State University (1988), and is a graduate from the School of Banking
Administration, Controllership, University of Wisconsin (1981). Mr. Parker was
in the United States Marine Corps (1967-1969) serving in Viet Nam. Mr. Parker
is a resident of Monroe, Michigan.
H. PERRY DRIGGS, JR. is the President of Great Lakes Capital Corporation, a
privately-owned investment banking and corporate finance firm (1987 to
present). Prior to that, he served as an executive at Michigan National Bank
and served in various capacities, including Treasurer and director, at Michigan
National Corporation (1962-1987). Mr. Driggs is a director of Detroit Mortgage
and Realty Company. He received his undergraduate degree from Harvard College
(1958), a Masters degree in Industrial Engineering from Northwestern University
(1959) and returned to Harvard Business School for his Masters in Business
Administration (1961). Mr. Driggs is a member of the Financial Executives
Institute and is President of the Harvard Business School Club of Detroit and
is involved in a number of local community and charitable organizations. Mr.
Driggs is a resident of Bingham Farms, Michigan.
LEWIS N. GEORGE is currently the President of The George Group, a real estate
development and management company. In 1960 Mr. George began his career with
Nicholas George Theatres, a family owned business that operated a chain of
movie theatres throughout the Detroit Metropolitan Area. He became President
from 1974 through the eventual sale of the theatres in 1988. Mr. George served
as an officer of the Detroit branch of the National Association of Theatre
Owners and was a past director and officer of the Detroit Variety Club. Mr.
George received his undergraduate degree from the University of Michigan (1961)
and a Juris Doctor from Wayne State Law School (1964). Mr. George is an active
member of Orchard Lake Country Club and is a resident of Orchard Lake,
Michigan.
PHILLIP R. HARRISON is the President of Harrison Capital Corporation, a private
investment banking firm which he founded in 1992. His company concentrates in
equity and debt placements for equipment leases and loans. Mr. Harrison was a
managing director of Kendall Capital Partners L.P. (1991-1992), a private
investment banking firm offering specialized advisory services in the areas of
secured asset financing, equipment leasing and project finance. He was a Vice
President and manager of U.S. Leasing International, Inc., a subsidiary of
Ford Motor Company (1986-1992), where he was responsible for the company's
investment in leveraged leases of equipment, facilities and real estate. He
received a Bachelor of Business Administration from Western Michigan University
(1977) and is a Certified Public Accountant (1979). Mr. Harrison is a resident
of Brighton, Michigan.
PHILIP SOTIROFF is the President of Sotiroff & Abramczyk, P.C., a law firm
established in 1988, which is engaged in a general business practice with
concentrations in banking and financial institutions, equipment financing,
commercial lending and real estate transactions. Mr. Sotiroff has practiced
commercial law for over 33 years and has specialized in equipment finance since
1974. He has represented Michigan National Leasing Corporation, Whirlpool
Financial Corporation and other financial institutions with respect to a wide
range of commercial equipment financing. Mr. Sotiroff received his
undergraduate degree from the University of Michigan (1960) with honors, is a
member of the Phi Beta Kappa honorary fraternity, and received his Juris Doctor
with distinction from the University of Michigan (1963) where he was an editor
of the Michigan Law Review and received the honorary Order of the Coif. Mr.
Sotiroff is a member of the Michigan Association of Community Bankers and the
Michigan Banker's Association, as well as the Oakland County Bar Association
and the Economic Club of Detroit. Mr. Sotiroff is an active member of St.
Clements Orthodox Church (past chairman, Board of Trustees) and Birmingham
Country Club (past president) and is a resident of Bloomfield Hills, Michigan.
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
In the first year of operation, no compensation is expected to be paid
to any directors of the Company for their services. Depending on the
structure and operation of the Company, the operations of the Bank and other
factors, the Company's and the Bank's Boards of Directors may thereafter
determine that reasonable fees or compensation are
19
<PAGE> 21
appropriate. In that event it is likely that directors of the Company and the
Bank would receive compensation, such as meeting fees, which would be
consistent with the compensation paid to directors of financial institution
holding companies and banks of similar size.
The Bank's three executive officers have all chosen to join the Bank at
compensation levels below those earned in their previous positions. Their
interest is to achieve earlier profitability for the Bank by reducing operating
expenses. The annual compensation for Mr. Zamojski and Mr. Albanese for the
first year of operations will be $100,000 each, and Mr. Parker's compensation
for the first year will be $60,000. Executive officers' compensation in
subsequent years will be determined by the Compensation Committee, a committee
of the Bank's Board of Directors comprised of a majority of outside
(non-employee) directors. The Bank's officers may participate in the Company's
1997 Employee Stock Option Plan. Officers of the Bank may also participate in
any benefit plans adopted for Bank employees. The Bank expects to adopt a
401(k) plan for its employees promptly after commencing operations. Neither the
Company nor the Bank has an employment agreement with any officer.
1997 EMPLOYEE STOCK OPTION PLAN
The Board of Directors has adopted, and the sole shareholder of the
Company has approved, a 1997 Employee Stock Option Plan (the "Employee Plan").
The Employee Plan's adoption is intended to enable the key employees of the
Company or any subsidiary to participate in any growth and profitability of the
Company and encourage their continuation as employees of the Company or a
subsidiary to the benefit of the Company and its shareholders. Pursuant to the
Employee Plan, stock options may be granted which qualify under the Internal
Revenue Code as incentive stock options or as stock options that do not qualify
as incentive stock options. The Board is of the judgment that the interests of
the Company and its shareholders will be advanced by implementation of this
Employee Plan. The following is a summary of the principal provisions of the
Employee Plan.
GRANT OF OPTIONS AND ADMINISTRATION. The Employee Plan will be
administered by a committee of the Board of Directors of the Company comprised
of directors who are not eligible to participate in the Employee Plan (the
"Committee"). The Committee will make determinations with respect to the
officers and other key employees who will participate in the Employee Plan and
the extent of their participation, including the type of option. In making such
determinations, the Committee may consider the position and responsibilities of
the employee, the nature and value of his or her services and accomplishments,
the present and potential contribution of the employee to the success of the
Company, and such other factors as the Committee may deem relevant.
SHARES. The total number of shares of Common Stock which may be issued
under the Employee Plan will not exceed 40,000 shares (subject to adjustment for
certain events as described below). The shares will be authorized but unissued
shares (including shares reacquired by the Company).
OPTION AGREEMENT. Each option granted under the Employee Plan will be
evidenced by an agreement in such form as the Committee shall from time to time
approve, which agreement must comply with and be subject to certain conditions
set forth in the Employee Plan. Options granted under the Employee Plan may be
incentive stock options or non-qualified options, as determined from time to
time by the Committee for each optionee.
OPTION PRICE. The option price will not be less than the fair market
value of the shares of Common Stock at the time the option is granted except in
the case of an incentive stock option granted to a 10% shareholder where the
option price will be equal to 110% of fair market value, and provided that for
all options granted during the twelve month period after completion of this
offering, the option price may not be less than the offering price per share
shown on the cover page of this Prospectus. For purposes of the Employee Plan,
fair market value per share means the average of the published closing bid and
asked prices of the Common Stock on the NASD OTC Bulletin Board (the "Bulletin
Board"), or if the Common Stock has become listed on The Nasdaq Stock Market
("Nasdaq"), then on Nasdaq instead; or if the Common Stock is not quoted on
either the Bulletin Board or Nasdaq, a value determined by any fair and
reasonable means prescribed by the Committee. The option price shall be paid in
cash or through the delivery of previously owned shares of the Company's Common
Stock, or by a combination of cash and Common Stock. The
20
<PAGE> 22
offering price per share shown on the cover page of this Prospectus shall be
used as the market price for the Common Stock prior to the completion of the
offering.
DURATION OF OPTIONS. The duration of each option will be determined by
the Committee, except that (1) the maximum duration may not exceed ten years
from the date of grant, and (2) for incentive stock options granted to persons
who own 10% or more of the Company's stock, the duration of such options may not
exceed five years from the date of grant. The Committee will determine at the
time of grant whether the option will be exercisable in full or in cumulative
installments.
Except as hereinafter provided, an option may be exercised by an
optionee only while such optionee is in the employ of the Company or a
subsidiary. In the event that the employment of an optionee to whom an option
has been granted under the Employee Plan shall terminate (except as set forth
below) such option may be exercised, to the extent that the option was
exercisable on the date of termination of employment, only until the earlier of
three (3) months after such termination or the original expiration date of the
option; provided, however, that if termination of employment results from death
or total and permanent disability, such three (3) month period shall be extended
to twelve (12) months.
ADJUSTMENTS. The Committee may make appropriate adjustments in the
number of shares of Common Stock for which options may be granted or which may
be issued under the Employee Plan and the price per share of each option if
there is any change in the Common Stock as a result of a stock dividend, stock
split, recapitalization or otherwise.
CHANGE IN CONTROL. In the case of a change in control (as defined in
the Employee Plan) of the Company, each option then outstanding shall become
exercisable in full immediately prior to such change in control.
TERMINATION OF EMPLOYEE PLAN AND AMENDMENTS. Options may not be granted
pursuant to the Employee Plan after December 31, 2006. The Board of Directors
may from time to time terminate the Employee Plan or amend the Employee Plan
subject to shareholder approval to the extent necessary to satisfy the
requirements of Rule 16b-3 under the Exchange Act, or any successor rule.
FEDERAL INCOME TAX CONSEQUENCES. The grant of a non-qualified option or
incentive stock option has no federal tax consequences for the optionee or the
Company. Upon the exercise of a non-qualified option, the optionee is deemed to
realize taxable income to the extent that the fair market value of the shares of
Common Stock exceeds the option price. The Company is entitled to a tax
deduction for such amounts at the date of exercise. If any stock received upon
the exercise of a non-qualified option is later sold, any excess of the sale
price over the fair market value of the stock at the date of exercise is taxable
to the optionee.
No taxable income results to the optionee upon the exercise of an
incentive stock option if the incentive stock option is exercised during the
period of the optionee's employment or within three months thereafter, except in
the case of disability or death. However, the amount by which the fair market
value of the stock acquired pursuant to an incentive stock option exceeds the
option price is a tax preference item which may result in the imposition on the
optionee of an alternative minimum tax. If no disposition of the shares is made
within two years from the date the incentive stock option was granted and one
year from the date of exercise, any profit realized upon disposition of the
shares may be treated as a long-term capital gain by the optionee. The Company
will not be entitled to a tax deduction upon such exercise of an incentive stock
option, nor upon a subsequent disposition of the shares unless such disposition
occurs prior to the expiration of the holding periods.
Under the terms of the Employee Plan the aggregate market value
(determined at the time the option is granted) of the stock with respect to
which incentive stock options are exercisable for the first time in any year by
any optionee may not exceed $100,000.
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<PAGE> 23
1997 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
In order to increase the proprietary interest of nonemployee directors
of the Company and to enhance the Company's ability to retain and attract
experienced and knowledgeable directors, the Board of Directors has adopted and
the sole shareholder of the Company has approved the 1997 Stock Option Plan for
Nonemployee Directors (the "Nonemployee Director Plan"). The following is a
summary of the Nonemployee Director Plan.
GRANT OF OPTIONS AND ADMINISTRATION. Pursuant to the Nonemployee
Director Plan, on February 1, 1997, the Company will automatically grant each
person who is then a director of the Company and who is not an employee of the
Company or any affiliate ("Nonemployee Director") an option to purchase 12,000
shares of Common Stock of the Company at the per share offering price shown on
the cover page of this Prospectus. Nonemployee Directors who are appointed or
elected after March 1, 1997, will receive an option on the first day of the
month following their appointment or election for a lesser number of shares, the
number of which will depend on the annual shareholders' meeting which first
occurs concurrently with, or after he or she becomes a director, as set forth in
the table below:
<TABLE>
<CAPTION>
The Nonemployee Director's
If the Nonemployee Director's Option will be for the
First Annual Meeting is the: Following Number of Shares:
------------------------------ ---------------------------
<S> <C>
1998 Annual Meeting 3,000
1999 Annual Meeting 2,000
2000 Annual Meeting 1,000
</TABLE>
The Nonemployee Director Plan will be administered by the Committee or another
committee appointed by at least a majority of the Board of Directors of the
Company.
SHARES. The total number of shares of the Company's Common Stock which
may be issued under the Nonemployee Director Plan will not exceed 60,000 shares
(subject to adjustment for certain events as described below). The shares will
be authorized but unissued shares (including shares reacquired by the Company).
OPTION AGREEMENT. Each option granted under the Nonemployee Director
Plan will be evidenced by an agreement in such form as the Committee shall from
time to time approve, which agreement must comply with and be subject to certain
conditions set forth in the Nonemployee Director Plan.
SCHEDULE FOR BECOMING FULLY EXERCISABLE. Options granted in 1997 under
the Nonemployee Director Plan are immediately exercisable for 6,000 shares of
Common Stock. On March 1 of each year beginning with March 1, 1998, each such
option will become exercisable for an additional 2,000 shares of Common Stock,
until it is exercisable in full. In the event of a "change in control" of the
Company, as defined in the Nonemployee Director Plan, each option then
outstanding shall become immediately exercisable in full, immediately prior to
such change in control. Options granted to persons appointed or elected to the
Board after March 1, 1997, will become fully exercisable 180 days after the date
of grant.
OPTION PRICE. The option exercise price for options granted under the
Nonemployee Director Plan will be the fair market value per share on the date
the option is granted to the Nonemployee Director. For purposes of the
Nonemployee Director Plan, fair market value per share means the average between
the published closing bid and asked prices of the Common Stock on the Bulletin
Board or, if the Common Stock has become listed on Nasdaq, then on Nasdaq
instead; or if the Common Stock is not quoted on either the Bulletin Board or
Nasdaq, a value determined by any fair and reasonable means prescribed by the
Committee. The options are not transferable by Nonemployee Directors, except by
will, the laws of descent and distribution, or pursuant to a qualified domestic
relations order. To the extent exercisable, each option may be exercised from
time to time, in full, or in part in minimum installment of 1,000 shares,
during the term of the option. Payment of the option exercise price may be made
in cash or shares of Common Stock already owned by the person exercising the
option, valued at the fair market value per share of Common
22
<PAGE> 24
Stock on the date of exercise, or a combination of cash and Common Stock. For
purposes of the grant of options under the Nonemployee Director Plan, and not
for any other purpose, the Board of Directors has determined that the offering
price per share shown on the cover page of this Prospectus shall be used as the
market price for the Common stock prior to the completion of the offering and
for options under the Nonemployee Director Plan issued on February 1, 1997.
DURATION OF OPTIONS. The unexercised portion of each option
automatically expires, and is no longer exercisable, on the earliest to occur of
the following: (i) seven years after the option is granted, (ii) three months
after the person who was granted the option ceases to be a Nonemployee Director,
other than due to permanent disability, death, or for cause, (iii) one year
following the death or permanent disability of the Nonemployee Director, and
(iv) immediately upon termination of the Nonemployee Director's service for
cause.
ADJUSTMENTS. In the event that there is any change in the number of
shares of Common Stock through the declaration of stock dividends or stock
splits, or through recapitalization, merger, consolidation, combination of
shares, or otherwise, the Committee or the Board of Directors will make such
adjustments, if any, as it may deem appropriate, in the number of shares of
Common Stock subject to outstanding options, the option price, and any other
terms it deems appropriate.
TERMINATION OF PLAN AND AMENDMENT. The Board of Directors of the
Company may, from time to time, terminate or suspend the Nonemployee Director
Plan, in whole or in part, or amend the Nonemployee Director Plan, without
approval of the shareholders of the Company; except that no such action shall be
taken by the Board that (i) materially increases the benefits accruing to the
participants, materially increases the number of securities that may be issued
(except adjustments permitted under the paragraph above), or materially modifies
the eligibility requirements for participation, (ii) causes the Nonemployee
Director Plan to fail to satisfy the applicable requirements of Rule 16b-3 under
the Exchange Act, or any Nonemployee Director to fail to qualify as a
"disinterested person" as defined in that rule, or (iii) impairs the rights of
any option holder granted under the Nonemployee Director Plan, without such
option holder's consent.
