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As filed with the Securities and Exchange Commission on May 20, 1999
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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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
(248) 380-6590
(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
Phone: (248) 380-6590
(Name, address, and telephone number of agent for service)
Copies to:
Paul R. Rentenbach
Dykema Gossett PLLC
400 Renaissance Center
Detroit, Michigan 48243
Phone: (313) 568-6973; Fax: (313) 568-6915
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Approximate date of commencement of the proposed sale of the securities to
the public: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
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CALCULATION OF REGISTRATION FEE
Title Of Each Class Of Amount To Proposed Maximum Proposed Maximum Amount Of
Securities Be Offering Price Per Aggregate Offering Price Registration
To Be Registered Registered Unit(1) (1) Fee
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Common Stock 500,000 $7.00 per share $3,500,000 $973
(1) Estimated pursuant to Rule 457(e) solely for the purposes of calculating the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS 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 DATES AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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PROSPECTUS
[LOGO] MICHIGAN HERITAGE BANCORP, INC.
500,000 SHARES
COMMON STOCK
Michigan Heritage Bancorp, Inc., a Michigan corporation, is offering for sale up
to 500,000 shares of its common stock. The common stock is being offered for a
limited period of time exclusively to shareholders of Michigan Heritage.
Shareholders are entitled to purchase one share for each three shares they owned
on _________, 1999. Shareholders must exercise their right to purchase by
__________, 1999. The directors and officers of the Company have indicated that
they plan to exercise their Basic Subscription Right in full and to purchase
approximately ________ of the shares of common stock at the public offering
price, if they are available.
We are a bank holding company which owns all of the common stock of Michigan
Heritage Bank, a Michigan banking corporation headquartered in Novi, Michigan
(the "Bank"). Our common stock is traded on the OTC Bulletin Board under the
symbol "MHBC."
THE COMMON STOCK OFFERED BY THIS PROSPECTUS INVOLVES A SIGNIFICANT AMOUNT OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN OUR COMMON STOCK.
OUR COMMON STOCK IS NOT A SAVINGS ACCOUNT OR SAVINGS DEPOSIT AND IS NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
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Per Share Total
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Public offering price...........................................................$ $
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Underwriting discount...........................................................$ 0 $ 0
Proceeds, before expenses, to the Company.......................................$ $
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE COMPANY HAS NOT HIRED AN UNDERWRITER OR BROKER DEALER TO CONDUCT THIS
OFFERING.
The date of this Prospectus is June __, 1999.
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TABLE OF CONTENTS
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PAGE
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SUMMARY...........................................................................................................2
RISK FACTORS......................................................................................................4
PLAN OF DISTRIBUTION..............................................................................................8
USE OF PROCEEDS..................................................................................................10
DIVIDEND POLICY..................................................................................................10
CAPITALIZATION...................................................................................................11
BUSINESS.........................................................................................................11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................17
DIRECTORS AND EXECUTIVE OFFICERS.................................................................................25
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................................29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................30
DESCRIPTION OF CAPITAL STOCK.....................................................................................31
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS..........................................................35
WHERE YOU CAN FIND MORE INFORMATION..............................................................................35
EXPERTS..........................................................................................................36
LEGAL MATTERS....................................................................................................36
FORWARD-LOOKING STATEMENTS.......................................................................................36
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF COMMON STOCK.
UNTIL __________, 1999, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and related notes appearing elsewhere in
this Prospectus. For purposes of this Prospectus, the "Company," "our," "we,"
and "us" refers to Michigan Heritage Bancorp, Inc. and our subsidiary, Michigan
Heritage Bank, unless the context otherwise requires.
THE COMPANY
The Company is incorporated as a Michigan corporation. Our primary purpose
is to own and operate Michigan Heritage Bank (the "Bank"). The Bank is a
Michigan banking corporation with depository accounts insured by the Bank
Insurance Fund of the Federal Deposit Insurance Corporation (the "FDIC"). We
provide a focused core of banking services, primarily for small to medium-sized
businesses, as well as individuals, and our lending focus is 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 originates loans directly and through third party referral
sources such as leasing companies and mortgage brokers, many of whom are known
to management. Our retail strategy focuses on single-family mortgage loans, home
equity loans and, to a lesser extent, other forms of consumer lending. The Bank
offers competitive rates on various deposit products as well as providing
attractive products and services. As of March 31, 1999, we had total assets of
$106.603 million, total deposits of $95.847 million, 2,603 deposit accounts, and
shareholders' equity of $10.146 million.
The Bank's main office is located along the rapidly developing Haggerty
Road corridor in the southeast corner of Novi, Michigan, in a renovated former
bank branch building that we lease. The Bank offers its banking services
primarily in Oakland and western Wayne counties, including Novi, Farmington,
Farmington Hills, Livonia, Northville and Northville Township. We believe that
these communities have an expanding and diverse economic base, and they include
a wide range of small to medium-sized businesses engaged in manufacturing, high
technology research and development, computer services and retail. We recently
opened a branch office in Troy, Michigan in order to help serve the portion of
Oakland County not included within our primary service area. We have received
regulatory approval to open, and have signed a lease for, a new headquarters
facility in Farmington Hills, Michigan, which will include a third branch office
of the Bank.
The Bank's main office serves as our corporate headquarters. Our address is
21211 Haggerty Road, Novi, Michigan 48375 and our telephone number is (248)
380-6590.
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THE OFFERING
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Securities being offered by us .................. Up to 500,000 shares of common stock. See
"Description of Capital Stock."
Offering Price................................... $______ per share.
Common Stock to be outstanding
after the offering......................... Up to 1,765,000 shares.
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How we plan to use the proceeds.................. For additional capitalization of the Bank. See "Use of
Proceeds."
Plan of Distribution............................. We are offering the shares of Common Stock at a price of
$______ per share to shareholders of record at the close
of business on ___________, 1999, the Record Date.
Our shareholders as of the Record Date may purchase up
to one share of common stock for each three shares
owned on the Record Date. No fractional shares may be
purchased. For example, a shareholder who owned 100
shares on the Record Date would be entitled to purchase
up to 33 shares. To the extent our shareholders do not
choose to purchase some or all of the shares they are
entitled to purchase, such shares will be offered to the
other shareholders who purchased all the shares that they
were entitled to purchase in the initial phase of the
offering. To subscribe, you must complete and return to
us the Subscription Agreement together with payment for
the shares.
Risk factors..................................... Investing in the common stock involves risks. You
should invest only if you can afford to lose your entire
investment.
OTC Bulletin Board Symbol........................ MHBC
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SUMMARY FINANCIAL DATA
The following selected consolidated financial and other data are derived
from and should be read with the Company's consolidated financial statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The consolidated balance sheet as of December 31,
1998, the consolidated statement of operations for the year ended December 31,
1998, the unaudited consolidated balance sheet as of March 31, 1999, and the
unaudited consolidated statement of earnings for the three months ended March
31, 1999 are included elsewhere in this prospectus.
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AT OR FOR THE YEAR ENDED AT OR FOR THE THREE MONTHS
DECEMBER 31, 1998 ENDED MARCH 31, 1999
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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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Financial Condition:
Total assets................................................ $ 100,267 $ 106,603
Loans....................................................... 79,787 82,597
Deposits.................................................... 87,654 95,847
Securities.................................................. 8,233 5,289
Shareholders' equity........................................ 10,041 10,146
Per Share Information:
Basic gain (loss) per common share.......................... $ (0.09) $ 0.09
Book value per common share................................. $ 7.94 $ 8.02
Weighted average shares outstanding......................... 1,265,000 1,265,000
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Shares outstanding at end of period......................... 1,265,000 1,265,000
Operations:
Interest income............................................. $ 6,106 $ 2,112
Interest expense............................................ 3,666 $ 1,258
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Interest income before provision for loan loss.............. 2,440 854
Provision for loan losses................................... 1,349 367
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Net interest income after provision for loan losses......... 1,091 487
Total noninterest income.................................... 587 544
Total noninterest expense................................... (2,156) 858
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Net income (loss)....................................... $ (113) $ 114
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RISK FACTORS
The offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to purchase the shares. If any of the
following risks actually occur, our business, financial condition and results of
operations could be materially adversely affected. This could cause the trading
price of the shares of our common stock to decline, and you may lose all or part
of your investment.
The following constitute some of the potential risks of an investment in
the shares. You should carefully consider them prior to purchasing the shares.
We did not order the following risk factors by their relative importance. The
included risk factors are not the only risk factors that relate to the shares.
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OUR FAILURE TO MANAGE FUTURE GROWTH COULD HAVE ADVERSE EFFECTS
Our strategy includes increasing deposits, loans and other assets, and
adding additional branches. Our ability to achieve and manage our growth and
expansion, as well as our ability to manage our operations and internal
controls, will depend in part on our ability to continue to attract and retain
capable management and operations personnel.
WE MAY NEED ADDITIONAL CAPITAL
If we sell all of the shares offered in this offering, we do not anticipate
the need for additional capital in the foreseeable future to conduct our
business activities. We may need additional capital beyond our present capital
and the capital which will be provided by this offering and any amounts likely
to be generated by our operations over the next several years if we do not sell
all of the shares in this offering or if we want to undertake any significant
acquisitions or other expansion of our operations. Funds necessary to finance
such acquisitions or expansion might not be available. Regulatory capital
requirements and borrowing restrictions that apply to us also may have the
effect of constraining future growth. If we sell additional equity securities to
finance future expansion, such sale could result in significant dilution to your
interests.
WE DO NOT CURRENTLY PAY ANY CASH DIVIDENDS
We have never paid a cash dividend, and do not anticipate paying cash
dividends for the immediately foreseeable future, although we did distribute a
10% common stock dividend during the second quarter of 1998. Our future earnings
may not be sufficient to permit the legal payment of cash dividends to our
shareholders at any time in the future. Even if we may legally declare cash
dividends, the amount and timing of such dividends will be at the discretion of
our Board of Directors. The Board of Directors intends to consider paying cash
dividends when legally permitted to do so.
WE ARE DEPENDENT ON CURRENT MANAGEMENT
We are, and for the foreseeable future will be, dependent primarily upon
the services of Mr. Zamojski, our Chairman of the Board and Chief Executive
Officer, and Mr. Albanese, our President and Chief Operating Officer. If the
services of Mr. Zamojski or Mr. Albanese were to become unavailable to us for
any reason, or if we were unable to hire highly qualified and experienced
personnel to replace Mr. Zamojski or Mr. Albanese or any other employee, or to
adequately staff our anticipated growth, our operating results would be
adversely affected. We do not maintain "key man" life insurance on our senior
executive officers, but may elect to do so in the future. See "Business --
Employees" and "Management."