FEDERAL INCOME TAX CONSEQUENCES. Under current federal income tax law,
options granted under the Nonemployee Director Plan will be non- qualified stock
options which do not qualify as incentive stock options under Section 422 of the
Internal Revenue Code. The grant of a non- qualified option has no federal tax
consequences for the optionee or the Company. Upon the exercise of a
non-qualified option, the optionee is deemed to realize taxable income to the
extent that the fair market value of the shares of Common Stock exceeds the
option price. The Company is entitled to a tax deduction for such amounts at
the date of exercise. If any stock received upon the exercise of a
non-qualified option is later sold, any excess of the sale price over the fair
market value of the stock at the date of exercise is taxable to the optionee.
RELATED PARTY TRANSACTIONS
LOANS FROM ORGANIZERS
Over the past several months, the organizers of the Bank have made loans
to the Company to cover organizational expenses of the Company and the Bank. No
interest is payable on the loans. All of these loans will be repaid by the
Company from the net proceeds of the offering. The organizers include the
members of the Board of Directors and executive officers.
LEGAL
Sotiroff & Abramczyk, P.C., of which Mr. Philip Sotiroff is a member,
has performed legal services for the Company and the Bank during the organizing
process and in connection with this offering. The Company has paid that firm
approximately $50,000 in fees for those services. The Company and the Bank
expect to retain Mr. Sotiroff's firm as general counsel after operations
commence.
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<PAGE> 25
BANKING TRANSACTIONS
It is anticipated that the directors and officers of the Company and the
Bank and the companies with which they are associated will have banking and
other transactions with the Company and the Bank in the ordinary course of
business. It is the Bank's policy that any loans and commitments to lend to
such affiliated persons or entities included in such transactions will be made
in accordance with all applicable laws and regulations and on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with unaffiliated parties of similar
creditworthiness, and will not involve more than normal risk or present other
unfavorable features to the Company and the Bank. Applicable law and Bank
policy generally require that transactions between the Company or the Bank, and
any officer, director, principal shareholder, or other affiliate of the Company
or the Bank will be on terms no less favorable to the Company or the Bank than
could be obtained on an arms-length basis from unaffiliated independent third
parties.
INDEMNIFICATION
The Articles of Incorporation and Bylaws of the Company provide for the
indemnification of directors and officers of the Company, including reasonable
legal fees, incurred by such directors and officers while acting for or on
behalf of the Company as a director or officer, subject to certain limitations.
See "Description of Capital Stock -- Indemnification of Directors and Officers."
The scope of such indemnification otherwise permitted by Michigan law may be
limited in certain circumstances by Federal law and regulations. See
"Supervision and Regulation -- Recent Regulatory Developments." The Company may
purchase directors' and officers' liability insurance for directors and officers
of the Company and the Bank.
PRINCIPAL SHAREHOLDERS
The Company has only one share of Common Stock outstanding with such
share being held by Richard Zamojski. The following table sets forth certain
information with respect to the anticipated beneficial ownership of the
Company's Common Stock after the sale of shares offered hereby, by (i) each
person expected by the Company to beneficially own more than 5% of the
outstanding Common Stock; (ii) each of the current directors and executive
officers of the Company; and (iii) all such directors and executive officers of
the Company as a group. All share numbers are provided based upon such
directions from the Company and non-binding expressions of interest supplied by
the persons listed below. Depending upon their individual circumstances at the
time, each of such persons may purchase a greater or fewer number of shares than
indicated in the following table and in fact may purchase no shares.
[Remainder of Page Intentionally Left Blank]
24
<PAGE> 26
<TABLE>
<CAPTION>
Number of shares Percentage of
beneficially owned outstanding shares
Name and Address after offering (1) after offering (5)
----------------------------- ------------------ ------------------
<S> <C> <C>
Anthony S. Albanese 12,000 1.2%
330 Eaton Drive
Northville, MI 48167
H. Perry Driggs, Jr. 6,000(2)(3) *
30915 Timberbrook Lane
Bingham Farms, MI 48025
Lewis N. George 21,000(2) 2.1%
5241 North Bay Drive
Orchard Lake, MI 48324
Phillip R. Harrison 11,000(2) 1.1%
4792 Split Rail
Brighton, MI 48116
Darryle J. Parker 1,500 *
5750 Parkside Drive
Monroe, MI 48161
Philip Sotiroff 38,500(2)(4) 3.8%
770 E. Glengarry Circle
Bloomfield Hills, MI 48301
Richard Zamojski 8,100(4) *
11790 Pine Mountain Drive
Brighton, MI 48116
</TABLE>
- ------------------------
* Less than 1.0%
(1) Some or all of the Common Stock listed may be held jointly with, or for the
benefit of, spouses and children of, or various trusts established by, the
person indicated.
(2) Includes 6,000 shares that such person has the right to acquire within 60
days of the date of this prospectus, pursuant to the Company's Nonemployee
Director Plan.
(3) Mr. and Mrs. Driggs are prohibited from purchasing Common Stock in this
offering because of Mr. Driggs' status as a securities agent for a
registered broker-dealer.
(4) Includes 2,500 shares to be held by Mr. Sotiroff's spouse and 100 shares
to be held by Mr. Zamojski's minor daughter.
(5) The percentages shown are based on the 1,000,000 shares offered hereby plus
the number of shares that the named person or group has the right to
acquire within 60 days of the date of this Prospectus, and assumes no
exercise of the Underwriter's over-allotment option.
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<PAGE> 27
SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state law. Consequently, the growth and earnings
performance of the Company and the Bank can be affected not only by management
decisions and general economic conditions, but also by the statutes
administered by, and the regulations and policies of, various governmental
regulatory authorities. Those authorities include, but are not limited to, the
Federal Reserve Board, the FDIC, the Commissioner, the Securities and Exchange
Commission (the "SEC"), the Michigan Department of Consumer and Industry
Services, the Internal Revenue Service and state taxing authorities. The
effect of such statutes, regulations and policies can be significant, and
cannot be predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to
financial institutions and their holding companies regulate, among other
things, the scope of business, investments, reserves against deposits, capital
levels relative to operations, lending activities and practices, the nature and
amount of collateral for loans, the establishment of branches, mergers,
consolidations and dividends. The system of supervision and regulation
applicable to the Company and the Bank establishes a comprehensive framework
for their respective operations and is intended primarily for the protection of
the FDIC's deposit insurance funds, the depositors of the Bank and the public,
rather than shareholders of the Bank or the Company.
Federal law and regulations, including provisions added by the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and
regulations promulgated thereunder, establish supervisory standards applicable
to the operation, management and lending activities of the Bank, including
internal controls, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation and loan-to- value ratios for loans
secured by real property. The Bank intends to comply with these requirements,
and in some cases may apply more restrictive standards.
The following references to statutes and regulations are intended to
summarize material effects of certain government regulation on the business of
the Company and the Bank. Any change in government regulation may have a
material adverse effect on the Company, the Bank and their operations.
THE COMPANY
GENERAL. The Company has received approval from the Federal Reserve
Board pursuant to Section 3(a)(1) of the Bank Holding Company Act of 1956, as
amended ("BHCA"), to acquire all of the capital stock of the Bank, subject to
certain conditions. When the Company becomes the sole shareholder of the Bank,
the Company will be a bank holding company and, as such, will be required to
register with, and will be subject to the supervision of and regulation by, the
Federal Reserve Board under the BHCA. Under the BHCA, the Company will be
subject to periodic examination by the Federal Reserve Board and will be
required to file periodic reports of its operations and such additional
information as the Federal Reserve Board may require. The Company also will be
required to file periodic reports with, and otherwise comply with the rules and
regulations of, the SEC under the federal securities laws.
In accordance with Federal Reserve Board policy, the Company will be
expected to act as a source of financial strength to the Bank and to commit
resources to support the Bank in circumstances where the Company might not do
so absent such policy. In addition, in certain circumstances a Michigan state
bank having impaired capital may be required by the Commissioner either to
restore the bank's capital by a special assessment upon its shareholders or to
initiate the liquidation of the bank.
INVESTMENTS AND ACTIVITIES. Under the BHCA, bank holding companies are
prohibited, with certain limited exceptions, from engaging in, or acquiring,
directly or indirectly, control of voting securities or assets of a company
engaged in, any activity other than banking or managing or controlling banks or
an activity that the Federal Reserve
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Board determines to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. Under current Federal Reserve Board
regulations, such permissible non-bank activities include such things as
mortgage banking, equipment leasing, securities brokerage and consumer and
commercial finance company operations. Any such acquisition will require,
except in certain cases, prior written notice to the Federal Reserve Board.
In evaluating a written notice of such an acquisition, the Federal
Reserve Board will consider various factors, including among others the
financial and managerial resources of the notifying bank holding company and
its subsidiaries, and the relative public benefits and adverse effects which
may be expected to result from the performance of the activity by an affiliate
of such company. The Federal Reserve Board may apply different standards to
activities proposed to be commenced de novo and activities commenced by
acquisition, in whole or in part, of a going concern. The required notice
period may be extended by the Federal Reserve Board under certain
circumstances, including a notice for acquisition of a company engaged in
activities not previously approved by regulation of the Federal Reserve Board.
If such a proposed acquisition is not disapproved or subjected to conditions by
the Federal Reserve Board within the applicable notice period, it is deemed
approved by the Federal Reserve Board.
In general, any direct or indirect acquisition by the Company of any
voting shares of any bank which would result in the Company's direct or
indirect ownership or control of more than 5% of any class of voting shares of
such bank, and any merger or consolidation of the Company with another bank
holding company, will require the prior written approval of the Federal Reserve
Board under the BHCA. In acting on such applications, the Federal Reserve
Board must consider various statutory factors, including among others, the
effect of the proposed transaction on competition in the relevant geographic
and product markets, each party's financial condition and managerial resources
and record of performance under the Community Reinvestment Act. Since
September 29, 1995, the BHCA has permitted the Federal Reserve Board under
specified circumstances to approve the acquisition, by a bank holding company
located in one state, of a bank or bank holding company located in another
state, without regard to any prohibition contained in state law. See "Recent
Regulatory Developments."
The merger or consolidation of an existing bank subsidiary of the
Company with another bank, or the acquisition by such a subsidiary of assets of
another bank, or the assumption of liability by such a subsidiary to pay any
deposits in another bank, will require the prior written approval of the
responsible Federal depository institution regulatory agency under the Bank
Merger Act, based upon a consideration of statutory factors similar to those
outlined above with respect to the BHCA. In addition, in certain such cases an
application to, and the prior approval of, the Federal Reserve Board under the
BHCA and/or the Commissioner under the Michigan Banking Code, may be required.
CAPITAL REQUIREMENTS. The Federal Reserve Board uses capital adequacy
guidelines in its examination and regulation of bank holding companies. If
capital falls below minimum guidelines, a bank holding company may, among other
things, be denied approval to acquire or establish additional banks or non-bank
businesses.
The Federal Reserve Board's capital guidelines establish the following
minimum regulatory capital requirements for bank holding companies: (i) a
leverage capital requirement expressed as a percentage of total assets, (ii) a
risk-based requirement expressed as a percentage of total risk-weighted assets,
and (iii) a Tier 1 leverage requirement expressed as a percentage of total
assets. The leverage capital requirement consists of a minimum ratio of total
capital to total assets of 6%, with an expressed expectation that banking
organizations generally should operate above such minimum level. The
risk-based requirement consists of a minimum ratio of total capital to total
risk-weighted assets of 8%, of which at least one-half must be Tier 1 capital
(which consists principally of shareholders' equity). The Tier 1 leverage
requirement consists of a minimum ratio of Tier 1 capital to total assets of 3%
for the most highly rated companies, with minimum requirements of 4% to 5% for
all others.
The risk-based and leverage standards presently used by the Federal
Reserve Board are minimum requirements, and higher capital levels will be
required if warranted by the particular circumstances or risk profiles of
individual banking organizations. Further, any banking organization
experiencing or anticipating significant growth would be expected to maintain
capital ratios, including tangible capital positions (i.e., Tier 1 capital less
all intangible assets), well above the minimum levels.
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The Federal Reserve Board's regulations provide that the foregoing
capital requirements will generally be applied on a bank-only (rather than a
consolidated) basis in the case of a bank holding company with less than $150
million in total consolidated assets unless: (i) the bank holding company is
engaged directly or indirectly in any non bank activity involving significant
leverage or (ii) the holding company has outstanding significant debt held by
the general public. Nonetheless, on a pro forma basis, assuming the issuance
and sale by the Company of the 1,000,000 shares of Common Stock offered hereby
at $10.00 per share, the Company's leverage capital ratio, risk-based capital
ratio and Tier 1 leverage ratio, in each case as calculated on a consolidated
basis under the Federal Reserve Board's capital guidelines, would exceed the
minimum requirements.
DIVIDENDS. The Company is a corporation separate and distinct from
the Bank. Most of the Company's revenues will be received by it in the form of
dividends or interest paid by the Bank. The Bank is subject to statutory and
other restrictions on its ability to pay dividends. See "The Bank --
Dividends" and "Risk Factors -- Government Regulation and Monetary Policy."
The Federal Reserve Board has issued a policy statement on the payment of cash
dividends by bank holding companies. In the policy statement, the Federal
Reserve Board expressed its view that a bank holding company experiencing
earnings weaknesses should not pay cash dividends exceeding its net income or
which could only be funded in ways that weakened the bank holding company's
financial health, such as by borrowing. Additionally, the Federal Reserve
Board possesses enforcement powers over bank holding companies and their
non-bank subsidiaries to prevent or remedy actions that represent unsafe or
unsound practices or violations of applicable statutes and regulations. Among
these powers is the ability to proscribe the payment of dividends by banks and
bank holding companies. Similar enforcement powers over the Bank are possessed
by the federal banking regulators. The "prompt corrective action" provisions
of FDICIA impose further restrictions on the payment of dividends by insured
banks which fail to meet specified capital levels and, in some cases, their
parent bank holding companies.
In addition to the restrictions on dividends imposed by the Federal
Reserve Board, the Michigan Business Corporation Act imposes certain
restrictions on the declaration and payment of dividends by Michigan
corporations such as the Company. See "Description of Capital Stock -- Common
Stock -- Dividend Rights."
THE BANK
GENERAL. Upon completion of its organization, the Bank will be a
Michigan banking corporation, and its deposit accounts will be insured up to
applicable limits by the FDIC under the Bank Insurance Fund (the "BIF"). As an
FDIC-insured, Michigan-chartered bank, and a member of the Federal Reserve
System, the Bank will be subject to the examination, supervision, reporting
and enforcement requirements of the Commissioner, as the chartering authority
for Michigan banks, and the Federal Reserve Board, as the Bank's primary
federal regulator. These agencies and federal and state law extensively
regulate various aspects of the banking business including, among other things,
permissible types and amounts of loans, investments and other activities,
capital adequacy, branching, interest rates on loans and on deposits, the
maintenance of non-interest bearing reserves on deposit accounts and the safety
and soundness of banking practices.
DEPOSIT INSURANCE. As an FDIC-insured institution, the Bank will be
required to pay deposit insurance premium assessments to the FDIC. Pursuant to
FDICIA, the FDIC adopted a risk-based assessment system under which all insured
depository institutions are assigned one of nine categories (consisting of one
of three capital subcategories and one of three supervisory subcategories) and
assessed insurance premiums based upon their level of capital and supervisory
evaluation. Institutions classified as well-capitalized (as defined by the
FDIC) and considered healthy pay the lowest premium while institutions that are
less than adequately capitalized (as defined by the FDIC) and considered of
substantial supervisory concern pay the highest premium. Risk classification
of all insured institutions is made by the FDIC for each semi- annual
assessment period.
FDICIA required the FDIC to establish assessment rates at levels which
would restore the BIF to a mandated reserve ratio of 1.25% of insured deposits
over a period not to exceed 15 years. In November 1995, the FDIC determined
that the BIF had reached the required ratio. Accordingly, the FDIC has
established the schedule of BIF
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insurance assessments for the first semi-annual assessment period of 1997,
ranging from 0% of deposits for institutions in the highest category to .27% of
deposits for institutions in the lowest category.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution or
its directors have engaged or are engaging in unsafe or unsound practices, or
have violated any applicable law, regulation, rule, order or any condition
imposed in writing by, or written agreement with, the FDIC, or if the
institution is in an unsafe or unsound condition to continue operations. The
FDIC may also suspend deposit insurance temporarily during the hearing process
for a permanent termination of insurance if the institution has no tangible
capital.
FEDERAL RESERVE SYSTEM MEMBERSHIP. When the Bank's membership in the
Federal Reserve System becomes effective, the Federal Reserve Board will be the
principal federal bank regulator for the Bank and will conduct periodic
examinations of the Bank.
CAPITAL REQUIREMENTS. The federal banking regulators have established
the following minimum capital standards for state-chartered, FDIC-insured
member banks, such as the Bank: (i) a leverage requirement consisting of a
minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated
banks and a minimum ratio of Tier I capital to total assets of 4% to 5% for all
others, and (ii) a risk-based capital requirement consisting of a minimum ratio
of total capital to total risk-weighted assets of 8%, of which at least
one-half of that total capital amount must consist of Tier 1 capital. Tier 1
capital consists principally of shareholders' equity.
The capital requirements described above are minimum requirements.
Higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual institutions. As a condition to
the regulatory approvals of the Bank's formation, the Bank will be required to
have an initial capitalization sufficient to provide a ratio of Tier 1 capital
to total estimated assets of at least 9% for the first three years of
operation.
PROMPT CORRECTIVE ACTION. FDICIA establishes a system of prompt
corrective action to resolve the problems of undercapitalized institutions.
Under this system, federal depository institution regulators are required to
take certain mandatory supervisory actions, and may take certain discretionary
supervisory actions against undercapitalized institutions, the severity of
which depends upon the institution's degree of capitalization. In addition,
subject to a narrow exception, FDICIA generally requires the federal depository
institution regulators to appoint a receiver or conservator for an institution
that is critically undercapitalized.
As mandated by FDICIA, the federal banking regulators have specified
by regulation the relevant capital measures at which an insured
depository institution is deemed well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. Pursuant to the FDIC's regulations implementing the prompt
corrective action provisions of FDICIA, a bank will be deemed to be: (i) well
capitalized if the bank has a total risk-based capital ratio of 10% or greater,
Tier 1 risk-based capital ratio of 6% or greater and leverage ratio of 5% or
greater; (ii) adequately capitalized if the bank has a total risk-based capital
ratio of 8% or greater, Tier 1 risk-based capital ratio of 4% or greater and
leverage ratio of 4% or greater (3% for the most highly rated banks); (iii)
undercapitalized if the bank has a total risk-based capital ratio of less than
8%, Tier 1 risk-based capital ratio of less than 4% or leverage ratio of less
than 4% (less than 3% for the most highly rated banks); (iv) significantly
undercapitalized if the bank has a total risk-based capital ratio of less than
6%, Tier 1 risk-based capital ratio of less than 3% or leverage ratio of less
than 3%; and (v) critically undercapitalized if the bank has a ratio of
tangible equity to total assets of 2% or less.
Subject to certain exceptions, these capital ratios are generally
determined on the basis of Call Reports submitted by each depository
institution and the reports of examination by each institution's appropriate
federal depository institution regulatory agency.
Depending upon the capital category to which an institution is
assigned, the regulators' corrective powers include: requiring the submission
of a capital restoration plan (which must include a holding company guarantee
of
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performance); placing limits on asset growth and restrictions on activities;
requiring the institution to issue additional capital stock (including
additional voting stock) or to be acquired; restricting transactions with
affiliates; restricting the interest rate the institution may pay on deposits;
ordering a new election of directors of the institution; requiring that senior
executive officers or directors be dismissed; prohibiting the institution from
accepting deposits from correspondent banks requiring the holding company to
divest certain subsidiaries including the institution; requiring the
institution to divest certain subsidiaries; prohibiting the payment of
principal or interest on subordinated debt; and ultimately, appointing a
receiver or conservator for the institution.
In general, a depository institution may be reclassified to a lower
category than is indicated by its capital position if the appropriate federal
depository institution regulatory agency determines the institution to be
otherwise in an unsafe or unsound condition or to be engaged in an unsafe or
unsound practice. This could include a failure by the institution, following
receipt of a less-than-satisfactory rating on its most recent examination
report, to correct the deficiency.
DIVIDENDS. As a banking corporation organized under Michigan law, the
Bank will be restricted as to the maximum amount of dividends it may pay on its
Common Stock. The Bank may not pay dividends except out of net profits after
deducting its losses and bad debts. The Bank may not declare or pay a dividend
unless it will have a surplus amounting to at least 20% of its capital after
the payment of the dividend. If the Bank has a surplus less than the amount of
its capital it may not declare or pay any dividend until an amount equal to at
least 10% of net profits for the preceding half- year (in the case of quarterly
or semi-annual dividends) or full year (in the case of annual dividends) has
been transferred to surplus. The Bank may, with the approval of the
Commissioner, by vote of shareholders owning 2/3 of the stock eligible to vote,
increase its capital stock by a declaration of a stock dividend, provided that
after the increase its surplus equals at least 20% of its capital stock, as
increased. The Bank may not declare or pay any dividend until the cumulative
dividends on preferred stock (should any such stock be issued and outstanding)
have been paid in full. The Bank has no present plans to issue preferred
stock.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. The FDIC may prevent an insured bank from paying dividends
if the bank is in default of payment of any assessment due to the FDIC. In
addition, payment of dividends by a bank may be prevented by the applicable
federal regulatory authority if such payment is determined, by reason of the
financial condition of such bank, to be an unsafe and unsound banking practice.
INSIDER TRANSACTIONS. The Bank is subject to certain restrictions
imposed by the Federal Reserve Act ("FRA") on any extensions of credit to the
Company or its subsidiaries, on investments in the stock or other securities of
the Company or its subsidiaries, and the acceptance of the stock or other
securities of the Company or its subsidiaries as collateral for loans. These
restrictions limit the aggregate amount of transactions with any individual
affiliate to 10% of the Bank's capital and surplus, limit the aggregate amount
of transactions with all affiliates to 20% of the Bank's capital and surplus,
require that loans and certain other extensions of credit be secured by
collateral in certain specified amounts and types, generally prohibit the
purchase of low quality assets from affiliates and generally require that
certain transactions with affiliates, including loans and asset purchases, be
on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the Bank as those prevailing
at the time for comparable transactions with nonaffiliated individuals or
entities.
Also, the FRA prescribes certain limitations and reporting
requirements on extensions of credit by the Bank to its directors and executive
officers, to directors and executive officers of the Company and its
subsidiaries, to principal shareholders of the Company and its subsidiaries, to
principal shareholders of the Company and to "related interests" of such
directors, officers and principal shareholders. Among other things, the FRA,
and the regulations thereunder, require such loans to be made on substantially
the same terms as those offered to unaffiliated individuals, place limits on
the amount of loans the Bank may extend to such individuals and require certain
approval procedures to be followed. In addition, such legislation and
regulations may affect the terms upon which any person becoming a
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director or officer of the Company or one of its subsidiaries or a principal
shareholder of the Company may obtain credit from banks with which the Bank
maintains a correspondent relationship.
SAFETY AND SOUNDNESS STANDARDS. On July 10, 1995, the FDIC, the Office
of Thrift Supervision, the Federal Reserve Board and the Office of the
Comptroller of the Currency published final guidelines implementing the FDICIA
requirement that the federal banking agencies establish operational and
managerial standards to promote the safety and soundness of federally insured
depository institutions. The guidelines, which took effect on August 9, 1995,
establish standards for internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth and compensation, fees and benefits, and specifically prohibit, as an
unsafe and unsound practice, excessive compensation that could lead to a
material loss to an institution. The federal banking agencies also adopted
asset quality and earnings standards that were added to the safety and
soundness guidelines effective October 1, 1996. If an institution fails to
comply with any of the standards set forth in the guidelines, the institution's
primary federal regulator may require the institution to submit a plan for
achieving and maintaining compliance. Failure to submit an acceptable
compliance plan, or failure to adhere to a compliance plan that has been
accepted by the appropriate regulator, would constitute grounds for further
enforcement action.
STATE BANK ACTIVITIES. Under FDICIA, as implemented by final
regulations adopted by the FDIC, FDIC-insured state banks are prohibited,
subject to certain exceptions, from directly or indirectly acquiring or
retaining any equity investments of a type, or in an amount, that are not
permissible for a national bank. FDICIA, as implemented by FDIC regulations,
also prohibits FDIC-insured state banks and their subsidiaries, subject to
certain exceptions, from engaging as principal in any activity that is not
permitted for a national bank or its subsidiary, respectively, unless the bank
meets, and continues to meet, its minimum regulatory capital requirements and
the FDIC determines the activity would not pose a significant risk to the
deposit insurance fund of which the bank is a member. Impermissible
investments and activities must be divested or discontinued within certain time
frames set by the FDIC in accordance with FDICIA. These restrictions are not
currently expected to have a material impact on the operations of the Bank.
CONSUMER BANKING. The Bank's business will include making a variety
of types of loans to individuals. In making these loans, the Bank will be
subject to state usury and regulatory laws and to various federal statutes,
such as the Equal Credit Opportunity Act, Fair Credit Reporting Act, Truth in
Lending Act, Real Estate Settlement Procedures Act and Home Mortgage Disclosure
Act, and the regulations promulgated thereunder, which prohibit discrimination,
specify disclosures to be made to borrowers regarding credit and settlement
costs and regulate the mortgage loan servicing activities of the Bank,
including the maintenance and operation of escrow accounts and the transfer of
mortgage loan servicing. The Riegle Act imposed new escrow requirements on
depository and non-depository mortgage lenders and servicers under the National
Flood Insurance Program. See "Recent Regulatory Developments." In receiving
deposits, the Bank will be subject to extensive regulation under state and
federal law and regulations, including the Truth in Savings Act, the Expedited
Funds Availability Act, the Bank Secrecy Act, the Electronic Funds Transfer Act
and the Federal Deposit Insurance Act. Violation of these laws could result in
the imposition of significant damages and fines upon the Bank, its directors
and officers.
RECENT REGULATORY DEVELOPMENTS.
The Deposit Insurance Funds Act of 1996 (the "DIFA"), which was part
of the omnibus appropriations bill for fiscal year 1997, addresses the problem
of the undercapitalized Savings Association Insurance Fund (the "SAIF"). As
required under the DIFA, the FDIC imposed a one-time special assessment on
savings associations to bring the SAIF up to a mandated reserve ratio of 1.25%
of insured deposits.
In addition, beginning on January 1, 1997, banks and thrifts will be
required to share in the payment of the Financing Corporation (the "FICO")
bonds, which payments will not be material to the Bank. The FICO bonds were
issued pursuant to the Competitive Equality Banking Act of 1987 to recapitalize
the Federal Savings and Loan Insurance Corporation. Prior to the enactment of
the DIFA, savings associations alone paid assessments on the FICO bonds.
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In 1994, the Congress enacted two major pieces of banking legislation,
the Riegle Act and the Riegle-Neal Interstate Banking and Branching Efficiency
Act (the "Riegle-Neal Act"). The Riegle Act addressed such varied issues as
the promotion of economic revitalization of defined urban and rural "qualified
distressed communities" through special purpose "Community Development
Financial Institutions," the expansion of consumer protection with respect to
certain loans secured by a consumer's home and reverse mortgages and reductions
in compliance burdens regarding Currency Transaction Reports, in addition to
reform of the National Flood Insurance Program, the promotion of a secondary
market for small business loans and leases and mandating specific changes to
reduce regulatory impositions on depository institutions and holding companies.
The Riegle-Neal Act substantially changed the geographic constraints
applicable to the banking industry. Effective September 29, 1995, the
Riegle-Neal Act allows bank holding companies to acquire banks located in any
state in the United States without regard to geographic restrictions or
reciprocity requirements imposed by state law, but subject to certain
conditions, including limitations on the aggregate amount of deposits that may
be held by the acquiring holding company and all of its insured depository
institution affiliates. Effective June 1, 1997 (or earlier if expressly
authorized by applicable state law), the Riegle-Neal Act allows banks to
establish interstate branch networks through acquisitions of other banks,
subject to certain conditions, including certain limitations on the aggregate
amount of deposits that may be held by the surviving bank and all of its
insured depository institution affiliates. The establishment of de novo
interstate branches or the acquisition of individual branches of a bank in
another state (rather than the acquisition of an out-of-state bank in its
entirety) is allowed by the Riegle-Neal Act only if specifically authorized by
state law. The legislation allows individual states to "opt-out" of certain
provisions of the Riegle-Neal Act by enacting appropriate legislation prior to
June 1, 1997.
In November, 1995, Michigan exercised its right to opt-in early to the
Riegle-Neal Act, and permitted non-U.S. banks to establish branch offices in
Michigan. Effective November 29, 1995, the Michigan Banking Code was amended
to permit, in appropriate circumstances and with the approval of the
Commissioner, (i) the acquisition of Michigan-chartered banks by FDIC-insured
banks, savings banks or savings and loan associations located in other states,
(ii) the sale by a Michigan-chartered bank of one or more of its branches (not
comprising all or substantially all of its assets) to an FDIC-insured bank,
savings bank or savings and loan association located in a state in which a
Michigan-chartered bank could purchase one or more branches of the purchasing
entity, (iii) the acquisition by a Michigan-chartered bank of an FDIC-insured
bank, savings bank or savings and loan association located in another state,
(iv) the acquisition by a Michigan-chartered bank of one or more branches (not
comprising all or substantially all of the assets) of an FDIC-insured bank,
savings bank or savings and loan association located in another state, (v) the
consolidation of one or more Michigan-chartered banks and FDIC-insured banks,
savings banks or savings and loan associations located in other states having
laws permitting such consolidation, with the resulting organization chartered
either by Michigan or one of such other states, (vi) the establishment by
Michigan-chartered banks of branches located in other states, the District of
Columbia or U.S. territories or protectorates, (vii) the establishment of
branches in Michigan by FDIC-insured banks located in other states, the
District of Columbia or U.S. territories or protectorates having laws
permitting a Michigan-chartered bank to establish a branch in such
jurisdiction, and (viii) the establishment by foreign banks of branches located
in Michigan. The amending legislation also expanded the regulatory authority
of the Commissioner and made certain other changes.
The Michigan Legislature has adopted, with effect from March 28, 1996,
the Credit Reform Act. This statute, together with amendments to other related
laws, permits regulated lenders, indirectly including Michigan-chartered banks,
to charge and collect higher rates of interest and increased fees on certain
types of loans to individuals and businesses. The laws prohibit "excessive
fees and charges", and authorize governmental authorities and borrowers to
bring actions for injunctive relief and statutory and actual damages for
violations by lenders. The statutes specifically authorize class actions, and
also civil money penalties for knowing and wilful, or persistent violations.
FDIC regulations, which became effective April 1, 1996, impose certain
limitations (and in certain cases, prohibitions) on (i) "golden parachute"
severance payments by troubled depository institutions, their subsidiaries and
affiliated holding companies to institution-affiliated parties (primarily
directors, officers, employees or principal shareholders of the institution),
and (ii) indemnification payments by a depository institution, their
subsidiaries and
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affiliated holding companies, regardless of financial condition, to
institution-affiliated parties. The FDIC regulations impose limitations on
indemnification payments which could restrict, in certain circumstances,
payments by the Company or the Bank to their respective directors or officers
otherwise permitted under the Michigan Business Corporation Act ("MBCA") or the
Michigan Banking Code, respectively. See "Description of Capital Stock
- --Indemnification of Directors and Officers."
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 4,500,000 shares of
Common Stock and 500,000 shares of Preferred Stock. As of the date of this
Prospectus, there is one share of Common Stock issued and outstanding. No
shares of Preferred Stock have been issued by the Company nor does the Company
have any plans or intentions to issue any Preferred Stock.
Michigan law allows the Company's Board of Directors to issue
additional shares of stock up to the total amount of Common Stock and Preferred
Stock authorized without obtaining the prior approval of the shareholders.
PREFERRED STOCK
The Board of Directors of the Company is authorized to issue Preferred
Stock, in one or more series, from time to time, with such voting powers, full
or limited but not to exceed one vote per share, or without voting powers, and
with such designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions thereof,
as may be provided in the resolution or resolutions adopted by the Board of
Directors. The authority of the Board of Directors includes, but is not
limited to, the determination or fixing of the following with respect to shares
of such class or any series thereof: (i) the number of shares and designation
of such series; (ii) the dividend rate, the relation which such dividends shall
bear to dividends paid on any other class of stock or any other series of
Preferred Stock, and whether dividends are to be cumulative; (iii) the amount
per share, if any, which holders shall be entitled to receive upon redemption
of shares or upon voluntary or involuntary liquidation, dissolution or winding
up of the Company; (iv) the conversion or exchange rights, if any, of shares of
such series; (v) whether shares are to be redeemable, and, if so, whether
redeemable for cash, property or rights; (vi) whether the shares shall be
subject to the operation of a purchase, retirement or sinking fund, and, if so,
upon what conditions; (vii) the voting powers, full or limited, if any, of the
shares; (viii) whether the issuance of any additional shares, or of any shares
of any other series, shall be subject to restrictions as to issuance, or as to
the powers, preferences or rights of any such other series; and (ix) any other
preferences, privileges and powers and relative, participating, optional or
other special rights and qualifications, limitations or restrictions.