WE FACE SIGNIFICANT COMPETITION FROM OTHER FINANCIAL INSTITUTIONS
We 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 we will
compete are not subject to the same degree of regulation as we are.
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Many of the financial institutions aggressively compete for business in our
proposed market areas. Many of these competitors have been in business for many
years, have established customer bases, have substantially higher lending limits
than we have, are larger and will be able to offer certain services that we do
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 we have, 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 we can. See "Business -- Market Area" and
"Business -- Competition." Additionally, we may face increased competition from
larger out-of-state banks and thrift organizations
CUSTOMERS MAY NOT REPAY THEIR LOANS AND WE HAVE RELATIVELY LOW 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 our
earnings and overall financial condition as well as the value of the common
stock. Because we have been in existence only a relatively short time, our
customers do not have an extensive credit history with us. We focus our
commercial lending activity in the areas of equipment financing and, to a lesser
extent, commercial real estate loans and secured term loans to businesses. Our
consumer lending activity is focused 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.
Our management attempts to minimize our credit exposure by carefully
monitoring the concentration of our 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, you
could lose your entire investment. Our credit approval policies are designed to
provide an effective and timely response to loan requests and to ensure the
maintenance of a sound loan portfolio. We manage credit risk and the credit
approval process by adhering to written policies which generally specify
underwriting standards for each type of loan. All such policies are reviewed by
the Board of Directors of the Bank.
Our legal lending limit is $2.595 million per customer relationship,
although our self-imposed lending limit currently is $1.25 million per customer
relationship. Accordingly, the size of the loans which we can offer to potential
customers is less than the size of loans which most of our competitors are able
to offer. This limit affects our ability to seek relationships with the area's
larger businesses. We attempt to accommodate loan volumes in excess of our
lending limit through the sale of participations in such loans to other banks.
However, we can offer you no assurance that we will be successful in attracting
or maintaining customers seeking larger loans or that we will be able to engage
in participations of such loans on terms favorable to us.
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WE COULD BE ADVERSELY AFFECTED BY CHANGES IN INTEREST RATES OR ECONOMIC
CONDITIONS
The results of operations for financial institutions, including us, 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 "Business --
Supervision and Regulation." Our 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 our market area have been generally favorable, there can be no
assurance that such conditions will continue to prevail. Substantially all our
loans are to businesses and individuals in Southeastern Michigan and any decline
in the economy of this area could have an adverse impact on us. Like most
banking institutions, our net interest spread and margin is affected by general
economic conditions and other factors that influence market interest rates and
our ability to respond to changes to such rates. At any given time, our assets
and liabilities will be such that they are affected differently by a given
change in interest rates, principally due to the fact that we do not match the
maturities of our loans precisely with our deposits and other funding sources.
As a result, an increase or decrease in rates could have a material adverse
effect on our net income, capital and liquidity. While our 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 "Business -- Supervision and Regulation."
WE ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION AND MONETARY POLICY
We are subject to extensive state and federal government supervision,
regulation and examination. Existing state and federal banking laws will subject
us to substantial limitations with respect to loans, purchase of securities,
payment of dividends and many other aspects of our banking business. Recently
enacted legislation may adversely affect the banking industry or our operations
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 our ability to attract deposits, make loans
and achieve satisfactory interest spreads. See "Business -- Supervision and
Regulation."
WE COULD BE ADVERSELY AFFECTED BY REGULATORY CHANGES
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 our business. In addition, the burden imposed by
federal and state regulations may place banks in general, and us specifically,
at a competitive disadvantage compared to less regulated competitors. See
"Business -- Supervision and Regulation."
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WE ARE FACED WITH A CONTINUING 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. Our future
success will depend in part on our ability to address the needs of our customers
by using technology to provide products and services that will satisfy customer
demands for convenience as well as to create additional efficiencies in our
operations. Many of our competitors have substantially greater resources to
invest in technological improvements. Such technology may permit competitors to
perform certain functions at a lower cost than we can. There can be no assurance
that we will be able to effectively implement new technology-driven products and
services or be successful in marketing such products and services to our
customers.
WE ARE SUBJECT TO CERTAIN 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 our common stock from realizing a premium which might be paid as a result of
a change in control of us. See "Description of Capital Stock -- Certain
Anti-Takeover Provisions."
PLAN OF DISTRIBUTION
We are offering to holders of shares of our common stock the right to
purchase 500,000 shares of our common stock at a price of $_____ per share.
You are being given a non-transferable right to purchase one (1) full share
of common stock for each three (3) shares of common stock held on_______, 1999,
the record date (the "Basic Subscription Privilege"). If your holdings are not
evenly divisible by three, then the number of shares that you are entitled to
subscribe for will be rounded to the nearest full share. This right to subscribe
for common stock must be exercised before 4:30 P.M., Detroit Time, on ________,
1999 ("Expiration Date"). We must receive properly completed and executed
Subscription Forms and all monies prior to the Expiration Date. Your right to
subscribe is non-transferable and will be void if not exercised on or before the
Expiration Date.
If you exercise in full your Basic Subscription Privilege, you also will be
entitled to subscribe for an unlimited number of additional shares (up to the
number of shares offered) of common stock which have not been subscribed for by
other shareholders (the "Additional Subscription Privilege"). You must subscribe
for additional shares at the time of your original subscription in accordance
with the procedures outlined below. In the event of an over-subscription caused
by subscriptions for additional shares, the shares available for sale under the
Additional Subscription Privilege, after allocation to each shareholder of his
or her Basic Subscription Privilege, will be prorated among shareholders
subscribing
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for additional shares in proportion to the number of shares then owned by each
shareholder who has subscribed for additional shares up to the number of
additional shares subscribed for by such shareholders. We do not intend to sell
more than 500,000 shares of our common stock in this offering.
A pricing committee of our Board of Directors established the offering
price based on the recent market price of the common stock, the impact of this
offering on the price of the common stock and the Board's desire that our
shareholders be permitted to buy additional shares at a price below the current
market price. The offering price is a [__% discount] from the OTC Bulletin Board
closing price on ________, 1999.
All subscriptions will be irrevocable. The subscription monies received
will be held by Michigan Heritage Bank, as the Subscription Agent, in a separate
trust account for the benefit of the Company and will be applied by the
Subscription Agent to purchase shares on the next business day following the
Expiration Date. All interest earned on the monies received by the Subscription
Agent will be paid to the Company. After the Expiration Date, the Subscription
Agent, as soon as practicable, will refund without interest any excess monies
resulting from an oversubscription of the Additional Subscription Privilege.
If not all of the shares offered for sale are subscribed for by our current
shareholders, we may elect to offer the unsubscribed for shares to people who
are not currently shareholders, at our discretion.
You may subscribe for shares by completing and signing the Subscription
Form accompanying this Prospectus and delivering it to the Bank, as the
Subscription Agent, accompanied by payment of the full subscription price for
both the Basic Subscription Privilege and any Additional Subscription Privilege
prior to the Expiration Date. Subscriptions must be for a full share or a
multiple thereof. You should send your Subscription Form to:
Michigan Heritage Bank
21211 Haggerty Road
Novi, Michigan 48375
Attention: Stock Subscription
You must pay the subscription price by check or bank draft drawn on
institutions located in the United States, or postal or express money order
payable in United States dollars, to the order of "Michigan Heritage Bank,
Subscription Agent."
Alternatively, you may subscribe by sending a facsimile message containing
the information set forth in the Subscription Form to the Subscription Agent and
wiring the necessary funds to the Subscription Agent pursuant to the wiring
instructions below. The Subscription Agent must receive all facsimile messages
and wired funds by 4:30 p.m., Detroit Time, on the Expiration Date.
Facsimile number: (248) 380-7793
Wire Instructions:
Michigan Heritage Bank
ABA No.
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For Credit to Account No.
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In cases where a bank, trust company, securities dealer, broker or other
nominee holds stock on the record date for more than one beneficial owner, we
have supplied a sufficient number of Prospectuses and the Subscription Forms for
the record holders to forward to the beneficial owners. Subscriptions will only
be accepted from the record owner and the beneficial owner who wishes to
subscribe should give direction to the record owner to make subscriptions for
him or her. You may obtain additional Subscription Forms from us.
In cases where the shareholder of record is deceased, the administrator of
the shareholder's estate may exercise the subscription rights provided he or she
provides the Subscription Agent appropriate documentary evidence of his or her
authority to act on behalf of the estate of the deceased shareholder.
If you have a question as to how to subscribe, please contact Mr. Darryle
Parker, our information agent, at telephone number 248-324-3730.
USE OF PROCEEDS
The net proceeds to us if all 500,000 shares are sold are estimated to be
approximately $_______________. We expect to contribute substantially all of the
net proceeds of the offering to the Bank to increase the Bank's capital. We
anticipate that the net proceeds received by the Bank will be used to fund
investments in loans and securities. The funds also will be available to finance
possible acquisitions of other branches or expansion into other lines of
business closely related to banking, although we presently have no plans to do
so.
DIVIDEND POLICY
We expect to retain our earnings and those of the Bank, if any, to finance
our growth and that of the Bank and we expect that no cash dividends will be
distributed for the foreseeable future. After the Bank recovers its operating
deficit and if it maintains profitability, we may consider distributing cash
dividends. However, the declaration of dividends, whether cash or stock, 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 we declare and distribute
cash dividends, we will be dependent largely upon dividends paid by the Bank for
funds to distribute cash dividends on our common stock. It is also possible,
however, that we might at some time in the future pay cash dividends generated
from income or investments and from our other activities.
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). Our ability and
that of 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 "Business -- Supervision and Regulation." Such
requirements and policies may limit the Company's
10
<PAGE> 13
ability to obtain dividends from the Bank for its cash needs, including funds
for acquisitions, payment of dividends by us and the payment of operating
expenses.
CAPITALIZATION
The following table shows the capitalization of the Company as of March 31,
1999, and as the capitalization is projected to be if we sell all of the shares
of common stock being offered and use the proceeds to add to the capital of the
Bank.
<TABLE>
<CAPTION>
AT MARCH 31, 1999
----------------------------
ACTUAL AS ADJUSTED(1)
------ --------------
(UNAUDITED)
<S> <C> <C>
Common Stock, no par value; 4,500,000 shares
authorized; 1,265,000 shares issued and
outstanding as of March 31, 1999; 1,765,000
shares issued and outstanding as adjusted.......... $12,482,000 $
Preferred Stock, no par value; 500,000 shares
authorized; no shares issued and outstanding....... -- --
Retained earnings (deficit) (2) ......................... (2,336) (2,336)
----------- -----------
Total shareholders' equity......................... $10,146,000 $
=========== ===========
</TABLE>
________
(1) Adjusted to reflect the estimated net proceeds if all 500,000
shares are sold. See "Use of Proceeds.'