COMMON STOCK
Dividend Rights. Subject to any prior rights of any holders of
Preferred Stock then outstanding, the holders of the Common Stock will be
entitled to dividends when, as and if declared by the Company's Board of
Directors out of funds legally available therefor. Under Michigan law,
dividends may be legally declared or paid only if after the distribution the
corporation can pay its debts as they come due in the usual course of business
and the corporation's total assets equal or exceed the sum of its liabilities
plus the amount that would be needed to satisfy the preferential rights upon
dissolution of any holders of preferred stock then outstanding whose
preferential rights are superior to those receiving the distribution. Funds
for the payment of dividends by the Company are expected to be obtained
primarily from dividends of the Bank. There can be no assurance that the
Company will have funds available for dividends, or that if funds are
available, that dividends will be declared by the Company's Board of Directors.
As the Bank is not expected to be profitable during its start up period, the
Company does not expect to be in a position to declare dividends at any time in
the foreseeable future.
Voting Rights. Subject to the rights, if any, of holders of shares of
Preferred Stock then outstanding, all voting rights are vested in the holders
of shares of Common Stock. Each share of Common Stock entitles the holder
thereof
33
<PAGE> 35
to one vote on all matters, including the election of directors. Shareholders
of the Company do not have cumulative voting rights.
Preemptive Rights. Holders of Common Stock do not have preemptive
rights.
Liquidation Rights. Subject to any rights of any Preferred Stock then
outstanding, holders of Common Stock are entitled to share on a pro rata basis
in the net assets of the Company which remain after satisfaction of all
liabilities.
Transfer Agent. Registrar and Transfer Company, Cranford, New Jersey,
will serve as the transfer agent of the Company's Common Stock.
DESCRIPTION OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION
AND BYLAWS
The following provisions of the Company's Articles of Incorporation
and Bylaws may delay, defer, prevent or make it more difficult for a person to
acquire the Company or to change control of the Company's Board of Directors,
thereby reducing the Company's vulnerability to an unsolicited takeover
attempt.
Classification of the Board of Directors. The Company's Articles of
Incorporation provide for the Board of Directors to be divided into three
classes of directors, each class to be as nearly equal in number as possible,
and the Company's Bylaws provide that the number of directors shall be fixed by
majority of the Board at no fewer than five nor more than twelve. Pursuant to
the Articles of Incorporation, the Company's directors have been divided into
three classes. Two Class I directors have been elected for a term expiring at
the 1998 annual meeting of shareholders, two Class II directors have been
elected for a term expiring at the 1999 annual meeting of shareholders and two
Class III directors have been elected for a term expiring at the 2000 annual
meeting of shareholders (in each case, until their respective successors are
elected and qualified). Subsequent terms of each class of director will be
three years.
Removal of Directors. The MBCA provides that, unless the Articles of
Incorporation otherwise provide, shareholders may remove a director or the
entire board of directors with or without cause. The Company's Articles of
Incorporation provide that a director may be removed only for cause and only by
the affirmative vote of the holders of a majority of the voting power of all
the shares of the Company entitled to vote generally in the election of
directors.
Filling Vacancies on the Board of Directors. The Company's Articles
of Incorporation provide that a new director chosen to fill a vacancy on the
Board of Directors will serve for the remainder of the full term of the class
in which the vacancy occurred.
Nominations of Director Candidates. The Company's Bylaws include a
provision governing nominations of director candidates. Nominations for the
election of directors may be made by the Board of Directors, a nominating
committee appointed by the Board of Directors or any shareholder entitled to
vote for directors. In the case of a shareholder nomination, the Bylaws
provide certain procedures that must be followed. The shareholder intending to
nominate candidates for election must deliver written notice containing certain
specified information to the Secretary of the Company at least ninety (90) days
prior to the anniversary date of the immediately preceding annual meeting of
shareholders.
Certain Shareholder Action. The Company's Articles of Incorporation
do not permit shareholder action to be taken by written consent by less than
100% of the total shares entitled to vote. In addition, the Company's Bylaws
do not permit shareholders of the Company to call a special meeting of
shareholders or require that the Board call such a special meeting. The MBCA
permits shareholders holding 10% or more of all of the shares entitled to vote
at a meeting to request the Circuit Court of the County in which the Company's
principal place of business or registered office is located to order a special
meeting of shareholders for good cause shown.
34
<PAGE> 36
Increased Shareholder Vote for Alteration, Amendment or Repeal of
Article or Bylaw Provisions. The Company's Articles of Incorporation require
the affirmative vote of the holders of at least 75% of the voting stock of the
Company entitled to vote generally in the election of directors for the
alteration, amendment or repeal of, or the adoption of any provision
inconsistent with the foregoing provisions of the Company's Articles of
Incorporation or Bylaws.
CERTAIN ANTI-TAKEOVER PROVISIONS
Michigan Fair Price Act. Certain provisions of the MBCA establish a
statutory scheme similar to the supermajority and fair price provisions found
in many corporate charters (the "Fair Price Act"). The Fair Price Act provides
that a supermajority vote of 90% of the shareholders and no less than
two-thirds of the votes of noninterested shareholders must approve a "business
combination." The Fair Price Act defines a "business combination" to encompass
any merger, consolidation, share exchange, sale of assets, stock issue,
liquidation or reclassification of securities involving an "interested
shareholder" or certain "affiliates." An "interested shareholder" is generally
any person who owns 10 percent or more of the outstanding voting shares of the
corporation. An "affiliate" is a person who directly or indirectly controls,
is controlled by, or is under common control with a specified person.
The supermajority vote required by the Fair Price Act does not apply
to business combinations that satisfy certain conditions. These conditions
include, among others: (i) the purchase price to be paid for the shares of the
corporation in the business combination must be at least equal to the highest
of either (a) the market value of the shares or (b) the highest per share price
paid by the interested shareholder within the preceding two-year period or in
the transaction in which the shareholder became an interested shareholder,
whichever is higher; and (ii) once becoming an interested shareholder, the
person may not become the beneficial owner of any additional shares of the
corporation except as part of the transaction which resulted in the interested
shareholder becoming an interested shareholder or by virtue of proportionate
stock splits or stock dividends. The requirements of the Fair Price Act do not
apply to business combinations with an interested shareholder that the board of
directors has approved or exempted from the requirements of the Fair Price Act
by resolution prior to the time that the interested shareholder first became an
interested shareholder.
Control Share Act. The MBCA regulates the acquisition of "control
shares" of large public Michigan corporations (the "Control Share Act").
Following completion of the offering, the Control Share Act is expected to
apply to the Company and its shareholders. The Control Share Act establishes
procedures governing "control share acquisitions." A control share acquisition
is defined as an acquisition of shares by an acquiror which, when combined with
other shares held by that person or entity, would give the acquiror voting
power, alone or as part of a group, at or above any of the following
thresholds: 20 percent, 33-1/3 percent or 50 percent. Under the Control Share
Act, an acquiror may not vote "control shares" unless the corporation's
disinterested shareholders (defined to exclude the acquiring person, officers
of the target corporation, and directors of the target corporation who are also
employees of the corporation) vote to confer voting rights on the control
shares. The Control Share Act does not affect the voting rights of shares
owned by an acquiring person prior to the control share acquisition. The
Control Share Act entitles corporations to redeem control shares from the
acquiring person under certain circumstances. In other cases, the Control
Share Act confers dissenters' right upon all of the corporation's shareholders
except the acquiring person.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws provide that the Company shall indemnify its
present and past directors, executive officers, and such other persons as the
Board of Directors may authorize, to the fullest extent permitted by law. The
Bylaws contain indemnification provisions concerning third party actions as
well as actions in the right of the Company. The Bylaws provide that the
Company shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the Company) by reason of the fact that he
or she is or was a director or officer of the Company, or while serving as such
a director or officer, is or was serving at the request of the Company as a
director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise,
whether for profit or not, against expenses (including attorney's fees),
35
<PAGE> 37
judgments, penalties, fees and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Company or its shareholders, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
With respect to derivative actions, the Bylaws provide that the
Company shall indemnify any person who was or is a party to or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Company to procure a judgment in its favor by reason of the
fact that he or she is or was a director or officer of the Company, or, while
serving as such a director or officer, is or was serving at the request of the
Company as a director, officer, partner, trustee, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise, whether for profit or not, against expenses (including attorney's
fees) and amounts paid in settlement actually and reasonably incurred by him or
her in connection with the action or suit if he or she acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the Company or its shareholders. No indemnification is provided
in the Bylaws in respect of any claim, issue or matter in which such person has
been found liable to the Company except to the extent that a court of competent
jurisdiction determines upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
LIMITATION OF DIRECTOR LIABILITY
The MBCA permits corporations to limit the personal liability of their
directors in certain circumstances. The Company's Articles of Incorporation
provide that a director of the Company shall not be personally liable to the
Company or its shareholders for monetary damages for breach of the director's
fiduciary duty. However, they do not eliminate or limit the liability of a
director for any breach of a duty, act or omission for which the elimination or
limitation of liability is not permitted by the MBCA, currently including,
without limitation, the following: (i) breach of the director's duty of
loyalty to the Company or its shareholders; (ii) acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law;
(iii) illegal loans, distributions of dividends or assets, or stock purchases
as described in Section 551(1) of MBCA; and (iv) transactions from which the
director derived an improper personal benefit.
SHARES ELIGIBLE FOR FUTURE SALE
The Company presently has one share of Common Stock outstanding. That
share is held by a member of the Board of Directors and it will be redeemed at
its original cost of $10 after completion of the offering. Upon completion of
the offering, the Company expects to have 1,000,000 shares of its Common Stock
outstanding. The 1,000,000 shares of the Company's Common Stock sold in the
offering (plus any additional shares sold upon the Underwriter's exercise of
their over-allotment option) have been registered with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933 (the "Securities
Act") and may generally be resold without registration under the Securities Act
unless they were acquired by directors, executive officers or other affiliates
of the Company (collectively, "Affiliates"). Affiliates of the Company may
generally only sell shares of the Common Stock pursuant to Rule 144 under the
Securities Act.
In general, under Rule 144 as currently in effect, an affiliate (as
defined in Rule 144) of the Company may sell shares of Common Stock within any
three-month period in an amount limited to the greater of 1% of the outstanding
shares of the Company's Common Stock or the average weekly trading volume in
the Company's Common Stock during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain manner-of-sale provisions,
holding periods for restricted shares, notice requirements and the availability
of current public information about the Company.
The Company and the directors and officers of the Company and the Bank
(who are expected to beneficially hold an aggregate of approximately 74,100
shares after the offering), have agreed, or will agree, that (i) they will not
36
<PAGE> 38
issue, offer for sale, sell, transfer, grant options to purchase or otherwise
dispose of any shares of Common Stock without the prior written consent of the
Underwriter for a period of 180 days from the date of this Prospectus, except
that (a) the Company may issue shares upon the exercise of options under the
Company's 1997 Employee Stock Option Plan or the Nonemployee Directors Plan,
and (b) the directors and officers may give Common Stock owned by them to
others who have agreed in writing to be bound by the same agreement, and (ii)
they will not sell, transfer, assign, pledge or hypothecate any shares of
Common Stock for a period of three months from the date of the Prospectus
acquired in connection with directions from the Company for issuer directed
securities. The Underwriter may waive certain of the transfer restrictions
described above; however, it has no intention to do so. The Company cannot
waive such restrictions.
Prior to the offering, there has been no public trading market for the
Common Stock, and no predictions can be made as to the effect, if any, that
sales of shares or the availability of shares for sale will have on the
prevailing market price of the Common Stock after completion of the offering.
Nevertheless, sales of substantial amounts of Common Stock in the public market
could have an adverse effect on prevailing market prices.
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement, to purchase from the Company 1,000,000 shares of the
Company's Common Stock. The Underwriting Agreement provides that the
obligations of the Underwriter thereunder are subject to certain conditions and
provides for the Company's payment of certain expenses incurred in connection
with the review of the underwriting arrangements for the offering by the
National Association of Securities Dealers, Inc. (the "NASD"). The Underwriter
is obligated to purchase all 1,000,000 of the shares of Common Stock offered
hereby, excluding shares covered by the over-allotment option granted to the
Underwriter, if any are purchased.
If the Underwriting Agreement is terminated, except in certain limited
cases, the Underwriting Agreement provides that the Company will reimburse the
Underwriter for all accountable out-of-pocket expenses, including Underwriter's
counsel's fees and any Blue Sky costs, incurred by it in connection with the
proposed purchase and sale of the Common Stock, up to $50,000. If the
Underwriter purchases 1,000,000 shares, then the Company will reimburse the
Underwriter for all accountable out-of-pocket expenses, including Underwriter's
counsel's fees and any Blue Sky costs, incurred by it in connection with the
proposed purchase and sale of the Common Stock, up to $25,000. If the
Underwriter exercises the full amount of the over-allotment option, then the
Company will not reimburse the Underwriter for any out-of-pocket expenses. The
Company must pay certain fees and expenses if, within one year after the
execution of the Underwriting Agreement, (i) the Company terminates the
Offering for reasons other than the Underwriter's refusal to or
inability to complete the Offering, and (ii) the Company raises capital either
publicly or privately. The Company has advanced $15,000 to the Underwriter in
connection with the Company's expense reimbursement obligation.
The Company and the Underwriter have agreed that the Underwriter will
purchase the 1,000,000 shares of Common Stock offered hereunder at a price to
the public of $10.00 per share less underwriting discounts and commissions of
$0.70 per share. However, no underwriting discounts or commissions will be
incurred by the Company with respect to up to 300,000 shares sold by the
Underwriter, pursuant to directions from the Company, to members of the Board
of Directors of the Company, their immediate families or certain other friends
and acquaintances who have expressed a nonbinding interest in investing in the
Company prior to the involvement of the Underwriter. The Underwriter has no
legal obligation to sell shares to such people and no shares have been reserved
for such sales, other than the 74,100 shares to be purchased by the directors
and officers of the company. The Underwriter proposes to offer the Common
Stock to selected dealers who are members of the NASD, at a price of $10 per
share less a concession not in excess of $0.40 per share. The Underwriter may
allow, and such dealers may re-allow, concessions not in excess of $0.10 per
share to certain other brokers and dealers.
37
<PAGE> 39
The Underwriter has informed the Company that the Underwriter does not
intend to make sales to any accounts over which it exercises discretionary
authority.
The Company has granted the Underwriter an option, exercisable within
30 days after the date of this offering, to purchase up to an additional
150,000 shares of Common Stock from the Company to cover over-allotments, if
any, at the same price per share as is to be paid by the Underwriter for the
other shares offered hereby. The Underwriter may purchase such shares only to
cover over-allotments, if any, in connection with the offering.
The Underwriting Agreement contains indemnity provisions between the
Underwriter and the Company and the controlling persons thereof against certain
liabilities, including liabilities arising under the Securities Act. The
Company is generally obligated to indemnify the Underwriter and its controlling
persons in connection with losses or claims arising out of any untrue statement
of a material fact contained in this Prospectus or in related documents filed
with the Commission or with any state securities administrator, or any omission
of certain material facts from such documents.
There has been no public trading market for the Common Stock. The
price at which the shares are being offered to the public was determined by
negotiations between the Company and the Underwriter. This price is not based
upon earnings or any history of operations and should not be construed as
indicative of the present or anticipated future value of the Common Stock.
Several factors were considered in determining the initial offering price of
the Common Stock, among them the size of the offering, the desire that the
security being offered be attractive to individuals and the Underwriter's
experience in dealing with initial public offerings for financial institutions.
LEGAL PROCEEDINGS
Neither the Bank nor the Company is a party to any pending legal
proceedings or aware of any threatened legal proceedings where the Company or
the Bank may be exposed to any material loss.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon
for the Company by Dykema Gossett PLLC, Detroit, Michigan. Warner Norcross &
Judd LLP, Grand Rapids, Michigan, is acting as counsel for the Underwriter in
connection with certain legal matters relating to the shares of Common Stock
offered hereby.
EXPERTS
The financial statements of the Company included in this Prospectus
have been audited by Plante & Moran, LLP, independent public accountants, as
indicated in their report with respect thereto. Such financial statements and
their report have been included herein in reliance upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission
("SEC") a Form SB-2 Registration Statement under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the Rules and Regulations
of the SEC. For further information pertaining to the shares of Common Stock
offered hereby and to the Company, reference is made to the Registration
Statement, including the Exhibits filed as a part thereof, copies of which can
be inspected at and copied at the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and Room 1400, 75 Park Place, New York New York 10007.
38
<PAGE> 40
Copies of such materials can also be obtained at prescribed rates by writing to
the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549. In addition, the SEC maintains a World Wide Web site that contains
reports, proxy and information statements that are filed electronically with
the SEC. The address of the site is http://www.sec.gov.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions discussed above under "Description of
Capital Stock -- Indemnification of Directors and Officers," or otherwise, the
Company has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
39
<PAGE> 41
MICHIGAN HERITAGE BANCORP, INC.
FINANCIAL STATEMENTS
(A COMPANY IN THE DEVELOPMENT STAGE)
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
REPORT LETTER ...........................................F-2
FINANCIAL STATEMENTS
Balance Sheet.......................................F-3
Statement of Shareholder's Equity...................F-4
Statement of Income.................................F-5
Statement of Cash Flows.............................F-6
Notes to Financial Statements.......................F-7
</TABLE>
F-1
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Michigan Heritage Bancorp, Inc.
We have audited the accompanying balance sheet of Michigan Heritage Bancorp,
Inc. (a company in the development stage) as of December 31, 1996 and the
related statements of shareholder's equity, income and cash flows for the year
ended December 31, 1996 and since inception. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Michigan Heritage Bancorp,
Inc. (a company in the development stage) as of December 31, 1996, and the
results of its operations and cash flows for the year ended December 31, 1996
and since inception in conformity with generally accepted accounting
principles.
/S/ Plante & Moran, LLP
January 10, 1997
Bloomfield Hills, Michigan
F-2
<PAGE> 43
MICHIGAN HERITAGE BANCORP, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Cash $ 67,445
Office equipment and construction in progress 32,839
Organization 97,329
Deferred offering costs 45,962
--------
Total assets $243,575
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable $ 57,016
Related party notes payable (Note 2) 255,000
STOCKHOLDER'S EQUITY
Preferred stock - no par value; 500,000 shares authorized, none issued ----
Common stock - no par value; 4,500,000 shares authorized,
one share issued and outstanding 10
Deficit accumulated during the development stage (68,451)
Total stockholder's equity (68,441)
--------
Total liabilities and stockholder's equity $243,575
========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 44
MICHIGAN HERITAGE BANCORP, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF SHAREHOLDER'S EQUITY
YEAR ENDED DECEMBER 31, 1996 (AND SINCE INCEPTION)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE
PREFERRED COMMON DEVELOPMENT
STOCK STOCK STAGE TOTAL
--------- ------- ------------ -----
<S> <C> <C> <C> <C>
Balance at January 1, 1996
(and since inception) $ - $ - $ - $ -
Issuance of common stock - 10 - 10
Net loss - - (68,451) (68,451)
----- ---- -------- --------
Balance at December 31, 1996 $ - $ 10 $(68,451) $(68,441)
===== ==== ======== ========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 45
MICHIGAN HERITAGE BANCORP, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 (AND SINCE INCEPTION)
<TABLE>
<CAPTION>
Year Ended Since
December 31, 1996 Inception
----------------- --------------
<S> <C> <C>
Interest Income $ 1,055 $ 1,055
Operating Expenses
Salaries and Employee Benefits 43,467 43,467
Occupancy Expense 13,564 13,564
Other 12,475 12,475
-------- --------
Total operating expenses 69,506 69,506
-------- --------
Loss Before Income Taxes (68,451) (68,451)
-------- --------
Provision For Income Taxes (Note 6) ---- ----
-------- --------
Net Loss $(68,451) $(68,451)
======== ========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 46
MICHIGAN HERITAGE BANCORP, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 (AND SINCE INCEPTION)
<TABLE>
<CAPTION>
Year Ended Since
December 31, 1996 Inception
----------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from development stage operations $ (68,451) $ (68,451)
Adjustments to reconcile net income from
development stage operations to net
cash from operating activities -
Increase in accounts payable 57,016 57,016
--------- ---------
Net cash used in operating activities (11,435) (11,435)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of office equipment and construction
in process (32,839) (32,839)
Organizational costs (97,329) (97,329)
--------- ---------
Net cash used in investing activities (130,168) (130,168)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party notes payable 255,000 255,000
Deferred offering costs (45,962) (45,962)
Sale of common stock 10 10
--------- ---------
Net cash provided by financing activities 209,048 209,048
NET INCREASE IN CASH 67,445 67,445
CASH - Beginning of period --- ---
--------- ---------
CASH - End of period $ 67,445 $ 67,445
========= =========
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE> 47
MICHIGAN HERITAGE BANCORP, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Michigan Heritage Bancorp, Inc. (the "Company")
was incorporated in 1989, but remained dormant until recently. The
Company became active to operate a new bank, Michigan Heritage Bank
(the "Bank") in Novi, Michigan. The Company intends to raise a
minimum of $9,310,000 in equity capital through the sale of 1,000,000
shares of the Company's common stock at $10 per share, net of
underwriting discounts and offering costs. Proceeds from the offering
will be used to capitalize the Bank, lease facilities and provide
working capital.
Basis of presentation - The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Organization and Preopening Costs - Organization costs represent
incorporation costs, legal and accounting costs and other costs
relating to the establishment of the Company. These costs will be
amortized over a 60-month period after the commencement of operations.
Deferred Offering Costs Deferred offering costs include legal,
consulting and accounting costs incurred in connection with the
registration of the Company's common stock. Those cost will be
charged against the stock proceeds or, if the offering is not
successful, charged to expense at that time.
NOTE 2 - NOTES PAYABLE RELATED PARTIES
Noninterest-bearing demand notes payable in the amount of
$255,000 are outstanding to the Company's organizers. Management
intends to repay the loans from the proceeds of the common stock
offering.
NOTE 3 - RELATED PARTY LEASE COMMITMENT
In September 1996, the Company entered into a lease commitment
for an office through June 30, 2002. In connection with the lease,
the Company obtained a standby letter of credit in the amount of
$35,000 for the benefit of the landlord. The Company has the
F-7
<PAGE> 48
right, if regulatory approvals necessary to operate the Bank are not
obtained by September 1, 1997, to pay $35,000 and terminate the lease.
The future minimum lease payments are as follows:
1997 $ 45,000
1998 45,000
1999 45,000
2000 45,000
2001 45,000
Thereafter 22,500
--------
Total $247,500
========
NOTE 4 - COMMITMENT
In November 1996, the Company entered into commitments to remodel
the facility and purchase furniture and equipment. The remaining
commitment is for approximately $71,000 and is payable upon the
completion of the project.
NOTE 5 - STOCK OPTION PLANS
The Company has adopted a stock option plan for its employees and
also has one for its nonemployee directors. The total number of
shares which may be issued under both plans will not exceed 100,000
shares. The shares will be authorized but unissued shares.
NOTE 6 INCOME TAXES
At December 31, 1996, the Company had approximately $68,000 of
net operating loss carryforwards. The tax benefit of these
carryforwards ($23,000) has been offset by a valuation allowance.
F-8
<PAGE> 49
-------------------------------------------------------
-------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. 2
Prospectus Summary..................... 3
Risk Factors........................... 5
Use of Proceeds........................ 9
Dividend Policy........................ 10
Capitalization......................... 11
Business............................... 11
Management............................. 17
Related Party Transactions............. 23
Principal Shareholders................. 24
Supervision and Regulation............. 26
Description of Capital Stock........... 33
Shares Eligible for Future Sale........ 36
Underwriting........................... 37
Legal Proceedings...................... 38
Legal Matters.......................... 38
Experts................................ 38
Additional Information................. 38
Index to Financial Statements.......... F-1
</TABLE>
------------------------
UNTIL , 1997 (90 DAYS AFTER THE EFFECTIVE DATE OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
1,000,000 SHARES
[MICHIGAN HERITAGE BANCORP, INC. LOGO]
COMMON STOCK
--------------------------
PROSPECTUS
--------------------------
(RONEY & CO. LOGO)
, 1997
-------------------------------------------------------
-------------------------------------------------------
<PAGE> 50
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The registrant's Bylaws provide that the registrant shall indemnify its
present and past directors, executive officers, and such other persons as the
Board of Directors may authorize, to the full extent permitted by law.
The registrant's Bylaws contain indemnification provisions concerning
third party actions as well as actions in the right of the registrant. The
Bylaws provide that the registrant shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the registrant) by
reason of the fact that he or she is or was a director or officer of the
registrant or is, or while serving as such a director or officer was, serving at
the request of the registrant as a director, officer, partner, trustee, employee
or agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, whether for profit or not, against expenses
(including attorney's fees), judgments, penalties, fees and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the registrant or its shareholders, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
With respect to derivative actions, the Bylaws provide that the
registrant shall indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the registrant to procure a judgment in its favor by reason of
the fact that he or she is or was a director or officer of the registrant, or is
or was serving at the request of the registrant as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorney's fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such judgment or suit if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the registrant or its shareholders and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person has been found liable to the registrant unless
and only to the extent that the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
The registrant's Articles of Incorporation provide that a director of
the registrant shall not be personally liable to the registrant or its
shareholders for monetary damages for breach of the director's fiduciary duty.
However, it does not eliminate or limit the liability of a director for any
breach of a duty, act or omission for which the elimiFati1n or limitation of
liability is not permitted by the Michigan Business Corporation Act (the
"MBCA"), currently including, without limitation, the following: (1) breach of
the director's duty of loyalty to the registrant or its shareholders; (2) acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law; (3) illegal loans, distributions of dividends or
assets, or stock purchases as described in Section 551(1) of MBCA; and (4)
transactions from which the director derived an improper personal benefit.
II-1
<PAGE> 51
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with
the sale and distribution of the Common Stock being registered, other than
underwriting discounts and commissions. All amounts shown are estimates, except
the SEC registration fee and the NASD filing fee, and assume sale of 1,000,000
shares in the offering.
<TABLE>
<S> <C>
SEC registration fee . . . . . . . . . . . . . . . . . . . $ 3,485
NASD filing fee . . . . . . . . . . . . . . . . . . . . . 1,650
Printing and mailing expenses . . . . . . . . . . . . . . 15,000
Fees and expenses of counsel . . . . . . . . . . . . . . . 80,000
Accounting and related expenses . . . . . . . . . . . . . 30,000
Blue Sky fees and expenses (including counsel fees) . . . 20,000
Registrar and Transfer Agent fees . . . . . . . . . . . . 3,500
Underwriter's Expenses* . . . . . . . . . . . . . . . . . 25,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 21,365
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . $200,000
========
</TABLE>
* If the Underwriter exercises its over-allotment option in full, then the
Underwriter's Expenses will be $0.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The registrant has borrowed approximately $200,000 from its organizers
during the past nine months to pay organizational and related expenses. To the
extent that such transactions would be deemed to involve the offer or sale of a
security, the registrant would claim an exemption under Section 4(2) of the
Securities Act of 1933 for such transactions. In addition, the registrant, sold
one share of its Common Stock to Richard Zamojski, its Chairman and Chief
Executive Officer, for $10. The registrant also claims an exemption for such
sale pursuant to Section 4(2).
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1 *Form of Underwriting Agreement
3.1 **Restated Articles of Incorporation of Michigan Heritage Bancorp, Inc.
3.2 **Bylaws of Michigan Heritage Bancorp, Inc.
4 **Specimen common stock certificate
5 **Opinion of Dykema Gossett PLLC
10.1 **Form of 1997 Employee Stock Option Plan
10.2 **Form of 1997 Stock Option Plan for Nonemployee Directors
10.3 **Sublease dated as of September 30, 1996, between Comerica Bank and Michigan
Heritage Bank
21 **Subsidiaries of Michigan Heritage Bancorp, Inc.
23.1 **Consent of Dykema Gossett PLLC (included in opinion filed as Exhibit 5)
23.2 **Consent of Plante & Moran, LLP
24 **Power of Attorney (included on page II-4)
27 **Financial Data Schedule (EDGAR filing only)
</TABLE>
* Filed herewith.
** Previously filed.
II-2
<PAGE> 52
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) The registrant will provide to the underwriter at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(3) The registrant will:
(i) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant under Rule 424(b)(1),
or (4) or 497(h) under the Securities Act as part of this registration
statement as of the time the SEC declared it effective; and
(ii) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a
new registration statement for the securities offered in the
registration statement, and that offering of the securities at that
time as the initial bona fide offering of those securities.
[Remainder of Page Intentionally Left Blank]
II-3
<PAGE> 53
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this amendment to
this Registration Statement be signed on its behalf by the undersigned, in the
City of Novi, State of Michigan, on February 21, 1997.
MICHIGAN HERITAGE BANCORP, INC.
By: /s/ Anthony S. Albanese
---------------------------------
Anthony S. Albanese, President
In accordance with the requirements of the Securities Act of 1933,
this amendment to this Registration Statement was signed by the following
persons in the capacities indicated on February 21, 1997.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C>
/s/ Richard Zamojski Chairman of the Board, Chief Executive Officer and Director
- -------------------------------- (principal executive officer)
Richard Zamojski
/s/ Anthony S. Albanese President, Chief Operating Officer and Director
- --------------------------------
Anthony S. Albanese
/s/ Darryle J. Parker Secretary, Treasurer and Chief Financial Officer (principal
- -------------------------------- financial and accounting officer)
Darryle J. Parker
* Director
- --------------------------------
H. Perry Driggs, Jr.
* Director
- --------------------------------
Lewis N. George
* Director
- --------------------------------
Phillip R. Harrison
* Director
- --------------------------------
Philip Sotiroff
* By /s/ Anthony S. Albanese
-------------------------------------
Anthony S. Albanese, Attorney-in-Fact
</TABLE>
II-4
<PAGE> 54
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1 *Form of Underwriting Agreement
</TABLE>
- -------------------------
* Filed herewith.
<PAGE> 1
EXHIBIT 1
1,000,000 SHARES
MICHIGAN HERITAGE BANCORP, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
February 24, 1997
Roney & Co. L.L.C.
One Griswold
Detroit, Michigan 48226
Dear Sirs:
Michigan Heritage Bancorp, Inc., a Michigan corporation (the
"COMPANY"), proposes to issue and sell 1,000,000 shares (the "FIRM SHARES") of
its authorized but unissued Common Stock (the "COMMON STOCK") to Roney & Co.
L.L.C., a Delaware limited liability company ("RONEY & CO." or "UNDERWRITER").
In addition, the Company proposes to grant to the Underwriter an option to
purchase up to an additional 150,000 shares (the "OPTIONAL SHARES") to cover
over-allotments. The Firm Shares and the Optional Shares are called,
collectively, the "SHARES."
1. SALE AND PURCHASE OF THE SHARES.
(a) On the basis of the representations, warranties and
agreements of the Company contained in, and subject to the terms
and conditions of, this Agreement, the Company agrees to issue and
sell to the Underwriter, and the Underwriter agrees to purchase
the Firm Shares at a purchase price of $9.30 per Share, except as
set forth in Section 1(b) below.
(b) On the basis of the representations, warranties and
agreements of the Company contained in, and subject to the terms
and conditions of, this Agreement, and pursuant to directions from
the Company, the Underwriter will offer to sell to each of the
persons named in a list provided by the Company to the Underwriter
(who may purchase alone or with family members to the extent
permitted by the Free-Riding and Withholding Interpretation (the
"INTERPRETATION") under the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD")) the number
of Shares set forth opposite their respective names. To the
extent such persons (alone or with such family
<PAGE> 2
members) offer to buy such Shares, the Underwriter agrees to purchase
up to 300,000 of such Shares at a purchase price of $10.00 per Share.
The purchase price for such Shares over 300,000 shall be as set forth in
Section 1(b) above. The parties agree that the securities purchased and
sold under this subparagraph to the Company's employees and directors
shall constitute "issuer directed securities" under the Interpretation.
The provisions of this Section 1(b) shall not affect the Underwriter's
right, with respect to persons who are not employees or directors of the
Company, to withdraw, cancel or modify orders or to reject orders in
whole or in part.