(2) The retained deficit includes pre-opening expenses related
principally to fees and expenses incurred in the regulatory
application process and salaries, office occupancy costs and
supplies, together with operating losses following the commencement
of operations by the Bank.
BUSINESS
GENERAL
Our present lending activities primarily are focused on commercial
equipment financing and commercial term loans to businesses secured by the
assets of the borrower. We originate loans primarily through third party
referral sources such as leasing companies and mortgage brokers, many of whom
are known to management. Our retail strategy focuses on single-family mortgage
loans, home equity loans, and, to a lesser extent, other forms of consumer
lending. We offer ATM cards, competitive rates on various deposit products and
other attractive products and services. Those services reflect our intended
strategy of serving small- to medium-sized businesses and individual customers
in our market area.
Our main office is currently located along the rapidly developing Haggerty
Road corridor in the southeast corner of Novi, Michigan. We lease and have
renovated a former bank branch building. The communities that comprise our
primary service area are Novi, Farmington, Farmington Hills, Livonia,
Northville, Northville Township, and Troy. Our management believes these
communities have an expanding and diverse economic base, which includes a wide
range of small- to medium-sized business engaged in manufacturing, high
technology research and development, computer services and retail. Our secondary
service area is the remaining portions of Oakland County and Wayne County not
included within the primary service area. According to statistics issued by the
United States Census Bureau (the
11
<PAGE> 14
"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 our 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%.
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.
In January 1999, we opened our second location in Troy, Michigan. This
branch office is leased with leasehold improvements of approximately $80,000.
The cost of the furniture and equipment purchased for the new location was
approximately $50,000. Over the next 12 months, we are planning to relocate our
headquarters to Farmington Hills, Michigan, which is approximately seven miles
from our current headquarters. The Novi location will remain as a branch and a
third branch will be located on the first floor of the new headquarters
building. We estimate that the cost of additional equipment for our new
headquarters will be approximately $400,000. We expect leasehold improvement
costs to be minimal and that the annual rent, net of expected rental income,
will be approximately $210,000.
LENDING
Our lending activities include commercial equipment leases, direct
financing leases, commercial loans, commercial real estate loans, residential
mortgage loans, home equity loans, and consumer installment loans. We consider a
loan impaired when it is probable that all interest and principal will not be
collected. As of December 31, 1998, impaired loans were $2,096,000 due to a
single customer, MCA Financial Corporation ("MCA"), that filed for protection
under bankruptcy laws. As of March 31, 1999, the impaired loan amount was
reduced to $593,000 primarily due to $620,000 in loans charged off against
specific reserves previously taken for the MCA situation and our taking
possession of $989,000 in second mortgage original notes originally serviced by
MCA. Specific allowances for impaired loans were $820,000 as of December 31,
1998, and have been reduced to $424,000 as of March 31, 1999. Our management
believes the total specific allowances for impaired loans will adequately
provide for expected charge-offs for the MCA situation. Our management is not
aware of any other potential problem loans which could have a material effect on
our operating results, liquidity or capital resources. Furthermore, except for
the MCA situation described above, our management is not aware of any other
factors that would cause future net loan charge-offs, in total and by loan
category, to significantly differ from those experienced by institutions of
similar size.
12
<PAGE> 15
The following table sets forth outstanding loan balances at December 31,
1998 and 1997, by category of loan.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
TYPE OF LOAN 1998 1997
------------ ---- ----
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural.......................... $75,968 $30,506
Real estate construction........................................ 0 0
Real estate mortgage............................................ 4,454 1,981
Installment loans to individuals................................ 137 118
Lease financing .............................................. 1,042 0
------- -------
Total loans............................................ $81,601 $32,605
======= =======
</TABLE>
We have made domestic loans only.
ALLOWANCE FOR LOAN LOSSES
The following table summarizes changes in the allowance for loan and lease
losses arising from additions to the allowance which have been charged to
expense, selected ratios, and the allocation of the allowance for loan losses.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1998 1997
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average loans outstanding....................................... $53,368 $11,206
Total loans at year end......................................... $81,601 $32,605
Allowance for loan losses at beginning of period................ $ 467 $ 0
Provision charged to expense.................................... 1,349 467
Loan charge-offs during the period.............................. 0 0
Loan recoveries during the period............................... 0 0
------- -------
Allowance for loan losses at end of year........................ $ 1,816 $ 467
======= =======
Specific allowance for impaired loans........................... $ 820 $ 0
Unallocated allowance........................................... 996 467
------- -------
Total allowance for loan losses................................. $ 1,816 $ 467
======= =======
Ratio of net charge-offs during the period to
average loans outstanding..................................... n/a n/a
Allowance for loan losses as a percentage of loans.............. 2.23% 1.43%
</TABLE>
In each accounting period, our management adjusts the allowance for loan
and lease losses to the amount necessary to maintain the allowance at adequate
levels. Through our credit department, our management will attempt to allocate
specific portions of the allowance for loan losses based on specifically
identifiable problem loans. Our management's evaluation of the allowance is
further based on consideration of actual loss experience, the present and
prospective financial condition of borrowers, industry concentrations within the
portfolio and general economic conditions.
13
<PAGE> 16
With respect to each installment and residential real estate loan, our
management considers the primary risk element to be lack of timely payment. Our
management has a reporting system that monitors past due loans and has adopted
policies to pursue our creditor's rights in order to preserve our position. The
primary risk elements with respect to commercial loans are the financial
condition of the borrower, the sufficiency of collateral, and lack of timely
payment. Our management has a policy of requesting and reviewing periodic
financial statements from our commercial loan customers. However, we cannot
assure you that we will not sustain losses in any given period which could be
substantial in relation to the size of the allowance for loan and lease losses.
DEPOSITS
The following table summarizes certain information regarding deposits with
the Bank.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997
---------------------- ------------------
AVERAGE AVERAGE AVERAGE AVERAGE
TYPE OF DEPOSIT AMOUNT RATE PAID AMOUNT RATE PAID
---------------- ------ ---------- ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest bearing demand deposits......... $ 753 0.00% $ 291 0.00%
Interest bearing checking
and money market deposits................ 5,632 4.85% 1,236 4.94%
Savings deposits............................ 66 3.03% 157 5.73%
Time deposits............................... 57,040 5.94% 15,704 6.08%
-------- ------ ------- ----
Total deposits........................... $ 63,491 5.77% $17,388 5.89%
======== ====== ======= ====
</TABLE>
We have no foreign banking offices.
RETURN ON EQUITY AND ASSETS
The following table contains selected ratios for the Company:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Return on average total assets........... -0.15% -2.30%
Return on average equity................. -1.09% -7.01%
Dividend payout ratio.................... n/a n/a
Average equity to average assets......... 13.94% 32.77%
</TABLE>
SUPERVISION AND REGULATION
We are registered as a bank holding company and, as such, we are subject to
the supervision of and regulation by the Federal Reserve Board under the Bank
Holding Company Act of 1956, as amended ("BHCA"). Under the BHCA, we are subject
to periodic examination by the Federal Reserve Board and are required to file
periodic reports of our operations and such additional information as the
Federal Reserve Board may require. We also are required to file periodic reports
with and otherwise comply with the rules and regulations of the Securities and
Exchange Commission under the federal securities laws.
14
<PAGE> 17
In accordance with Federal Reserve Board policy, we act as a source of
financial strength to the Bank and are expected to commit resources to support
the Bank in circumstances where we 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 of the Financial Institutions Bureau
of the State of Michigan (the "Commissioner") either to restore the bank's
capital by a special assessment upon its shareholders or to initiate the
liquidation of the bank.
The Bank is a Michigan banking corporation and its deposit accounts are
insured up to applicable limits by the Federal Deposit Insurance Corporation
(the "FDIC") under the Bank Insurance Fund. As a FDIC-insured,
Michigan-chartered bank, and a member of the Federal Reserve System, the Bank is
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.
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 us establishes
a comprehensive framework for our operations and is intended primarily for the
protection of the FDIC deposit insurance funds, our depositors and the public,
rather than our shareholders.
Federal law and regulations, including provisions added by the Federal
Deposit Insurance Corporation Improvement Act of 1991 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.
We agreed to a non-binding memorandum of understanding with our federal and
state regulators on April 29, 1999, regarding certain matters related to our
growth and profitability. In this non-binding agreement, we agreed to take
certain actions regarding our capitalization plans, growth and earnings
projections, personnel, overhead and expense management, loan and lease loss
allowance methodology, and customer credit criteria. We have addressed each of
the matters raised in the memorandum and already are seeing results from such
action.
Various bills have been introduced in the Congress that would allow bank
holding companies to engage in a wider range of nonbanking activities, including
greater authority to engage in securities and insurance activities. While the
scope of permissible nonbanking activities and the conditions under which the
new powers could be exercised varies among the bills, the expanded powers
generally would be available to a bank holding company only if the bank holding
company and its bank subsidiaries remain well-capitalized and well-managed. The
bills also impose various restrictions on transactions between the depository
institution subsidiaries of bank holding companies and their non-bank
affiliates. These restrictions are intended to protect the depository
institutions from the risks of the new nonbanking
15
<PAGE> 18
activities permitted to such affiliates. At this time, we are not able to
predict whether any of the pending bills will be enacted and, therefore, we are
not able to predict the impact such legislation may have on our operations.
EMPLOYEES
As of March 31, 1999, we employed 20 people on a full-time basis, including
two customer service representatives for our new Troy branch. Over the next 12
months, we expect to add seven full-time people: one full-time bank operations
assistant, one full-time loan credit analyst, one full-time accounting
manager/analyst, one full-time loan administration assistant, one full-time
commercial loan officer, and two full-time customer service representatives for
the third branch, which will be located within our new headquarters building.
COMPETITION
We 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 service organizations with which we compete
are not subject to the same degree of regulation as we are. Many of the
financial institutions aggressively compete for business in our market areas.
Many of these competitors have been in business for many years, have established
customer bases, have substantially higher lending limits than we have, are
larger, and are able to offer certain services that we do 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 we have 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 we can. 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.
YEAR 2000 READINESS
Being a new business, we do not have major issues concerning older systems
to update. We believe that the recently acquired new systems are all now Year
2000 ("Y2K") compliant. All of our applicable components have been identified
and addressed as to being Y2K compliant. The cost to become fully Y2K compliant
was not material. In addition, we are communicating with both vendors and
appropriate customers concerning Y2K compliance to help ensure their smooth
transition into the next century.