(c) On the basis of the representations, warranties and
agreements of the Company contained in, and subject to the terms
and conditions of, this Agreement, the Company grants to the
Underwriter an option to purchase all or any part of the Optional
Shares at a price per Share of $9.30. The over-allotment option
may be exercised only to cover over-allotments in the sale of the
Firm Shares by the Underwriter and may be exercised in whole or in
part at any time or times on or before 12:00 noon, Detroit time,
on the day before the Firm Shares Closing Date (as defined in
Section 2 below), and only once at any time after that date and
within 30 days after the Effective Date (as defined in Section 4
below), in each case upon written or transmitted facsimile notice,
or verbal notice confirmed by transmitted facsimile, written or
telegraphic notice, by Roney & Co. to the Company no later than
12:00 noon, Detroit time, on the day before the Firm Shares
Closing Date or at least three but not more than five full
business days before the Optional Shares Closing Date (as defined
in Section 2 below), as the case may be, setting forth the number
of Optional Shares to be purchased and the time and date (if other
than the Firm Shares Closing Date) of such purchase.
2. DELIVERY AND PAYMENT. Delivery by the Company of the Firm Shares to
Roney & Co. and payment of the purchase price by certified or official bank
check payable in Detroit Clearing House (next day) funds to the Company, shall
take place at the offices of Roney & Co., One Griswold, Detroit, Michigan
48226, at 10:00 a.m., Detroit time, at such time and date, not later than the
third (or, if the Firm Shares are priced, as contemplated by Rule 15c6-1(c)
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"),
after 4:30 p.m., Washington, D.C. time, the fourth) full business day following
the first date that any of the Shares are released by the Underwriter for sale
to the public, as Roney & Co. shall designate by at least 48 hours prior notice
to the Company (the "FIRM SHARES CLOSING DATE"); provided, however, that if the
Prospectus (as defined in Section 4 below) is at any time prior to the Firm
Shares Closing Date recirculated to the public, the Firm Shares Closing Date
shall occur upon the later of the third or fourth, as the case the may be, full
business day following the first date that any of the Shares are released by
the Underwriter for sale to the public or the date that is 48 hours after the
date that the Prospectus has been so recirculated.
2
<PAGE> 3
To the extent the option with respect to the Optional Shares is
exercised, delivery by the Company of the Optional Shares, and payment of the
purchase price by certified or official bank check payable in Detroit Clearing
House (next day) funds to the Company, shall take place at the offices of Roney
& Co. specified above at the time and on the date (which may be the Firm Shares
Closing Date) specified in the notice referred to in Section l(c) (such time
and date of delivery and payment are called the "OPTIONAL SHARES CLOSING
DATE"). The Firm Shares Closing Date and the Optional Shares Closing Date are
called, individually, a "CLOSING DATE" and, collectively, the "CLOSING DATES."
Certificates representing the Firm Shares shall be registered in such
names and shall be in such denominations as Roney & Co. shall request at least
two full business days before the Firm Shares Closing Date or, in the case of
the Optional Shares, on the day of notice of exercise of the option as
described in Section l(c), and shall be made available to Roney & Co. for
checking and packaging, at such place as is designated by Roney & Co., at least
one full business day before the Closing Date.
3. PUBLIC OFFERING. The Company understands that the Underwriter
proposes to make a public offering of the Shares, as set forth in and pursuant
to the Prospectus, as soon after the Effective Date as Roney & Co. deems
advisable. The Company hereby confirms that the Underwriter and dealers have
been authorized to distribute each preliminary prospectus and are authorized to
distribute the Prospectus (as from time to time amended or supplemented).
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Underwriter and agrees
with the Underwriter as follows:
(a) The Company has carefully prepared in conformity with the
requirements of the Securities Act of 1933, as amended (the
"SECURITIES ACT") and the rules and regulations adopted by the
Securities and Exchange Commission (the "COMMISSION") thereunder
(the "RULES"), a registration statement on Form SB-2 (No.
333-17317), including a preliminary prospectus, and has filed with
the Commission the registration statement and such amendments
thereof as may have been required to the date of this Agreement.
Copies of such registration statement (including all amendments
thereof) and of the related preliminary prospectus have heretofore
been delivered by the Company to you. The term "PRELIMINARY
PROSPECTUS" means any preliminary prospectus (as defined in Rule
430 of the Rules) included at any time as a part of the
registration statement. The registration statement as amended
(including any supplemental registration statement under Rule
462(b) or any amendment under Rule 462(c) of the Rules) at the
time and on the date it becomes effective (the "EFFECTIVE DATE"),
including the prospectus, financial statements, schedules, exhibits, and
all other documents
3
<PAGE> 4
incorporated by reference therein or filed as a part thereof, is
called the "REGISTRATION STATEMENT;" provided, however, that
"REGISTRATION STATEMENT" shall also include all Rule 430A
Information (as defined below) deemed to be included in such
Registration Statement at the time such Registration Statement
becomes effective as provided by Rule 430A of the Rules. The term
"PROSPECTUS" means the Prospectus as filed with the Commission
pursuant to Rule 424(b) of the Rules or, if no filing pursuant to
Rule 424(b) of the Rules is required, means the form of final
prospectus included in the Registration Statement at the time such
Registration Statement becomes effective. The term "RULE 430A
INFORMATION" means information with respect to the Shares and the
offering thereof permitted to be omitted from the Registration
Statement when it becomes effective pursuant to Rule 430A of the
Rules. Reference made herein to any preliminary prospectus or to
the Prospectus shall be deemed to refer to and include any
document attached as an exhibit thereto or incorporated by
reference therein, as of the date of such preliminary prospectus
or the Prospectus, as the case may be. The Company will not file
any amendment of the Registration Statement or supplement to the
Prospectus to which Roney & Co. shall reasonably object in writing
after being furnished with a copy thereof.
(b) Each preliminary prospectus, at the time of filing
thereof, contained all material statements which were required to
be stated therein in accordance with the Securities Act and the
Rules, and conformed in all material respects with the
requirements of the Securities Act and the Rules, and did not
include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under
which they were made, not misleading. The Commission has not
issued any order suspending or preventing the use of any
preliminary prospectus. When the Registration Statement shall
become effective, when the Prospectus is first filed pursuant to
Rule 424(b) of the Rules, when any post-effective amendment of the
Registration Statement shall become effective, when any supplement
to or pre-effective amendment of the Prospectus is filed with the
Commission and at each Closing Date, the Registration Statement
and the Prospectus (and any amendment thereof or supplement
thereto) will comply with the applicable provisions of the
Securities Act and the Exchange Act and the respective rules and
regulations of the Commission thereunder, and neither the
Registration Statement nor the Prospectus, nor any amendment
thereof or supplement thereto, will contain any untrue statement
of a material fact or will omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the Company
makes no representation or warranty as to the information
contained in the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto in
4
<PAGE> 5
reliance upon and in conformity with information furnished in writing
to the Company by the Underwriter, specifically for use in connection
with the preparation thereof.
(c) All contracts and other documents required to be filed as
exhibits to the Registration Statement have been filed with the
Commission as exhibits to the Registration Statement.
(d) Plante & Moran, LLP, whose report is filed with the
Commission as part of the Registration Statement, are, and during
the periods covered by their report were, independent public
accountants as required by the Securities Act and the Rules.
(e) The Company and its subsidiary, Michigan Heritage Bank, a
Michigan banking corporation (the "BANK"), have been duly
organized and are validly existing as a corporation or banking
corporation, as applicable, in good standing under the laws of the
State of Michigan. Neither the Company nor the Bank have any
properties or conduct any business outside of the State of
Michigan which would require either of them to be qualified as a
foreign corporation or bank, as the case may be, in any
jurisdiction outside of Michigan. Neither the Company nor the
Bank has any directly or indirectly held subsidiary other than the
Bank. The Company has all power, authority, authorizations,
approvals, consents, orders, licenses, certificates and permits
needed to enter into, deliver and perform this Agreement and to
issue and sell the Shares.
(f) The application for permission to organize the Bank (the
"FIB APPLICATION") was approved by the Commissioner of the
Financial Institutions Bureau for the State of Michigan (the
"COMMISSIONER") on November 25, 1996, pursuant to Order No.
BT-0612-96-04, subject to certain conditions specified in the
Order and supplemental correspondence from the Commissioner dated
the same date. The Order and supplemental correspondence from
the Commissioner are collectively referred to in this Agreement as
the "FIB ORDER." All conditions contained in the FIB Order
required to be satisfied before the date of this Agreement have
been satisfied. The application to the Federal Deposit Insurance
Corporation (the "FDIC") to become an insured depository
institution under the provisions of the Federal Deposit Insurance
Act (the "FDIC APPLICATION") was approved by order of the FDIC
dated January 10, 1997 (the "FDIC ORDER"), subject to certain
conditions specified in the Order. All conditions contained in
the FDIC Order required to be satisfied before the date of this
Agreement have been satisfied. The Company's application to
become a bank holding company and acquire all issued capital stock
of the Bank and the Bank's application to become a member of the Federal
Reserve System (collectively, the "BANK
5
<PAGE> 6
HOLDING COMPANY APPLICATION") under the Bank Holding Company Act
of 1956, as amended, was approved on January 29, 1997
(collectively, the "FEDERAL RESERVE BOARD APPROVAL"), subject to
certain conditions specified in the Federal Reserve Board
Approval. All conditions in the Federal Reserve Board Approval
required to be satisfied before the date of this Agreement have
been satisfied. Each of the FIB Application, FDIC Application, and
Bank Holding Company Application, at the time of their respective
filings, contained all required information and such information
was complete and accurate in all material respects. Other than
the remaining conditions to be fulfilled under the FIB Order, FDIC
Order and the Federal Reserve Board Approval specified above, no
authorization, approval, consent, order, license, certificate or
permit of and from any federal, state, or local governmental or
regulatory official, body, or tribunal, is required for the
Company or the Bank to commence and conduct their respective
businesses and own their respective properties as described in the
Prospectus, except such authorizations, approvals, consents,
orders, licenses, certificates, or permits as are not material to
the commencement or conduct of their respective businesses or to
the ownership of their respective properties.
(g) The financial statements of the Company and any related
notes thereto, included in the Registration Statement and the
Prospectus, present fairly the financial position of the Company
as of the date of such financial statements and for the period
covered thereby. Such statements and any related notes have been
prepared in accordance with generally accepted accounting
principals applied on a consistent basis and certified by the
independent accountants named in subsection 4(d) above. No other
financial statements are required to be included in the Prospectus
or the Registration Statement.
(h) The Company owns adequate and enforceable rights to use
any patents, patent applications, trademarks, trademark
applications, service marks, copyrights, copyright applications
and other similar rights (collectively, "INTANGIBLES") necessary
for the conduct of the material aspects of its business as
described in the Prospectus and the Company has not infringed, is
infringing, or has received any notice of infringement of, any
Intangible of any other person.
(i) The Company has a valid and enforceable leasehold
interest in the real property located at 21211 Haggerty Road,
Novi, Michigan, which is as described in the Prospectus, and is
free and clear of all liens, encumbrances, claims, security
interests and defects.
(j) There are no litigation or governmental or other proceedings
or investigations pending before any court or before or by any public
body or board or threatened against the Company or the Bank and to the
best of the Company's
6
<PAGE> 7
knowledge, there is no reasonable basis for any such litigation,
proceedings or investigations, which would have a material adverse
effect on commencement or conduct of the respective businesses of the
Company or the Bank or the ownership of their respective properties.
(k) The Company and Bank have filed all federal, state, and
local tax returns required to be filed by them and paid all taxes
shown due on such returns as well as all other material taxes,
assessments and governmental charges which have become due; no
material deficiency with respect to any such return has been
assessed or proposed.
(l) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, there has not been any material adverse change in the
condition (financial or other), business, properties or prospects
of the Company.
(m) No default exists, and no event has occurred which with
notice or lapse of time, or both, would constitute a default, in
the due performance and observance of any material term, covenant
or condition, by the Company, the Bank or, to the best of the
Company's knowledge, any other party, of any lease, indenture,
mortgage, note or any other agreement or instrument to which the
Company or the Bank is a party or by which either of them or
either of their businesses may be bound or affected, except such
defaults or events as are not material to the commencement or
conduct of their respective businesses or ownership of their
respective properties.
(n) Neither the Company nor the Bank is in violation of any
term or provision of the articles of incorporation or bylaws of
the Company or the Bank. Neither the Company nor the Bank is in
violation of, nor is either of them required to take any action to
avoid any material violation of, any franchise, license, permit,
judgment, decree, order, statute, rule or regulation.
(o) Neither the execution, delivery or performance of this
Agreement by the Company nor the consummation of the transactions
contemplated hereby (including, without limitation, the issuance
and sale by the Company of the Shares) will give rise to a right
to terminate or accelerate the due date of any payment due under,
or conflict with or result in the breach of any term or provision
of, or constitute a default (or an event which with notice or
lapse of time, or both, would constitute a default) under, or require any
consent under, or result in the execution or imposition of any lien,
charge or encumbrance upon any properties or assets of the Company or the
Bank pursuant to the terms of, any lease, indenture, mortgage,
note or other agreement or instrument to which the
7
<PAGE> 8
Company or the Bank is a party or by which either of them or either of
their businesses may be bound or affected, or any franchise, license,
permit, judgment, decree, order, statute, rule or regulation or violate
any provision of the articles of incorporation or bylaws of the Company
or the Bank, except those which are immaterial in amount or effect.
(p) The Company has authorized capital stock as set forth in
the Prospectus. One share of Common Stock of the Company is
issued and outstanding, which will be redeemed at or promptly
following the Closing if permitted by applicable law. No shares
of preferred stock are issued and outstanding. The issuance, sale
and delivery of the Shares have been duly authorized by all
necessary corporate action by the Company and, when issued, sold
and delivered against payment therefor pursuant to this Agreement,
will be duly and validly issued, fully paid and nonassessable and
none of them will have been issued in violation of any preemptive
or other right. Upon issuance, sale, and delivery thereof against
payment therefor pursuant to the subscription agreement, all of
the capital stock of the Bank will be duly authorized and validly
issued, fully paid and nonassessable and will be owned by the
Company, free and clear of all liens, encumbrances and security
interests (subject to the provisions of the Michigan Banking Code
of 1969 (the "BANKING CODE"), including, without limitation,
Sections 77 and 201 of the Banking Code). There is no outstanding
option, warrant or other right calling for the issuance of, and no
commitment, plan or arrangement to issue, any share of stock of
the Company or the Bank or any security convertible into or
exchangeable for stock of the Company or the Bank, except for
stock options described in the Registration Statement (the "STOCK
OPTIONS") under the 1997 Employee Stock Option Plan and the 1997
Nonemployee Director Stock Option Plan (collectively, the "STOCK
OPTION PLANS"). The Common Stock, the Shares and the Stock
Options conform to all statements in relation thereto contained in
the Registration Statement and the Prospectus.
(q) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, neither the Company nor the Bank has (1) issued any
securities or incurred any material liability or obligation,
direct or contingent, (2) entered into any material transaction,
or (3) declared or paid any dividend or made any distribution on
any of their stock, except liabilities, obligations, and
transactions reasonably expected based on the disclosures in the
Prospectus, and redemption of one share of Common Stock for $10 at
or promptly following the Closing if permitted by applicable law.
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<PAGE> 9
(r) This Agreement has been duly and validly authorized,
executed and delivered by the Company and is the legal, valid and
binding agreement and obligation of the Company.
(s) The Commission has not issued any order preventing or
suspending the use of any preliminary prospectus.
(t) Neither the Company, nor the Bank, nor, to the Company's
knowledge any director, officer, agent, employee or other person
associated with the Company or the Bank, acting on behalf of the
Company or the Bank, has used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense
relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any
provision of the Foreign Corrupt Practices Act of 1977; or made
any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment.
(u) Neither the Company nor the Bank nor any affiliate of
either of them has taken, and they will not take, directly or
indirectly, any action designed to cause or result in, or which
has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the
shares of the Common Stock in order to facilitate the sale or
resale of any of the Shares.
(v) No transaction has occurred between or among the Company
or the Bank and any of their officers, directors, organizers or
the Company's shareholder or any affiliate or affiliates of any
such officer, director, organizer, or shareholder, that is
required to be described in and is not described in the
Prospectus.
(w) The Company is not and will not after the offering be an
"investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of
1940, as amended.