PROPERTIES
We lease a 3,000 square foot building at 21211 Haggerty Road, Novi,
Michigan 48375 for use as our main office and 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
16
<PAGE> 19
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, the President of the Bank was
required to provide 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.
We also lease approximately 1,500 square feet of office space for the
accounting, commercial lending, and human resource departments at Hamilton
Building, 33045 Hamilton Court, Suite 107, Farmington Hills, MI 48334. The lease
extends until August 14, 1999, at which time the lease may be extended on a
monthly basis. The annual rent is $22,000. The accounting department will be
relocating to our new headquarters space when that space is completed.
We opened our first branch in January 1999, with 1,500 square feet of
office space within a strip mall at 1917 East Big Beaver Road, Troy, MI 48083.
The lease extends until January 18, 2004, at an annual rent of $32,000. The
branch has two teller windows, two customer service desks, a mutual funds room,
and a conference room.
We have signed a lease for 12,500 square feet for a new headquarters
including 1,200 square for a new branch to be located in Farmington Hills,
Michigan. The lease extends until June 30, 2014. Additional equipment for the
new headquarters is estimated to be approximately $400,000. We expect minimal
leasehold improvement costs and expect the annual rent net of expected rental
income to be approximately $210,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion addresses material factors affecting our financial
condition and results. You should read this discussion in conjunction with the
audited and unaudited financial statements, footnotes and supplemental financial
data presented elsewhere in this report.
We were in the development stage during 1996 and the first two months and
nine days of 1997. We completed an initial public offering of shares of common
stock during February and March 1997. On March 10, 1997, the Bank opened for
business. As of March 1999, the Bank had been operational almost 25 months and
had completed its first full fiscal year of operations.
RESULTS OF OPERATIONS--1998 COMPARED TO 1997
We earned our first monthly profit in January 1998, which was only our 10th
full month of operation. This quick breakeven result is attributable directly to
controlled growth of both deposit and loan portfolios coupled with lower than
average overhead expense. Our quarterly profits for the first three quarters of
1998 were $73,000 for the first quarter, $78,000 for the second quarter, and
$106,000 for the third quarter. The fourth quarter of 1998 incurred a $370,000
net loss due primarily to a pretax adjustment of $795,000 ($525,000 net of tax)
in additional provision for possible loan losses due to a single customer, MCA
Financial Corporation ("MCA"), that filed for protection under bankruptcy laws,
which is not indicative of the overall loan portfolio, and a pretax charge of
$100,000 ($66,000 net of tax) in organizational costs expensed due to a change
in an accounting principle.
17
<PAGE> 20
As a result, we reported a loss of only $113,000 for 1998 compared to a
$602,000 loss for 1997, a $489,000 improvement over 1997. For 1996, we incurred
a loss of $68,000 due to being in the development stage and having no revenues
from operations.
Our quarterly losses for 1997 were $81,000 for the first quarter (only 16
business days of operation), $247,000 for the second quarter, $170,000 for the
third quarter, and $104,000 for the fourth quarter (which included a provision
for loan losses of $202,000).
For 1998, the return on average equity was -1.09% and the return for
average assets was -0.15%. While we distributed no cash dividends during 1998,
the Board of Directors declared and we distributed a 10% common stock dividend
during the second quarter of 1998.
The Bank is providing loan reserves at 1.25% of loans outstanding except
for $2,096,000 classified by management at December 31, 1998, as impaired
resulting from the MCA situation mentioned above. The 1.25% reserve is, in
management's opinion, a conservative loan reserve position relative to the
overall quality of the loan portfolio. Specific allowances for impaired loans
were $820,000. Management believes the total specific allowances for impaired
loans will adequately provide for expected charge-offs for the MCA situation.
Management is working diligently to protect our rights and to minimize net
charge-offs resulting from the MCA situation. There have been no loan
charge-offs during 1998 or 1997.
Our total assets at the end of 1998 amounted to $100.3 million compared to
$51.4 million at the end of 1997, an increase of $48.9 million or over 95%. The
increase was primarily due to a $48.8 million increase in deposits and borrowed
funds. This increase was utilized primarily to make new loans, and total loans
increased $49.0 million, to $81.6 million at December 31, 1998.
Our total assets at year end 1997 increased $51.2 million over year end
1996 mostly due to $10.9 million of net proceeds from the initial public
offering in February and March 1997 and over $40.7 million in deposits being
generated during the remaining 10 months of 1997. These funds provided were
invested primarily in loans amounting to $32.6 million and other investments and
cash and due from banks totaling $18.4 million. We invested approximately
$384,000 in bank premises and equipment.
Our loan portfolio at the end of 1998 consisted of approximately 78%
discounted loans (i.e., leases originating from known independent brokers which
are discounted and booked as commercial loans on the Bank's books), 9% direct
commercial loans, 2% commercial real estate, 5% lines of credit, 5% residential
mortgages and home equity loans, and 1% in direct financing leases. The loans
were funded primarily by deposits consisting mostly of time deposits which
represent over 88% of total deposits. Additional loan information can be found
elsewhere in this report in the Notes to Consolidated Financial Statements.
The largest source of our revenues is net interest income. Net interest
income is the spread between interest income on loans and investments and
interest expense on deposits and borrowed funds. Two statistics used to measure
net interest income are (a) net interest spread, and (b) net interest margin.
Net interest spread is the difference between the average yield on
interest-earning assets and the average rate incurred on interest-bearing
liabilities. Net interest margin is expressed as net interest income divided by
average interest-earning assets. Net interest margin is greater than net
interest spread due to
18
<PAGE> 21
the interest income earned on interest-earning assets funded by
non-interest-bearing liabilities such as non-interest bearing demand deposits,
escrow accounts and stockholders equity.
Table 1 presents our average balance sheets, net interest spread and net
interest margin for the three years ended December 31, 1998. Net interest income
for 1998 increased $1,544,000 or over 172% to $2,440,000 as compared to $896,000
for 1997. Net interest income for 1996 was only $1,000.
TABLE 1
Consolidated Average Balance Sheets and Analysis of Net Interest Income For the
Years Ended December 31 (Taxable Equivalent Basis)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ---- ------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest bearing balances
in other banks.................. $ 2,743 $ 146 5.32 % $ 1,734 $ 103 5.94% $ 25 $ 1 4.00%
Federal funds sold................ 4,198 224 5.34 3,868 211 5.46 -- -- --
Taxable investment securities 12,231 685 5.60 8,278 474 5.73 -- -- --
Loans ............................ 53,368 5,051 9.46 11,206 1,132 10.10 -- -- --
------- ----- ---- ------- ------ ----- ---- --- ----
Total earning assets............ 72,540 6,106 8.42 25,086 1,920 7.65 25 1 4.00
Cash and due from banks........... 558 676 9
Allowance for loan losses......... (694) (131) --
Operating lease equipment, net 858 -- --
Other assets...................... 1,059 589 88
------- ------- ----
Total assets.................... $74,321 $26,220 $122
======= ======= ====
Liabilities and Stockholders' Equity
Interest on checking and money
market deposit accounts......... $ 5,632 $ 273 4.85% $ 1,236 $ 61 4.94% $ -- $ -- --%
Savings deposits................. 66 2 3.03 157 9 5.73 -- -- --
Other time deposits less
than $100,000................... 40,253 2,393 5.94 10,134 615 6.07 -- -- --
Time deposits $100,000
and greater..................... 16,787 998 5.95 5,570 339 6.09 -- -- --
Borrowed funds................... 5 -- 5.25 -- -- -- -- -- --
Total interest bearing
liabilities................... 62,743 3,666 5.84 17,097 1,024 5.99 -- -- --
------- ----- ---- ------- ------ ---- ---- ---- ----
Other deposits, non-interest
bearing..................... 753 291 --
Other liabilities................ 467 241 156
Stockholders' equity............. 10,358 8,591 (34)
Total liabilities and
stockholders' equity.......... $74,321 $26,220 $122
======= ======= ====
</TABLE>
19
<PAGE> 22
TABLE 1 (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
SELECTED AMOUNTS AND RATIOS 1998 1997 1996
- --------------------------- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net interest income on a taxable equivalent basis $2,440 $ 896 $ 1
Net interest rate spread on a taxable equivalent basis 2.58% 1.66% 4.00%
Cost of earning assets........................................... 5.05% 4.08% --
Net interest margin on a taxable equivalent basis 3.37% 3.57% 4.00%
Net interest-earning assets to interest-bearing
liabilities................................................... 116% 147% n/a
Net income after taxes........................................... $ (113) $(602) $(68)
Return on equity................................................. (1.09)% (7.01)% n/a
Return on assets................................................. (0.15)% (2.30)% n/a
Dividend payout ratio............................................ -- % -- % n/a
Equity to assets ratio........................................... 13.94% 32.77% n/a
</TABLE>
Table 2 presents an analysis of our change in net interest income. The
$1,544,000 net interest income increase in 1998 resulted from a $1,840,000
increase due to increases in average balances offset by a $296,000 decrease due
to changes in both yield/rate and mix. Net interest income for 1996 was only
$1,000 due to our being in a development stage. Consequently, the $895,000
change in net interest income for 1997 came primarily from a mix of both volume
and yield/rate changes as indicated in Table 2. Loan fee income included in loan
interest income was $189,000 and $82,000 for 1998 and 1997, respectively.
Nonaccrual loans had an insignificant effect on net interest income due to the
average amount of nonaccrual loans being insignificant for 1998. There were no
nonaccrual loans for 1997 or 1996.
TABLE 2 -- Analysis of Net Interest Income Changes (Taxable Equivalent Basis)
<TABLE>
<CAPTION>
1998 COMPARED TO 1997
----------------------------------------------
VOLUME &
YIELD/RATE
VOLUME YIELD/RATE MIX TOTAL
----------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Increase (decrease) in interest income
Interest bearing balances in other banks.......................... $ 60 $ (11) $ (6) $ 43
Federal funds sold................................................ 18 (5) -- 13
Taxable investment securities..................................... 226 (10) (5) 211
Loans............................................................. 4,259 (71) (269) 3,919
------- ------- ------- -------
Total interest income change.................................... 4,563 (97) (280) 4,186
Increase (decrease) in interest expense
Interest on checking and money market deposit accounts 217 (1) (4) 212
Savings deposits.................................................. (5) (4) 2 (7)
Other time deposits less than $100,000............................ 1,828 (13) (37) 1,778
Time deposits $100,000 and greater................................ 683 (8) (16) 659
Borrowed funds.................................................... -- -- -- --
------- ------- ------- -------
Total interest expense change................................... 2,723 (26) (55) 2,642
------- ------- ------- -------
Increase (decrease) in net interest income on a
taxable equivalent basis.......................................... 1,840 (71) (225) 1,544
Taxable equivalent adjustment................................... -- -- -- --
------- ------- ------- -------
Net interest income change...................................... $ 1,840 $ (71) $ (225) $ 1,544
======= ======= ======= =======
</TABLE>
20
<PAGE> 23
TABLE 2 (CONTINUED)
<TABLE>
<CAPTION>
1997 COMPARED TO 1996
----------------------------------------------
VOLUME &
YIELD/RATE
VOLUME YIELD/RATE MIX TOTAL
----------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Increase (decrease) in interest income
Interest bearing balances in other banks...................... $ 68 $ -- $ 34 $ 102
Federal funds sold............................................ -- -- 211 211
Taxable investment securities................................. -- -- 474 474
Loans......................................................... -- -- 1,132 1,132
---- ---- ----- ------
Total interest income change................................ 68 -- 1,851 1,919
Increase (decrease) in interest expense
Interest on checking and money market deposit accounts........ -- -- 61 61
Savings deposits.............................................. -- -- 9 9
Other time deposits less than $100,000........................ -- -- 615 615
Time deposits $100,000 and greater............................ -- -- 339 339
Borrowed funds................................................ -- -- -- --
---- ---- ----- ------
Total interest expense change............................... -- -- 1,024 1,024
---- ---- ----- ------
Increase (decrease) in net interest income on a
taxable equivalent basis...................................... 68 -- 827 895
Taxable equivalent adjustment............................... -- -- -- --
---- ---- ----- ------
Net interest income change.................................. $ 68 $ -- $ 827 $ 895
==== ==== ===== ======
</TABLE>
The net interest spread for 1998 of 2.58% increased 0.92% or 92 basis
points ("bps") over the 1.66% spread for 1997. The 1998 average yield on earning
assets of 8.42% increased 77 bps over 1997 primarily due to the change in mix of
earning assets. In 1998, higher yielding loans were on average over 73% of total
earning assets with the remaining balance in lower yielding investment
securities (Table 3) and short term funds. In 1997, higher yielding loans on
average were less than 45% of total earning assets since the Bank had only been
open since March, 1997. The 5.84% cost of interest-bearing liabilities for 1998
decreased 15 bps from 5.99% in 1997 due primarily to higher costing time
deposits (Table 4) being repriced at lower rates in 1998. The cost of
interest-bearing liabilities for 1998 and 1997 reflect slightly higher market
rates being paid on time deposits. These higher rates were paid to attract and
retain depositors since the Bank is relatively new. The Bank also does not yet
have an extensive branch network, with corresponding higher operating expenses,
to draw deposits which creates additional pressure to pay higher rates to
attract deposits.
21
<PAGE> 24
TABLE 3 -- Consolidated Investment Maturity Analysis as of December 31, 1998 and
1997 (Taxable Equivalent Basis)
<TABLE>
<CAPTION>
1998
------------------------------------------------------
AVAILABLE FOR SALE (A)
------------------------------------------------------
U.S. TREASURY AND
OTHER GOVERNMENT FEDERAL RESERVE
AGENCIES AND CORPORATIONS BANK STOCK (B)
------------------------- ----------------
AMORTIZED AMORTIZED
COST YIELD COST YIELD
---- ----- ---- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less.................... $4,971 5.23% $ 236 6.00%
Due after one year through five years...... -- -- -- --
Due after five years through ten years..... 2,011 5.76 -- --
Due after ten years........................ 1,001 5.75 -- --
------ ---- ----- ----
Total.............................. $7,983 5.43% $ 236 6.00%
====== =====
<CAPTION>
1997
-------------------------------------------------------------------------------------
HELD TO MATURITY AVAILABLE FOR SALE
------------------------------------------ -----------------------------------------
U.S. TREASURY AND
OTHER GOVERNMENT CORPORATE FEDERAL RESERVE
AGENCIES AND CORPORATIONS BONDS (B) BANK STOCK (C)
-------------------------- --------- ---------------
AMORTIZED AMORTIZED AMORTIZED
COST YIELD COST YIELD COST YIELD
---------- ----- ---- ----- ---- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Due in one year or less.................... $8,565 5.83% $ -- -- $ 236 6.00%
Due after one year through five years...... -- -- -- -- -- --
Due after five years through ten years..... -- -- 2,000 5.99% -- --
Due after ten years........................ -- -- 3,000 5.95% -- --
------ ------ ------
Total.............................. $8,565 5.83% $5,000 5.97% $ 236 6.00%
====== ====== ======
</TABLE>
_________
(a) There were no securities Held to Maturity as of December 31, 1998. Expected
maturities will differ from contractual maturities. Issuers may have the
right to call or prepay obligations.
(b) The dividend yield on Federal Reserve Bank Stock has historically been 6.00
percent.
(c) All of the corporate bonds included in 1997 are variable rate "lower
floater" securities priced weekly. First Chicago NBD is an additional
obligor for $3,500 of the above corporate bonds and Comerica Bank is an
additional obligor for the remaining $1,500 corporate bonds.
TABLE 4 -- Consolidated Time Certificates of Deposit Maturity Analysis As of
December 31, 1998
<TABLE>
<CAPTION>
Under $100,000
$100,000 and over
-------- ---------
Dollars In Thousands
<S> <C> <C>
Due in three months or less......................... $ 9,919 $ 4,035
Due over three months through six months............ 9,033 5,874
Due over six months through twelve months........... 23,183 6,705
Due over twelve months.............................. 11,907 7,155
------- -------
Total...................................... $54,042 $23,769
======= =======
</TABLE>
22
<PAGE> 25
The 3.37% net interest margin for 1998 is a 20 bps decrease from the 3.57%
net interest margin for 1997. While the yield on earning assets went up 77 bps
in 1998, the cost of earning assets went up 97 bps, 5.05% in 1998 compared to
4.08% in 1997. The increase in this cost is due to more interest-bearing
liabilities being used to fund interest-earning assets in 1998 than in 1997,
when non-interest bearing capital supported a greater percentage of earning
assets. The ratio of net interest-bearing assets to interest-bearing liabilities
fell from 147% in 1997 to 116% in 1998, due to the growth in both assets and
liabilities and the relatively smaller portions of total assets represented by
stockholders' equity.
Other non-interest income of $587,000 for 1998 increased $581,000 over
1997, primarily due to $515,000 in rental income from an operating lease
acquired in 1998. The remaining $72,000 of non-interest income for 1998
principally consisted of loan servicing fees, service charges on deposit
accounts and float income from an outside vendor for cashiers checks sold.
Non-interest income for 1997 was only $6,000 and there was no non-interest
income for 1996 as we were in the development stage.
Non-interest expense for 1998 was $2,056,000 which represents a $1,019,000
increase over 1997. Salaries and employee benefits increased $389,000 due to six
additional paid staff members being added during 1998, accrued bonuses, and the
implementation of a 401(k) match. Depreciation on property for the Bank's
operating lease was $443,000. Remaining other expenses increased a net of
$187,000 primarily due to the Bank being operational for its first full fiscal
year in 1998. Total other expense for 1996 was $69,000 mostly due to the one
full-time equivalent staff member being paid for nine months in 1996.
FINANCIAL CONDITION--1998 COMPARED TO 1997
Our current cash projections indicate adequate cash balances. The Bank has
additional line of credit facilities with national lending institutions to add
funding capacity. Our management also has established a network of banks that
can be used to sell or participate a portion of our loan portfolio. These
techniques allow us to service our business relationships and generate fee and
servicing revenue.
Our liquidity remained adequate throughout 1998. As of December 31, 1998,
the Bank had $8.3 million in cash and cash equivalents including $4.2 million in
Federal funds sold and $3.8 million in interest-bearing balances in other banks
which are immediately available assets. In addition, investment securities with
a total book value of $5.0 million mature within the next 12 months. We also
have proven our ability to attract deposits and build a stable deposit base from
which to fund loans.
The Bank is subject to various regulatory capital requirements and as a "de
novo" or start-up bank, the minimum for the Tier 1 leverage ratio is 9.0%.
Normally, to be considered adequately capitalized, the Bank must maintain a Tier
1 leverage ratio of 4.0%. The Bank's Tier 1 leverage ratios were 9.1% and 30.0%
at December 31, 1998 and 1997, respectively. We plan to maintain at least a 9.0%
Tier 1 leverage ratio throughout the Bank's de novo status and to remain
well-capitalized thereafter. Additional information concerning capital is found
in Note 16, "Regulatory Matters" in the Notes to Consolidated Financial
Statements.
23
<PAGE> 26
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998
We experienced our fourth quarter of positive earnings with net income of
$114,000 for the quarter ended March 31, 1999, which is only the eighth full
quarter of our operations. Total assets at the end of the quarter were
$106,603,000, a 12 month increase of $48,115,000 from the $58,488,000 of total
assets at March 31, 1998. Total loans outstanding grew to $84,160,000 which is a
12 month increase of $43,716,000. Loan growth was funded primarily by a
$48,106,000 increase in deposits, resulting in total outstanding deposits of
$95,847,000 at March 31, 1999.
Net income for the quarter ended March 31, 1999, increased $41,000 over the
same quarter last year. Net interest income before provision for loan losses
increased $375,000 to $854,000, primarily due to volume increases in earning
assets. Provision for loan losses increased $270,000 to $367,000. Other
operating income went up $523,000 due mostly to operating lease income of
$309,000 resulting from a $2,775,000 operating lease recorded during the third
quarter of 1998. In addition, there was a $215,000 gain on sale of loans during
the first quarter of 1999. Other operating expense went up $528,000. Salaries
and employee benefits went up $140,000 due to additional employees and salary
increases. Occupancy expense increased $18,000 due to increases in lease expense
and leasehold improvement amortization costs. Equipment expense increased
$278,000 due mostly to operating lease equipment depreciation expense of
$266,000. Advertising and promotion expense increased $11,000 due to increased
marketing costs. Professional fees went up $47,000 due to additional legal,
independent auditor, and operating lease broker fees. Other expense went up
$28,000 which included a $12,000 increase in telephone expense. Remaining
expenses increased a net $6,000.
The resulting income before federal income tax increased $100,000 for the
same time period. Federal income tax was $59,000 for the first quarter of 1999.
There was no Federal income tax for the same quarter in 1998 as we had a net
operating loss carryforward. Net income per average primary share outstanding
and on a fully diluted basis was $0.09 for the quarter ended March 31, 1999,
compared to $0.06 for the same quarter in 1998.