(x) The Company has obtained from all of its executive
officers and directors their written agreement that (i) for a
period of 180 days from the date of the Effective Date, they will
not offer to sell, sell, transfer, contract to sell, or grant any
option for the sale of or otherwise dispose of, directly or
indirectly, any shares of Common Stock of the Company (or any
securities convertible into or exercisable for such shares of
Common Stock), except for (1) the exercise of Stock Options under
the Stock Option Plans or (2) gifts of Common Stock (or other
securities) to a donee or donees who agree in writing to be bound
by this clause, and (ii) for a period of three months from the
date of the Effective Date,
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<PAGE> 10
they will not sell, transfer, assign, pledge, or hypothecate any
shares of Common Stock acquired under Paragraph 1(b), above, except
with respect to Richard Zamojski who may resell one share of Common
Stock to the Company.
5. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligation of the
Underwriter to purchase the Shares shall be subject to the accuracy of the
representations and warranties of the Company in this Agreement as of the date
of this Agreement and as of the Firm Shares Closing Date or Optional Shares
Closing Date, as the case may be, to the accuracy of the statements of Company
officers made pursuant to the provisions of this Agreement, to the performance
by the Company of its obligations under this Agreement, and to the following
additional terms and conditions:
(a) The Registration Statement shall have become effective
not later than 5:00 P.M., Detroit time, on the date of this
Agreement or on such later date and time as shall be consented to
in writing by Roney & Co.; if the filing of the Prospectus, or any
supplement thereto, is required pursuant to Rule 424(b) of the
Rules, the Prospectus shall have been filed in the manner and
within the time period required by Rule 424(b) of the Rules; at
each Closing Date, if any, no stop order shall have been issued or
proceedings therefor initiated or threatened by the Commission;
and any request of the Commission for inclusion of additional
information in the Registration Statement, or otherwise, shall
have been complied with to the reasonable satisfaction of Roney &
Co.
(b) At each Closing Date, Roney & Co. shall have received the
opinion of Dykema Gossett PLLC, counsel for the Company, dated the
Firm Shares Closing Date or the Optional Shares Closing Date, as
the case may be, addressed to the Underwriter and in form and
scope reasonably satisfactory to counsel for Roney & Co. to the
effect that:
(i) Each of the Company and the Bank (A) is a
corporation or banking corporation, as applicable, existing
and in good standing under the laws of the State of Michigan
and (B) is not required to be qualified to do business in
any jurisdiction outside Michigan, except where the failure
to so qualify would not have a material adverse effect on
the Company or the Bank.
(ii) Each of the Company and the Bank has full
corporate power and authority and all material
authorizations, approvals, orders, licenses, certificates
and permits of and from all governmental regulatory
officials and bodies necessary to own or lease their
respective properties and conduct their respective businesses as
described in the Registration Statement and Prospectus;
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<PAGE> 11
(iii) The Company has authorized capital stock as set
forth in the Prospectus and, prior to the Closing, had one
share of Common Stock issued and outstanding; the Shares
have been duly authorized and validly issued and upon
receipt by the Company of payment therefor in accordance
with the terms of this Agreement will be fully paid and
nonassessable and are not subject to preemptive rights; the
Shares and the other capital stock and Stock Options of the
Company conform in all material respects to the descriptions
thereof contained in the Registration Statement and the
Prospectus;
(iv) To such counsel's knowledge, after due inquiry,
the Company has no directly or indirectly held subsidiary
other than the Bank;
(v) When issued, sold, and delivered against payment
therefor in accordance with the terms of the subscription
agreement, the Company will be the registered holder of all
of the outstanding capital stock of the Bank, and all such
shares of stock so held will be duly authorized and validly
issued, fully paid and nonassessable and will be owned free
and clear of any liens, encumbrances or other claims or
restrictions whatsoever, subject to the provisions of the
Banking Code;
(vi) The certificates evidencing the Shares are in the
form approved by the Board of Directors of the Company,
comply with the bylaws and the articles of incorporation of
the Company, and comply as to form and in all other material
respects with applicable legal requirements;
(vii) This Agreement has been duly and validly
authorized, executed and delivered by the Company, and is
the legal, valid and binding agreement and obligation of the
Company enforceable in accordance with its terms, except (a)
as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws
relating to or affecting enforcement of creditors' rights or
by general equity principles, whether applied in an action
at law or in equity, or by the discretionary nature of
specific performance, injuncture relief, and other equitable
remedies, including the appointment of a receiver, and (b),
with respect to provisions relating to indemnification and
contribution, to the extent they are held by a court of
competent jurisdiction to be void or unenforceable as
against public policy;
11
<PAGE> 12
(viii) The Company is conveying to the Underwriter good
and valid title to the Shares, free and clear of any liens,
encumbrances, security interests, restrictions, and adverse
claims;
(ix) To the best of such counsel's knowledge, after due
inquiry, there are (A) no contracts or other documents which
are required to be filed as exhibits to the Registration
Statement other than those filed as exhibits thereto, (B) no
legal or governmental proceedings pending or threatened
against the Company or the Bank, and (C) no statutes or
regulations applicable to the Company or the Bank, or
certificates, permits, grants or other consents, approvals,
orders, licenses or authorizations from regulatory officials
or bodies, which are required to be obtained or maintained
by the Company or the Bank and which are of a character
required to be disclosed in the Registration Statement and
Prospectus which have not been so disclosed and properly
described therein;
(x) The statements in the Registration Statement and
the Prospectus, insofar as they are descriptions of
corporate documents, stock option plans, contracts,
agreements or other documents specifically identified in the
Registration Statement or descriptions of laws, regulations,
or regulatory requirements, or refer to compliance with law
or to statements of law or legal conclusions, are correct in
all material respects;
(xi) To the best of such counsel's knowledge, after due
inquiry, the execution, delivery and performance of this
Agreement, the consummation of the transactions herein
contemplated and the compliance with the terms and
provisions hereof by the Company will not give rise to a
right to terminate or accelerate the due date of any payment
due under, or conflict with or result in a breach of any of
the terms or provisions of, or constitute a default (or an
event which, with notice or lapse of time, or both, would
constitute a default) under, or require any consent under,
or result in the execution or imposition of any lien, charge
or encumbrance upon any properties or assets of the Company
or the Bank pursuant to the terms of, any lease, indenture,
mortgage, note or other agreement or instrument to which the
Company or the Bank is a party or by which either of them or
either of their properties or businesses is or may be bound
or affected, nor will such action result in any violation of
the provisions of the articles of incorporation or bylaws of
the Company or the Bank or any statute or any order, rule,
or regulation applicable to the Company or the Bank of any
court or any federal, state, local or other
12
<PAGE> 13
regulatory authority or other governmental body, the effect of
which, in any such case, would be expected to have a material
adverse effect to the Company or the Bank;
(xii) To the best of such counsel's knowledge, after
due inquiry, no consent, approval, authorization or order of
any court or governmental agency or body, domestic or
foreign, is required to be obtained by the Company in
connection with the execution and delivery of this Agreement
or the sale of the Shares to the Underwriter as contemplated
by this Agreement, except such as have been obtained;
(xiii) To the best of such counsel's knowledge, after
due inquiry, (A) neither the Company nor the Bank is in
breach of, or in default (and no event has occurred which,
with notice or lapse of time, or both, would constitute a
default) under, any lease, indenture, mortgage, note, or
other agreement or instrument to which the Company or the
Bank is a party; or (B) neither the Company nor the Bank is
in violation of any term or provision of either of their
articles of incorporation or bylaws, or of any franchise,
license, grant, permit, judgment, decree, order, statute,
rule or regulation; and (C) neither the Company nor the Bank
has received any notice of conflict with the asserted rights
of others in respect of Intangibles necessary for the
commencement or conduct of its business, the effect of
which, in any such case, would be expected to have a
material adverse effect on the Company or the Bank;
(xiv) The Registration Statement and the Prospectus and
any amendments or supplements thereto (other than the
financial statements as to which no opinion need be
rendered) comply as to form in all material respects with
the requirements of the Securities Act and the Rules; and
(xv) The Registration Statement is effective under the
Securities Act, and any required filing of the Prospectus
pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b) and, to the
best of such counsel's knowledge, after due inquiry, no
stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment to the
Registration Statement and no order directed at any document
incorporated by reference in the Registration Statement or
the Prospectus or any amendment or supplement thereto has
been issued, and no proceedings for that purpose have been
instituted or threatened or are contemplated by the
Commission.
13
<PAGE> 14
In rendering the foregoing opinion, such counsel may rely upon
certificates of public officials (as to matters of fact and law) and
officers of the Company (as to matters of fact), and include customary
qualifications in its opinion as are acceptable to Roney & Co. Copies of
all such certificates shall be furnished to counsel to Roney & Co. on the
Closing Date.
In addition, such counsel shall state that they have
participated in conferences with officials of the Company and its
independent auditors, and representatives of the Underwriter and
its counsel at which the content of the Registration Statement and
Prospectus and related matters were discussed, and also had
discussions with such officials of the Company with a view toward
a clear understanding on their part of the requirements of the Act
with reference to the preparation of registration statements and
prospectuses. Such counsel did not independently verify the
accuracy or completeness of the statements made in the
Registration Statement and Prospectus; however, based on such
counsel's examination of the Registration Statement and the
Prospectus and on its participation in the above-mentioned
conferences, nothing has come to the attention of such counsel
that gives them reason to believe that the Registration Statement
or Prospectus (other than financial statements and notes, any
related schedules or other financial information contained in such
Registration Statement or Prospectus as to which such counsel need
express no opinion or belief), at the time the Registration
Statement became effective, contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus (other than financial statement
and notes, any related schedules or other financial information
contained in such Prospectus or amendment or supplement thereto,
as to which such counsel need express no opinion or belief), as of
the date of the opinion, contains any untrue statement of a
material fact or omits to state a material fact necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading.
(c) On or prior to each Closing Date, Roney & Co. shall have
been furnished such documents, certificates and opinions as they
may reasonably require for the purpose of enabling them to review
the matters referred to in subsection (b) of this Section 5, and
in order to evidence the accuracy, completeness or satisfaction of
the representations, warranties or conditions herein contained.
(d) Prior to each Closing Date, (i) there shall have been no
material adverse change in the condition or prospects, financial
or otherwise, of the Company or the Bank; (ii) there shall have
been no material transaction, not in the ordinary course of
business, entered into by the Company or the Bank except
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<PAGE> 15
as set forth in the Registration Statement and Prospectus, other than
transactions referred to or contemplated therein or to which Roney
& Co. has given its written consent; (iii) neither the Company nor
the Bank shall be in default (nor shall an event have occurred
which, with notice or lapse of time, or both, would constitute a
default) under any provision of any material agreement,
understanding or instrument relating to any outstanding
indebtedness that is material in amount; (iv) no action, suit or
proceeding, at law or in equity, shall be pending or threatened
against the Company or the Bank before or by any court or Federal,
state or other commission, board or other administrative agency
having jurisdiction over the Company or the Bank, as the case may
be, which is expected to have a material adverse effect on the
Company or the Bank; and (v) no stop order shall have been issued
under the Securities Act and no proceedings therefor shall have
been initiated or be threatened by the Commission.
(e) At each Closing Date, Roney & Co. shall have received a
certificate signed by the Chairman of the Board, the President,
and the Treasurer of the Company dated the Firm Shares Closing
Date or Optional Shares Closing Date, as the case may be, to the
effect that the conditions set forth in subsection (d) above have
been satisfied and as to the accuracy, as of the Firm Shares
Closing Date or the Optional Shares Closing Date, as the case may
be, of the representations and warranties of the Company set forth
in Section 4 hereof.
(f) At or prior to each Closing Date, Roney & Co. shall have
received a "blue sky" memorandum (upon which Roney & Co. may rely)
of Dykema Gossett PLLC, counsel for the Company, addressed to
Roney & Co. and in form and scope reasonably satisfactory to Roney
& Co. concerning compliance with the blue sky or securities laws
of the states listed in Exhibit A attached to this Agreement.
(g) All proceedings taken in connection with the sale of the
Shares as herein contemplated shall be reasonably satisfactory in
form and substance to Roney & Co. and to counsel for Roney & Co.,
and Roney & Co. shall have received from counsel for Roney & Co. a
favorable opinion, dated as of each Closing Date, with respect to
such of the matters set forth under Subsections (b) (i), (iii),
(vi), (vii), and (xv) of this Section 5, and with respect to such
other related matters as Roney & Co. may require, if the failure
to receive a favorable opinion with respect to such other related
matters would cause Roney & Co. to deem it inadvisable to proceed
with the sale of the Shares.
(h) There shall have been duly tendered to Roney & Co. certificates
representing all the Shares agreed to be sold by the Company on the Firm
Shares Closing Date or the Optional Shares Closing Date, as the case may
be.
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<PAGE> 16
(i) No order suspending the sale of the Shares prior to each
Closing Date, in any jurisdiction listed in Exhibit A, shall have
been issued on the Firm Shares Closing Date or the Optional Shares
Closing Date, as the case may be, and no proceedings for that
purpose shall have been instituted or, to Roney & Co.'s knowledge
or that of the Company, shall be contemplated.
(j) The NASD, upon review of the terms of the public offering
of the Shares, shall not have objected to the Underwriter's
participation in the same.
If any condition to the Underwriter's obligations hereunder to be
fulfilled prior to or at the Firm Shares Closing Date or the Optional Shares
Closing Date, as the case may be, is not so fulfilled, Roney & Co. may
terminate this Agreement pursuant to Section 9(c) hereof or, if Roney & Co. so
elects, waive any such conditions which have not been fulfilled or extend the
time of their fulfillment.
6. COVENANTS.
The Company covenants and agrees that it will:
(a) Use its best efforts to cause the Registration Statement
to become effective and will notify Roney & Co. immediately, and
confirm the notice in writing, (i) when the Registration Statement
and any post-effective amendment thereto becomes effective, (ii)
of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceedings for that
purpose and (iii) of the receipt of any comments from the
Commission. The Company will make every reasonable effort to
prevent the issuance of a stop order, and, if the Commission shall
enter a stop order at any time, the Company will make every
reasonable effort to obtain the lifting of such order at the
earliest possible moment.
(b) During the time when a prospectus is required to be
delivered under the Securities Act, comply so far as it is able
with all requirements imposed upon it by the Securities Act, as
now and hereafter amended, and by the Rules, as from time to time
in force, so far as necessary to permit the continuance of sales
of or dealings in the Shares. If at any time when a prospectus
relating to the Shares is required to be delivered under the
Securities Act any event shall have occurred as a result of which,
in the reasonable opinion of counsel for the Company or counsel
for Roney & Co., the Registration Statement or Prospectus as then
amended or supplemented includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it
is necessary at any time to amend or
16
<PAGE> 17
supplement the Registration Statement or Prospectus to comply with the
Securities Act, the Company will notify Roney & Co. promptly and prepare
and file with the Commission an appropriate amendment or supplement in
form satisfactory to Roney & Co. The cost of preparing, filing and
delivering copies of such amendment or supplement shall be paid by
the Company.
(c) Deliver to the Underwriter such number of copies of each
preliminary prospectus as may reasonably be requested by Roney &
Co. and, as soon as the Registration Statement, or any amendment
or supplement thereto, becomes effective, deliver to the
Underwriter three signed copies of the Registration Statement,
including exhibits, and all post-effective amendments thereto and
deliver to the Underwriter such number of copies of the
Prospectus, the Registration Statement and supplements and
amendments thereto, if any, without exhibits, as Roney & Co. may
reasonably request.
(d) Endeavor in good faith, in cooperation with Roney & Co.
and its counsel, at or prior to the time the Registration
Statement becomes effective, to qualify the Shares for offering
and sale under the securities laws relating to the offering or
sale of the Shares of the states listed in Exhibit A. In each
jurisdiction where such qualification shall be effected, the
Company will, unless Roney & Co. agrees that such action is not at
the time necessary or advisable, file and make such statements or
reports at such times as are or may reasonably be required by the
laws of such jurisdiction. The Company will advise Roney & Co.
promptly of the suspension of the qualification of the Shares for
offering, sale or trading in any jurisdiction, or any initiation
or threat of any proceeding for such purpose, and in the event of
the issuance of any order suspending such qualification, the
Company, with the cooperation of Roney & Co., will use all
reasonable efforts to obtain the withdrawal thereof.
(e) Furnish its security holders as soon as practicable an
earnings statement (which need not be certified by independent
certified public accountants unless required by the Securities Act
or the Rules) covering a period of at least twelve months
beginning after the effective date of the Registration Statement,
which shall satisfy the provisions of Section 11(a) of the
Securities Act and the Rules thereunder.