During the first quarter of 1999, there were $620,000 in loans charged off
against specific reserves previously taken primarily due to loans to MCA
Financial Corporation ("MCA") which filed for protection under the bankruptcy
laws. Management is working diligently to protect the Bank's rights and to
minimize net charge-offs resulting from the MCA situation. There were no
charge-offs prior to the first quarter of 1999 and there have been no recoveries
to date.
The categories of loans outstanding at March 31, 1999, in dollars and as a
percentage of total loans outstanding are as follows:
<TABLE>
<CAPTION>
PERCENTAGE
LOAN CATEGORY AMOUNT OF TOTAL LOANS
------------- ------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial loans discounted........................ $61,606 73.2%
Commercial financing leases........................ 1,060 1.3%
Commercial loans direct............................ 9,247 11.0%
Lines of credit ................................. 4,780 5.7%
Commercial real estate............................. 1,112 1.3%
Mortgage, home equity and installment loans....... 6,355 7.5%
------- -----
Total Loans............................... $84,160 100.0%
======= =====
</TABLE>
24
<PAGE> 27
At March 31, 1999, there were $593,000 in non-accruing loans all relating
to MCA. In addition, there were $604,000 in accruing loans past due 30 days or
more. There were $282,000 past due 30 to 59 days, $246,000 past due 60 to 89
days and $76,000 past due 90 days or more. Of the $604,000 accruing loans past
due 30 days or more, $533,000 were mortgages originally serviced by MCA. No
servicing of the loans took place during the first quarter of 1999 due to MCA
filing for protection under the bankruptcy laws. Bank management transferred the
servicing of those mortgages to another mortgage servicing company in April
1999. Management fully expects that diligent servicing of these mortgages will
minimize delinquencies. Total loan reserves of $1,563,000 at March 31, 1999 was
1.86% of total loans which included $424,000 in specific allowances. In
management's opinion, the total loan reserve position is adequate relative to
the overall quality of the loan portfolio.
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and officers and those of the Bank as of the date of this
Prospectus 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, 48 Chairman of the Board, 2002 Chairman of the Board,
Chief Executive Officer, Chief Executive Officer,
and Director and Director
Anthony S. Albanese, 51 President, Chief Operating 2001 President, Chief Operating
Officer and Director Officer and Director
H. Perry Driggs, Jr., 62 Director 2002 Director
Lewis N. George, 61 Director 2001 Director
Phillip R. Harrison, 44 Director 2000 Director
Frank A. Scerbo, 49 Director 2002 Director
Philip Sotiroff, 60 Director 2000 Director
Darryle J. Parker, 49 Secretary, Treasurer and n/a Secretary, Treasurer, Cashier,
Chief Financial Officer and Vice President/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 Company or the Bank (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.
Our 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 Company's Board of Directors has presently
fixed the number of directors at seven. 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 of directors in each class being as nearly equal as possible. The
term of each class of director is three years.
25
<PAGE> 28
We anticipate 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 our 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.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
We have no standing Audit, Compensation or Nominating Committees of the
Company's Board of Directors. The Board is responsible for reviewing and making
recommendations as to its size and composition, nominating candidates for
election as directors, and filling any vacancies that may occur between annual
meetings. During 1998, the Board met 12 times. Each of the Directors attended
either all or all but one of the of the meetings of the Board during 1998.
Original members of the Board who are not employees of the Company or any
of its affiliates ("Nonemployee Directors"), after adjusting for the Company's
stock dividend distributed in 1998 (the "Stock Dividend"), each received an
option to purchase 13,200 shares of common stock of the Company at the public
offering price of $9.09 per share, pursuant to the Company's 1997 Stock Option
Plan for Nonemployee Directors which was approved on January 15, 1997. Under
this Plan and after adjusting for the Stock Dividend, each option was
immediately exercisable for 6,600 shares when granted. As of the date of the
1999 Annual Meeting of Shareholders, each option becomes exercisable in full.
Each option expires ten years after its date of grant. Nonemployee Directors who
are appointed or elected after March 1, 1997, will receive an option for a
lesser number of shares, the number of which will depend on which annual meeting
is the first annual meeting occurring concurrently with, or after, he or she
becomes a Nonemployee Director.
EXPERIENCE OF DIRECTORS AND OFFICERS
The experience and backgrounds of the directors and officers, and their
positions with the Company, are summarized below.
RICHARD ZAMOJSKI has been the Chairman of the Board and Chief Executive Officer,
and a Director, of the Company and the Bank since we began operations. Mr.
Zamojski is responsible for the strategic direction of the Company and the Bank
and is a member of the Executive Committee, the Senior Loan Committee, and the
Asset and Liability Committee. Prior to joining the Company, he 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. 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. 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 has been President and Chief Operating Officer and a
Director of the Company and the Bank since we began operations. Mr. Albanese is
responsible for the day-to-day operations of the
26
<PAGE> 29
Bank. He also is a member of the Executive Committee, the Senior Loan Committee,
the Asset and Liability Committee, is Chairman of the Operations Committee, and
is the Year 2000 Co-ordinator and CRA Officer. Prior to joining the Company, Mr.
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 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. 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 Secretary, Treasurer, and Chief Financial Officer of
the Company and the Bank since we began operations and currently is Vice
President, Cashier, Secretary, Treasurer, and Chief Financial Officer. His major
areas of responsibility include investment, funds, and asset/liability
management, financial accounting and reporting, payroll, and bank operations.
Mr. Parker has been in the banking industry in excess of 25 years, including
serving as Treasurer of Sterling from 1993 to 1995. During the past 19 years has
served as chief financial officer and/or controller involving all phases of
financial planning, analysis, and accounting. 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 of Michigan National Bank and served in
various capacities, including Treasurer and a director, of 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 resident of Bloomfield Hills, 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 served as 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 received his
Juris Doctor from Wayne State Law School (1964). Mr. George 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
27
<PAGE> 30
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.
FRANK A. SCERBO is Vice President and General Counsel of, and a member of the
Board of Directors of, the McPhail Corporation, a company engaged in the sale of
original equipment parts to the automotive and light truck industry. Mr. Scerbo
has been with the McPhail Corporation since 1977. Mr. Scerbo also is Vice
President and General Counsel of, and a member of the Board of Directors of,
Fair Weather Properties, Inc., a real estate development company; General
Counsel of Fair Weather Properties, L.L.C., a real estate development company;
Vice President and General Counsel of, and a member of the Board of Directors
of, Hi Flite, Inc., an aircraft charter and leasing company; Vice President and
General Counsel of, and a member of the Board of Directors of, Fair Weather
Aviation, Inc., an aircraft charter and leasing company; and General Counsel of
the Lectron Products Division of Eaton Corporation, an automotive and light
truck parts supplier. Mr. Scerbo received his undergraduate degree from the St.
Peter's College (1971) with honors, and received his Juris Doctor from the
University of Detroit (1980), with honors. Mr. Scerbo is a resident of
Birmingham, 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 35 years and has specialized in equipment finance since
1974. 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). Mr. Sotiroff is a resident of Bloomfield Hills, Michigan.
COMPENSATION OF EXECUTIVE OFFICERS
Compensation information is provided only for Richard Zamojski and Anthony
S. Albanese because no other executive officer of the Company had total annual
salary and bonus in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#)(1) COMPENSATION
- --------------------------- ---- ------ ----- ------------- ------------
<S> <C> <C> <C> <C> <C>
Richard Zamojski, Chairman 1998 $105,000 $ 0 13,200 $ 4,939
1997 100,000(2) 1,000 13,200 0
Anthony S. Albanese, President 1998 $105,000 $ 0 13,200 $10,481
1997 100,000(2) 1,000 13,200 0
</TABLE>
________
(1) After adjusting for the stock dividend paid in 1998.
(2) Annual rate
28
<PAGE> 31
<TABLE>
<CAPTION>
Individual Option/SAR Grants in 1998
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SARS OPTIONS/SARS GRANTED TO EXERCISE OR EXPIRATION
NAME GRANTED (#)(1) ALL EMPLOYEES IN FISCAL YEAR BASE PRICE(1) DATE
- ---- ----------------------- ---------------------------- ------------- -----------
<S> <C> <C> <C> <C>
Richard Zamojski 1,650 shs. 35% $9.09/sh. 2007
Anthony Albanese 1,650 shs. 35% $9.09/sh. 2007
</TABLE>
______
(1) Adjusted to reflect the stock dividend paid in 1998.
<TABLE>
<CAPTION>
Option/SAR Exercises in Last Fiscal Year and
Year End Option/SAR Values
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED VALUE AT YEAR END (#) AT YEAR END (1)
------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- -------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Richard Zamojski 0 shs. $0 9,900/3,300 $0/$0
Anthony Albanese 0 shs. $0 9,900/3,300 $0/$0
</TABLE>
______
(1) Based on the last trade on May 14, 1999.
We made no awards to any executive officer or other employee in the last
completed fiscal year under any Long-Term Incentive Plan. 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 has
adopted a 401(k) plan for its employees, including the executive officers.
Neither the Company nor the Bank has an employment agreement with any officer.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information regarding the beneficial ownership
of our common stock as of March 31, 1999, by the directors of the Company, the
executive officers named in the Summary Compensation Table, and all directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT OF
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(1) CLASS
---------------- -------------------------- -----
<S> <C> <C>
Anthony S. Albanese......................... 23,540 shs.(2) 1.9%
330 Eaton Drive
Northville, MI 48167
H. Perry Driggs, Jr......................... 24,200 shs.(3)(4) 1.9%
230 Orange Lake Drive
Bloomfield Hills, MI 48302
Lewis N. George ............................ 29,700 shs.(3) 2.3%
5241 North Bay Drive
Orchard Lake, MI 48324
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
<S> <C> <C>
Phillip R. Harrison......................... 19,200 shs.(3) 1.5%
4792 Split Rail Lane
Brighton, MI 48116
Darryle J. Parker............................ 6,600 shs.(5) *
5750 Parkside Drive
Monroe, MI 48161
Frank A. Scerbo.............................. 58,400 shs.(6)(7) 4.6%
1144 Brookwood Lane
Birmingham, MI 48009
Philip Sotiroff.............................. 61,710 shs.(3)(4) 4.9%
770 E. Glengarry Circle
Bloomfield Hills, MI 48301
Richard Zamojski............................. 18,810 shs.(2)(4) 1.5%
11790 Pine Mountain Drive
Brighton, MI 48116
All directors and executive officers as a.... 242,160 shs. 19.1%
as a group (8 persons)
</TABLE>
___________
* Less than 1.0%
(1) Unless otherwise noted, all shares are owned solely by the person
named or jointly with the person's spouse. Percentages are based
on issued and outstanding shares plus the number of shares that
the named person or group has the right to acquire within 60 days.
(2) Includes 9,900 shares that such person has the right to acquire
within 60 days pursuant to the Company's 1997 Employee Stock
Option Plan.
(3) Includes 13,200 shares that such person has the right to acquire
within 60 days pursuant to the Company's 1997 Stock Option Plan
for Nonemployee Directors.
(4) Includes 2,750 shares held by Mr. Driggs' spouse, 5,500 shares
held by Mr. Sotiroff's spouse, and 110 shares held by Mr.
Zamojski's minor daughter.
(5) Includes 4,950 shares that such person has the right to acquire
within 60 days pursuant to the Company's 1997 Employee Stock
Option Plan.
(6) Includes 52,100 shares held by trusts of which Mr. Scerbo is
co-trustee and 3,300 shares that Mr. Scerbo has the right to
acquire within 60 days pursuant to the Company's 1997 Stock Option
Plan for Nonemployee Directors.
(7) Does not include 5,500 and 500 shares held by Mr. Scerbo's spouse
as trustee and individually, respectively, as to which Mr. Scerbo
disclaims voting and investment power.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997, certain of our directors and officers made loans to us to
cover organizational expenses. We paid no interest on the loans and we repaid
all of the loans from the net proceeds of our initial public offering of common
stock. We anticipate that our directors and officers and the companies with
which they are associated may have banking and other transactions with the Bank
in the ordinary course of the Bank's business. Applicable law and the Bank's
policy require that any loans and commitments to lend to such affiliated persons
or entities included in such transactions or other transactions with such
affiliates be made 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, do not involve more than
normal risk or present other unfavorable features to the Bank, and be on terms
no less favorable to the Bank than could be obtained on an arms-length basis
from unaffiliated independent third parties. During 1998, the Bank funded a term
loan of $190,000 to a corporation of which Mr. Scerbo is a shareholder,
director, and officer.
30
<PAGE> 33
Our Articles of Incorporation and Bylaws provide for the indemnification of
our directors and officers, including reasonable legal fees, incurred by such
directors and officers while acting for or on our behalf 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. We have purchased directors' and officers'
liability insurance for our directors and officers and those of the Bank.
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. On March 31, 1999, an
aggregate of 1,265,000 shares of common stock were issued and outstanding. We
have not issued any shares of preferred stock. Michigan law allows our 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
Our Board of Directors 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: (a) the number of shares and designation of such series; (b)
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; (c) 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; (d) the
conversion or exchange rights, if any, of shares of such series; (e) whether
shares are to be redeemable, and, if so, whether redeemable for cash, property
or rights; (f) whether the shares shall be subject to the operation of a
purchase, retirement or sinking fund, and, if so, upon what conditions; (g) the
voting powers, full or limited, if any, of the shares; (h) 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 (i) 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 our 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
31
<PAGE> 34
dividends of the Bank. There can be no assurance that we will have funds
available for dividends, or that if funds are available, that dividends will be
declared by our Board of Directors.
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
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,
serves 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 our Articles of Incorporation and Bylaws may
delay, defer, prevent or make it more difficult for a person to acquire us or to
change control of our Board of Directors, thereby reducing our vulnerability to
an unsolicited takeover attempt.
Classification of the Board of Directors. Our 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, our directors have been divided into three classes.
The term of each class of director is 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. Our 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 our
shares entitled to vote generally in the election of directors.
Filling Vacancies on the Board of Directors. Our Articles of Incorporation
provide that a new director chosen to fill a vacancy on our Board of Directors
will serve for the remainder of the full term of the class in which the vacancy
occurred.
Nominations of Director Candidates. Our 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.
32
<PAGE> 35
Certain Shareholder Action. Our 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, our Bylaws do not permit our shareholders
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 our principal place of business or registered office is located to
order a special meeting of shareholders for good cause shown.
Increased Shareholder Vote for Certain Matters. Our Articles of
Incorporation provide that the affirmative vote or consent of holders not less
than seventy-five percent (75%) of the outstanding shares of common stock shall
be required: (a) to approve the merger or consolidation of us or any subsidiary;
(b) to authorize the sale or other disposition of all or substantially all of
our assets or any subsidiary; (c) to authorize the issuance or transfer by us or
any subsidiary of any of their respective voting securities to a beneficial
owner of five percent (5%) or more of our voting securities; (d) to approve our
dissolution; or (e) to amend our Bylaws. Notwithstanding the foregoing, such 75%
voting requirement shall not be required if the proposal has been approved and
recommended by our Board of Directors. In addition, the affirmative vote of at
least 75% of the outstanding shares of common stock is required to amend the
sections of our Articles of Incorporation that provide for these supermajority
voting requirements.
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: (a) 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 (i) the market value of the shares, or (ii) 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 (b) 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"). The Control
Share Act applies to us and to our 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
33
<PAGE> 36
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
Our Bylaws provide that we shall indemnify our 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
our right. The Bylaws provide that we 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 our right) by reason of the fact
that he or she (a) is or was a director or officer of us, or (b) while serving
as such a director or officer, is or was serving at our request 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 our best interests or the best interests of our 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 we 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 our right
to procure a judgment in its favor by reason of the fact that he or she (a) is
or was a director or officer of us, or (b) while serving as such a director or
officer, is or was serving at our request 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 our best interests or the best interests of
our shareholders. No indemnification is provided in our Bylaws in respect of any
claim, issue or matter in which such person has been found liable to us 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. Our Articles of Incorporation provide that
our directors shall not be personally liable to us or to our shareholders for
monetary damages for breach of the director's fiduciary duty. However,
34
<PAGE> 37
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 us or to our
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 the MBCA; and (iv) transactions from which the director derived an
improper personal benefit.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock is traded in the over-the-counter market and
quotations are reported on the OTC Bulletin Board under the symbol "MHBC." There
were approximately 70 holders of record as of December 31, 1998. Included among
the 70 holders of record are investment firms with an undetermined number of
clients owning our common stock. We distributed a 10% common stock dividend on
June 15, 1998. We have not distributed cash dividends.
The following table sets forth the quarterly high and low bid quotations
per share during each of the four quarters in 1998 and 1997 (since the date of
our public offering). These quotations reflect historical inter-dealer prices
without retail mark-up, mark-down or commission, may not represent actual
transactions, and are not adjusted to reflect the 10% stock dividend paid in the
second quarter of 1998.
High/Low
1999 1st Quarter $ 9.88/$ 6.75
1998 4th Quarter $10.50/$ 8.00
3rd Quarter $12.00/$ 9.00
2nd Quarter $14.50/$12.00(1)
1st Quarter $14.50/$10.75(1)
1997 4th Quarter $13.00/$10.00(1)
3rd Quarter $13.25/$ 9.25(1)
2nd Quarter $10.75/$ 9.25(1)
1st Quarter $10.75/$ 9.75(1)
(1) Not adjusted to reflect the 10% stock dividend paid
in the second quarter of 1998.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and file reports and other
information with the Securities and Exchange Commission (the "SEC") as required
by the Exchange Act. This Prospectus constitutes a part of a Registration
Statement filed by the Company with SEC, under the Securities Act of 1933, as
amended. This Prospectus omits certain of the information contained in the
Registration Statement, and we refer you to the Registration Statement and
related exhibits for further information with respect to the Company and the
securities offered hereby. Any statements contained in this Prospectus
concerning the provisions of any document are not necessarily complete, and in
such instance we refer you to the copy
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<PAGE> 38
of such document filed as an exhibit to the Registration Statement or otherwise
filed with the SEC. Each such statement is qualified in its entirety by such
reference.
You can obtain and copy the Registration Statement, including the Exhibits
filed as a part thereof, 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. You also
can obtain copies of such materials 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.
EXPERTS
Our consolidated financial statements included in this Registration
Statement have been audited by Plante & Moran LLP, independent accountants, for
the periods indicated in their report thereon appearing in this Registration
Statement. The consolidated financial statements audited by Plante & Moran LLP
have been included in this Registration Statement in reliance on their report
given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the common stock offered hereby is being passed upon for us
by our legal counsel, Dykema Gossett PLLC, 400 Renaissance Center, Detroit,
Michigan 48243.
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. We intend such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and are including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe our future plans, strategies and expectations, are generally
identifiable by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project" or similar expressions. Our ability to predict results or
the actual effect of future plans or strategies is inherently uncertain. Factors
which could have a material adverse effect on our operations and future
prospects include, but are not limited to, changes in: interest rates, general
economic conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board, the quality or composition of the loan or investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in our market area and accounting principles, policies and
guidelines. You should consider these risks and uncertainties in evaluating
forward-looking statements and you should not place undue reliance on such
statements. Further information concerning us and our business, including
additional factors that could materially affect our financial results, are
included in our filings with the Securities and Exchange Commission.
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<PAGE> 39
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998
Independent Auditors' Report....................................................................................F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997....................................................F-2
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996......................F-3
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996......................F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1998,
1997 and 1996..........................................................................................F-5
Notes to Consolidated Financial Statements......................................................................F-6
FINANCIAL STATEMENTS FOR THE THREE-MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
Consolidated Balance Sheets as of March 31, 1999 and 1998......................................................F-22
Consolidated Statements of Earnings for the three-months ended March 31, 1999 and 1998.........................F-23
Consolidated Statements of Cash Flows for the three-months ended March 31, 1999 and 1998.......................F-24
Consolidated Statements of Changes in Stockholders' Equity for the three-months ended
March 31, 1999 and 1998................................................................................F-25
Notes to Consolidated Financial Statements.....................................................................F-26
</TABLE>
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Michigan Heritage Bancorp, Inc.