(f) For a period of five years from the Effective Date, furnish
to its shareholders annual audited and quarterly unaudited consolidated
financial statements with respect to the Company including balance sheets
and income statements.
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<PAGE> 18
(g) For a period of five years from the Effective Date,
furnish to Roney & Co. the following:
(i) at the time they have been sent to shareholders of
the Company or filed with the Commission one copy of each
annual, quarterly, interim, or current financial and other
report or communication sent by the Company to its
shareholders or filed with the Commission;
(ii) as soon as practicable, one copy of every press
release and every material news item and article in respect
of the Company or the affairs of the Company which was
released by the Company;
(iii) all other information reasonably requested by
Roney & Co. with respect to the Company to comply with Rule
15c2-11 of the Rules and Section 4 of Schedule H of the NASD
By-Laws; and
(iv) such additional documents and information with
respect to the Company and its affairs as Roney & Co. may
from time to time reasonably request.
(h) Acquire all of the Bank's outstanding capital stock, free
and clear of all liens, encumbrances, or other claims or
restrictions whatsoever, for not less than $7,500,000 from the
proceeds of the offering and, in all other material respects,
apply the net proceeds from the offering in the manner set forth
under "Use of Proceeds" in the Prospectus.
(i) Not file any amendment or supplement to the Registration
Statement or Prospectus after the effective date of the
Registration Statement to which Roney & Co. shall reasonably
object in writing after being furnished a copy thereof.
(j) Timely file with the Commission reports on Form SR (if
applicable) containing the information required by that Form in
accordance with the provisions of Rule 463 of the Regulation under
the Act.
(k) Comply with all registration, filing and reporting
requirements of the Securities Act or the Exchange Act, which may from
time to time be applicable to the Company.
(l) Cause the proper submission of the Certificate of Paid In
Capital and Surplus, give advance written notice to the
Commissioner of the Bank's projected opening date, and in all
other respects use reasonable efforts to comply
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<PAGE> 19
with the requirements of, and satisfy the conditions of, the FIB Order,
the FDIC Order and the Federal Reserve Board Approval; provided, however,
that it shall not be a breach of this Section 6(l) for the Company or the
Bank to fail to maintain any specified level of capital, surplus, capital
ratio, valuation reserve or financial or operating performance after the
Bank has commenced the business of banking if such failure is waived or
performance of such requirement or condition is accepted as sufficient by
the FIB, the FDIC, and/or the Federal Reserve Board, as applicable.
(m) Pay, or reimburse if paid by the Underwriter, whether or
not the transactions contemplated hereby are consummated or this
Agreement is terminated, all costs and expenses incident to the
performance of the obligations of the Company under this
Agreement, including those relating to (1) the preparation,
printing, filing and delivery of the Registration Statement,
including all exhibits thereto, each preliminary prospectus, the
Prospectus, all amendments of and supplements to the Registration
Statement and the Prospectus, and the printing of the Underwriting
Agreement and related agreements including, without limitation,
the Dealer Agreement, (2) the issuance of the Shares and the
preparation and delivery of certificates for the Shares to the
Underwriter, (3) the registration or qualification of the Shares
for offer and sale under the securities or "blue sky" laws of the
various jurisdictions referred to in Exhibit A, including the fees
and disbursements of counsel in connection with such registration
and qualification and the preparation and printing of preliminary,
supplemental, and final blue sky memoranda, (4) the furnishing
(including costs of shipping and mailing) to the Underwriter of
copies of each preliminary prospectus, the Prospectus and all
amendments of or supplements to the Prospectus, and of the several
documents required by this Section to be so furnished, (5) the
filing requirements and fees of the NASD in connection with its
review of the terms of the public offering and the underwriting,
(6) the furnishing (including costs of shipping and mailing) of
copies of all reports and information required by Section 6(g),
(7) all transfer taxes, if any, with respect to the sale and
delivery of the Shares by the Company to the Underwriter, (8) the
inclusion of the Shares on the OTC Bulletin Board; and (9) the
Underwriter's out-of-pocket expenses, including without
limitation, road show expenses and legal fees of counsel to Roney
& Co. (such out-of- pocket expenses and legal fees payable by the Company
shall not exceed $50,000). Upon a successful completion of the
offering, if the Underwriter purchases the Firm Shares and all of
the Optional Shares, the Underwriter will credit the out-of-pocket
and legal fee reimbursement described in Section 6(m)(9) against
the underwriting discount. Upon a successful completion of the
offering, if the Underwriter purchases the Firm Shares, but less
than all of the Optional Shares, the Underwriter will credit
$25,000 of the out-of-
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<PAGE> 20
pocket and legal fee reimbursement described in Section 6(m)(9)
against the underwriting discount.
(n) Not, without the prior written consent of Roney & Co.,
sell, contract to sell or grant any option for the sale of or
otherwise dispose of, directly or indirectly, or register with the
Commission, any shares of Common Stock of the Company (or any
securities convertible into or exercisable for such shares of
Common Stock) within 180 days after the date of the Prospectus,
except as provided in this Agreement and except for grants and
exercises of Stock Options under the Stock Option Plans as
described in the Prospectus.
(o) For not less than 3 fiscal years after the Effective
Date, maintain the Exchange Act registration of the Common Stock,
unless the Company's shareholders direct the Company to reregister
the Common Stock.
(p) Use its best efforts to cause itself and the Bank to
commence their businesses as described in the Prospectus not later
than March 31, 1997.
(q) Not, for one year after the Effective Date, issue any
stock options to purchase Common Stock under either of the Stock
Option Plans, or any other stock option plan of the Company, that
have an exercise price of less than $10 per share.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter
within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act against any and all losses, claims, damages
and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they may become
subject under the Securities Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary
prospectus, the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that
such indemnity shall not inure to the benefit of the Underwriter
(or any person controlling the Underwriter) on account of any
losses, claims, damages or liabilities arising from
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the sale of the Shares in the public offering to any person by the
Underwriter if such untrue statement or omission or alleged untrue
statement or omission was made in such preliminary prospectus, the
Registration Statement or the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with information furnished
in writing to the Company by or on behalf of the Underwriter specifically
for use therein. The Company shall not be liable hereunder to the
Underwriter (or any controlling person thereof) to the extent that any
loss, claim, damage or other liability incurred by the Underwriter arises
from the Underwriter's fraudulent act or omission.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, each director of the Company and each officer of the
Company who signs the Registration Statement, to the same extent
as the foregoing indemnity from the Company to the Underwriter,
but only insofar as such losses, claims, damages or liabilities
arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which was made in any
preliminary prospectus, the Registration Statement or the
Prospectus, or any amendment thereof or supplement thereto, in
reliance upon and in conformity with information furnished in
writing to the Company by the Underwriter specifically for use
therein; provided, however, that the obligation of the Underwriter
to indemnify the Company (including any controlling person,
director or officer thereof) hereunder shall be limited to the
total price at which the Shares purchased by the Underwriter
hereunder were offered to the public. The Underwriter shall not
be liable hereunder to the Company (including any controlling
person, director or officer thereof) to the extent that any loss,
claim, damage or other liability incurred by the Company arises
from a fraudulent act or omission by the Company.
(c) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or
parties under this Section, notify each such indemnifying party of the
commencement of such action, suit or proceeding, enclosing a copy of all
papers served, but the omission so to notify such indemnifying party of
any such action, suit or proceeding shall not relieve it from any
liability that it may have to any indemnified party otherwise than under
this Section. In case any such action, suit or proceeding shall be
brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in, and, to the extent that it shall
wish, jointly with any other indemnifying party similarly
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notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof and the approval by the indemnified party of such
counsel, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses, except as provided below and
except for the reasonable costs of investigation subsequently incurred by
such indemnified party in connection with the defense thereof. The
indemnified party shall have the right to employ its counsel in any such
action, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (1) the employment of counsel by such
indemnified party has been authorized in writing by the indemnifying
parties, (2) the indemnified party shall have reasonably concluded that,
because of the existence of different or additional defenses available to
the indemnified party or of other reasons, there may be a conflict of
interest between the indemnifying parties and the indemnified party in
the conduct of the defense of such action (in which case the indemnifying
parties shall not have the right to direct the defense of such action on
behalf of the indemnified party) or that, under the circumstances, it is
otherwise appropriate, or (3) the indemnifying parties shall not have
employed counsel to assume the defense of such action within a reasonable
time after notice of the commencement thereof, in each of which cases the
fees and expenses of counsel shall be at the expense of the indemnifying
parties. An indemnifying party shall not be liable for any settlement of
any action, suit, proceeding or claims effected without its written
consent.
8. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 7(a) or 7(b) is due in accordance with its terms but for any reason is
held to be unavailable, the Company and the Underwriter shall contribute to the
aggregate losses, claims, damages and liabilities (including any investigation,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claims asserted,
but after deducting any contribution received from other persons), to which the
Company and the Underwriter may be subject, in such proportion so that the
Underwriter is responsible for that portion represented by the percentage that
the underwriting discount appearing on the front cover page of the Prospectus
bears to the public offering price appearing thereon and the Company is
responsible for the balance; provided, however, that (a) in no case shall the
Underwriter be responsible for any amount in excess of the underwriting
discount applicable to the Shares purchased by the Underwriter hereunder and
(b) no person found guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section, each person, if any, who controls the Underwriter
within the meaning of the Securities Act or the Exchange Act shall have the
same rights to contribution as the Underwriter, and each person, if any, who
controls the Company within the meaning of the
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<PAGE> 23
Securities Act or the Exchange Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to clauses
(a) and (b) of this Section. Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim for contribution may be made
against another party or parties under this Section, notify such party or
parties from whom contribution may be sought, but the omission so to notify
such party or parties from whom contribution may be sought shall not
relieve the party or parties from whom contribution may be sought from any
other obligation it or they may have hereunder or otherwise than under this
Section. No party shall be liable for contribution with respect to any action,
suit, proceeding or claim settled without its written consent.
In any proceeding relating to the Registration Statement, any
preliminary prospectus, the Prospectus or any supplement thereto or amendment
thereof, each party against whom contribution may be sought under this Section
8 hereby consents to the jurisdiction of any court in Michigan, agrees that
process issuing from such court may be served upon him or it by any other
contributing party and consents to the service of such process and agrees that
any other contributing party may join him or it as an additional defendant in
any such proceeding in which such other contributing party is a party.
9. TERMINATION. This Agreement may be terminated by Roney & Co. by
notifying the Company at any time:
(a) before the earlier of (1) 11:00 a.m., Detroit time, on
the business day following the Effective Date, or (2) the time
when the Shares are first generally offered by the Underwriter to
dealers by letter or telegram;
(b) at or before any Closing Date if, in the judgment of
Roney & Co., payment for and delivery of the Shares is rendered
impracticable or inadvisable because (1) additional material
governmental restrictions, not known to be in force and effect
when this Agreement is signed, shall have been imposed upon
trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange, on
the American Stock Exchange or on the over-the-counter market, or
trading in securities generally shall have been suspended on
either such Exchange or on the over-the-counter market or a
general banking moratorium shall have been established by federal, New
York or Michigan authorities, (2) a war or other calamity shall
have occurred or shall have accelerated to such an extent as to
affect adversely the marketability of the Shares, (3) the Company
or the Bank shall have sustained a material loss by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act, which, whether or not said loss shall have been
insured, will in Roney & Co.'s opinion, make it inadvisable to
proceed with the
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offering of the Shares, (4) the FIB Order, the FDIC Order, or the
Federal Reserve Board Approval shall have been withdrawn or materially
altered, or notice shall have been received to the effect that any of
such approvals will not be received, or, if received, will be subject to
conditions that the Company would not be able to fulfill in a reasonable
time in Roney & Co.'s reasonable opinion, (5) in Roney & Co.'s reasonable
opinion it is not probable that the Company and Bank will be able to
commence business before April 30, 1997, for any reason, or (6) there
shall have been such material change in the condition, business
operations or prospects of the Company or the market for the Shares or
similar securities as in Roney & Co.'s judgment would make it inadvisable
to proceed with the offering of the Shares; or
(c) at or before any Closing Date, if any of the conditions
specified in Section 5 or any other agreements, representations or
warranties of the Company in this Agreement shall not have been
fulfilled when and as required by this Agreement.
If this Agreement is terminated pursuant to any of its provisions, except as
otherwise provided in this Agreement, the Company shall not be under any
liability to the Underwriter (other than for obligations assumed in Section 6
hereof), and the Underwriter shall not be under any liability to the Company;
provided, however, that if this Agreement is terminated by Roney & Co. because
of any failure, refusal or inability on the part of the Company to comply with
the terms or to fulfill any of the conditions of this Agreement, or for any
reasons provided in subparagraphs (b) and (c) above, the Company will reimburse
the Underwriter for all accountable out-of-pocket expenses (including, without
limitation, road show expenses and fees and disbursements of counsel to Roney &
Co.) up to a maximum of $65,000 (including the $15,000 advance described below)
incurred by it in connection with the proposed purchase and sale of the Shares
or in contemplation of performing its obligations hereunder. The Underwriter
acknowledges receipt of a $15,000 advance from the Company. If this Agreement
is terminated for any reason, the Underwriter shall be entitled to retain such
advance as reimbursement for its accountable out-of-pocket expenses; provided,
however, in the event that the accountable out-of-pocket expenses to be
reimbursed under this paragraph are less than $15,000, the Underwriter shall
pay such difference to the Company. If this Agreement is not terminated, the
$15,000 shall be credited at closing against the underwriting discount.
10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements contained in this Agreement shall be
deemed to be representations, warranties and agreements at the Closing Dates,
and such representations, warranties and agreements of the Company, including,
without limitation, the payment and reimbursement agreements contained in
Section 6 hereof and the indemnity and contribution agreements contained in
Sections 7 and 8 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Underwriter or any
controlling
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person and shall survive termination of this Agreement and/or delivery of the
Shares to and payment for the Shares by the Underwriter pursuant to this
Agreement. In addition, the covenants contained in Section 6 hereof, the
agreements contained in this Section 10 and in Sections 7, 8 and 9 shall
survive termination of this Agreement and/or delivery of the Shares to and
payment for the Shares by the Underwriter pursuant to this Agreement.
11. MISCELLANEOUS. This Agreement has been and is made for the benefit
of the Underwriter, the Company and their respective successors and assigns,
and, to the extent expressed herein, for the benefit of persons controlling the
Underwriter or the Company, and directors and certain officers of the Company,
and their respective successors and assigns, and no other person, partnership,
association or corporation shall acquire or have any right under or by virtue
of this Agreement. The term "SUCCESSORS AND ASSIGNS" shall not include any
purchaser of Shares from the Underwriter merely because of such purchase.
If any action or proceeding shall be brought by the Underwriter or
the Company in order to enforce any right or remedy under this Agreement, the
Underwriter and the Company hereby consent to, and agree that they will submit
to, the jurisdiction of the courts of the State of Michigan and of any Federal
court sitting in the State of Michigan.
All notices and communications hereunder shall be in writing and
mailed or delivered or by telephone or telegraph, if subsequently confirmed in
writing, to Roney & Co., at One Griswold, Detroit, Michigan 48226 (facsimile
No. (313) 963-2303) (with a copy to Gordon R. Lewis, Warner Norcross & Judd
LLP, 900 Old Kent Building, 111 Lyon Street, N.W., Grand Rapids, Michigan 49503
(facsimile No. (616) 752-2500)); and to the Company at 21211 Haggerty Road,
Novi, Michigan 48084, Attention: Anthony S. Albanese, President (facsimile No.
(810) 380-0738) (with a copy to Paul R. Rentenbach, Dykema Gossett PLLC, 400
Renaissance Center, Detroit, Michigan 48243 (facsimile No. (313) 568-6915).
This Agreement shall be construed in accordance with the laws of the
State of Michigan, without giving effect to principles of conflicts of laws.
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Please confirm that the foregoing correctly sets forth the agreement
between us.
Very truly yours,
MICHIGAN HERITAGE BANCORP, INC.
By:___________________________________
Richard Zamojski
Its: Chairman of the Board
And by:___________________________________
Anthony S. Albanese
Its President
Confirmed by Roney & Co.
RONEY & CO. L.L.C.
By:__________________________
John C. Donnelly
Director, Corporate Finance
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EXHIBIT A
States
Colorado
Michigan
Florida
Illinois
Indiana
New Jersey
New York
Ohio
Maryland (50,000 shares)
Texas (30,000 shares)
Virginia (40,000 shares)