We have audited the consolidated balance sheet of Michigan Heritage
Bancorp, Inc. and subsidiary as of December 31, 1998 and 1997 and the related
consolidated statements of changes in stockholders' equity, operations and cash
flows for each year in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Michigan Heritage Bancorp, Inc. and subsidiary as of December 31, 1998 and 1997
and the consolidated results of their operations and their cash flows for each
year in the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/S/ PLANTE & MORAN LLP
Plante & Moran LLP
Birmingham, Michigan
January 20, 1999
F-1
<PAGE> 41
MICHIGAN HERITAGE BANCORP, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(000S OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and Cash Equivalents
Cash and due from banks ................................................... $ 277 $ 283
Interest-bearing deposits with other banks ................................ 3,781 2,600
Federal funds sold ........................................................ 4,200 1,764
--------- ---------
Total cash and cash equivalents ....................................... 8,258 4,647
Investment Securities Held to Maturity (Note 2) ................................ -- 8,565
Securities Available for Sale (Note 2) ......................................... 8,233 5,236
Loans (Note 3)
Commercial ................................................................ 75,968 30,506
Direct financing leases (Note 5) .......................................... 1,042 --
Real estate ............................................................... 3,444 1,703
Installment ............................................................... 137 118
Home equity ............................................................... 1,010 278
--------- ---------
Total loans ........................................................... 81,601 32,605
Less allowance for loan losses (Note 4) ................................... (1,816) (467)
--------- ---------
Net loans ............................................................. 79,785 32,138
Bank Premises and Equipment (Note 6) ........................................... 453 384
Property on Operating Lease (Note 7) ........................................... 2,332 --
Deferred Income Taxes (Note 9) ................................................. 590 --
Interest Receivable and Other Assets ........................................... 616 468
--------- ---------
Total assets .......................................................... $ 100,267 $ 51,438
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits (Note 8):
Interest-bearing ...................................................... $ 86,612 $ 40,403
Noninterest-bearing ................................................... 1,042 325
--------- ---------
Total deposits ........................................................ 87,654 40,728
Short-term borrowings ..................................................... 1,750 --
Interest payable and other liabilities .................................... 822 565
--------- ---------
Total liabilities ..................................................... 90,226 41,293
Stockholders' Equity
Preferred stock - No par value: Authorized - 500,000 shares;
Issued and outstanding - None ......................................... -- --
Common stock - No par value (Note 13):
Authorized - 4,500,000 shares; Issued and outstanding - 1,265,000
shares in 1998 and 1,150,000 shares in 1997 ........................... 12,482 10,815
Accumulated deficit ....................................................... (2,450) (670)
Accumulated other comprehensive income (Note 1) ........................... 9 --
--------- ---------
Total stockholders' equity ............................................ 10,041 10,145
--------- ---------
Total liabilities and stockholders' equity ............................ $ 100,267 $ 51,438
========= =========
</TABLE>
F-2
<PAGE> 42
MICHIGAN HERITAGE BANCORP, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(000S OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest Income
Interest and fees on loans ............................. $ 5,051 $ 1,132 $ --
Interest and dividends on investments - Taxable ........ 685 474 --
Interest on federal funds sold ......................... 224 211 --
Interest on deposits with other banks .................. 146 103 1
------- ------- -------
Total interest income .............................. 6,106 1,920 1
Interest Expense - Interest on deposits ..................... 3,666 1,024 --
------- ------- -------
Interest Income - Before provision for loan losses .......... 2,440 896 1
Provision for Loan Losses (Note 4) .......................... 1,349 467 --
------- ------- -------
Net Interest Income .................................... 1,091 429 1
Other Income
Service charges on deposit accounts .................... 72 6 --
Operating lease rental income (Note 7) ................. 515 -- --
------- ------- -------
Total other income ................................. 587 6 --
Other Expenses
Salaries and employee benefits (Note 12) ............... 901 512 43
Occupancy of bank premises (Note 10) ................... 125 73 14
Processing ............................................. 45 26 --
Supplies ............................................... 44 23 --
Marketing .............................................. 115 112 --
Equipment expense ...................................... 118 86 --
Depreciation on property for operating lease ........... 443 -- --
Professional fees ...................................... 162 72 --
Amortization ........................................... 4 78 --
Other expenses ......................................... 99 55 12
------- ------- -------
Total other expenses ............................... 2,056 1,037 69
------- ------- -------
Loss - Before income taxes and cumulative effect of change
in accounting principle ................................ (378) (602) (68)
Income Tax Benefit (Note 9) ................................. (331) -- --
------- ------- -------
Net Loss - Before cumulative effect of change in
accounting principle ................................... (47) (602) (68)
Cumulative Effect of Expensing Organizational Costs -
Net of tax benefit of $34 ................................ (66) -- --
------- ------- -------
Net Loss .................................................... $ (113) $ (602) $ (68)
======= ======= =======
Loss Per Share (Note 18) .................................... $ (0.09) $ (0.57) $ --
Diluted Loss Per Share (Note 18) ............................ $ (0.09) $ (0.57) $ --
</TABLE>
F-3
<PAGE> 43
MICHIGAN HERITAGE BANCORP, INC.
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000S OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net loss ............................................................. $ (113) $ (602) $ (68)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization .................................... 545 73 --
Provision for loan losses ........................................ 1,349 467 --
Deferred income taxes ............................................ (580) -- --
Cumulative effect of change in accounting principle .............. 66 -- --
Amortization and accretion of securities ......................... (83) (253) --
Changes in assets and liabilities:
Increase in accrued interest receivable and other assets ......... (229) (324) (144)
Increase in accrued interest payable and other liabilities ....... 257 508 57
-------- -------- --------
Net cash provided by (used in) operating activities ...... 1,212 (131) (155)
Cash Flows from Investing Activities
Proceeds from maturities of available-for-sale securities .............. 16,000 -- --
Purchase of available-for-sale securities .............................. (18,935) (5,236) --
Proceeds from maturities of held-to-maturity securities ................ 8,600 7,600 --
Purchase of held-to-maturity securities ................................ -- (15,912) --
Increase in loans ...................................................... (48,996) (32,605) --
Operating lease equipment .............................................. (2,775) -- --
Premises and equipment expenditures .................................... (171) (424) (33)
-------- -------- --------
Net cash used in investing activities .................... (46,277) (46,577) (33)
Cash Flows from Financing Activities
Net increase in interest-bearing and noninterest-bearing
demand accounts .................................................. 7,448 2,395 --
Net increase in time certificates .................................... 39,478 38,333 --
Proceeds from short-term borrowings .................................. 1,750 -- --
Proceeds from related party notes payable ............................ -- 10 255
Payments on related party notes payable .............................. -- (265) --
Proceeds from public stock offering .................................. -- 10,815 --
-------- -------- --------
Net cash provided by financing activities ................ 48,676 51,288 255
-------- -------- --------
Net Increase in Cash and Cash Equivalents ................................. 3,611 4,580 67
Cash and Cash Equivalents - Beginning of year ............................. 4,647 67 --
-------- -------- --------
Cash and Cash Equivalents - End of year ................................... $ 8,258 $ 4,647 $ 67
======== ======== ========
Supplemental Cash Flow and Noncash Information
Cash paid for:
Interest ......................................................... $ 3,656 $ 642 $ --
Income taxes ..................................................... 230 -- --
Stock dividend (Note 14) ............................................. 1,667 -- --
</TABLE>
F-4
<PAGE> 44
MICHIGAN HERITAGE BANCORP, INC.
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(000S OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON OTHER
SHARES CAPITAL ACCUMULATED COMPREHENSIVE
OUTSTANDING STOCK DEFICIT INCOME TOTAL
----------- ------- ----------- -------------- -----
<S> <C> <C> <C> <C> <C>
Balance - Inception ............... -- $ -- $ -- $ -- $ --
Issuance of common stock .......... 1 -- -- -- --
Comprehensive loss - Net loss ..... -- -- (68) -- (68)
---------- ---------- ---------- ---------- -------
Balance - December 31, 1996 ....... 1 -- (68) -- (68)
Public stock offering ............. 1,150,000 11,500 -- -- 11,500
Retirement of initial share ....... (1) -- -- -- --
Stock offering costs .............. -- (685) -- -- (685)
Comprehensive loss - Net loss ..... -- -- (602) -- (602)
---------- ---------- ---------- ---------- -------
Balance - December 31, 1997 ....... 1,150,000 10,815 (670) -- 10,145
Comprehensive loss:
Net loss ..................... -- -- (113) -- (113)
Change in net unrealized
gain on securities available
for sale, net of tax effect of
$5 (Note 1) .................. -- -- -- 9 9
-------
Total comprehensive loss .......... (104)
Stock dividend (Note 13) .......... 115,000 1,667 (1,667) -- --
---------- ---------- ---------- ---------- -------
Balance - December 31, 1998 ....... 1,265,000 $ 12,482 $ (2,450) $ 9 $10,041
========== ========== ========== ========== =======
</TABLE>
F-5
<PAGE> 45
MICHIGAN HERITAGE BANCORP, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Michigan Heritage Bancorp, Inc. (the "Corporation") was
incorporated in 1989, but remained dormant until 1996. The Corporation became
active to operate a new bank, Michigan Heritage Bank (the "Bank") in Novi,
Michigan. The Corporation raised funds through a public stock offering in
February 1997 and began operations in March 1997. Basis of Presentation - The
accounting and reporting policies of Michigan Heritage Bancorp, Inc. and its
subsidiary conform to generally accepted accounting principles. Management is
required to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates and assumptions. The 000s have been omitted in
tabular presentations.
Principles of Consolidation - The consolidated financial statements
include the accounts of Michigan Heritage Bancorp, Inc. and its wholly owned
subsidiary, Michigan Heritage Bank. All significant intercompany accounts and
transactions have been eliminated upon consolidation.
Nature of Operations - Michigan Heritage Bank conducts full-service
commercial and consumer banking and provides other financial products and
services through its main office to communities in Wayne and Oakland counties.
The Bank has a lending concentration to companies who operate hospitals. Loans
to these companies were 18 percent and 16 percent of total loans at December 31,
1998 and 1997, respectively. Cash Equivalents - Cash equivalents include cash on
hand and amounts due from banks.
Securities - Securities are classified as held to maturity when
management has the intent and ability to hold to maturity. Held-to-maturity
securities are reported at amortized cost. All other securities are classified
as available-for-sale securities and are reported at fair value, with unrealized
gains and losses, net of related deferred income taxes, included in
stockholders' equity. Loan Interest and Fee Income - Loans are generally
reported at the principal amount outstanding. Interest on loans is accrued and
credited to income based on the principal amount outstanding. The accrual of
interest on loans is discontinued when, in the opinion of management, there is
an indication that the borrower may be unable to meet payments as they become
due. Upon such discontinuance, all unpaid interest accrued is reversed. Interest
accruals are generally resumed when all delinquent principal and/or interest has
been brought current or the loan becomes both well-secured and in the process of
collection.
Lease Financing - The Bank uses the finance method of accounting for
direct lease contracts. Under this method of accounting, a receivable is
recorded for the present value of lease payments due and estimated residual
values. Lease income, represented by the excess of the total contract receivable
plus estimated equipment residual value over the cost of the equipment, is
recorded over the terms of the lease at a level rate of return on the
unrecovered net investment. Operating Lease - Certain equipment is leased under
an operating lease that expires in two years. There is a renewal option that may
extend the operating lease an additional 12 months. Lease income is recognized
straight-line over the term of the lease as payments are due. Depreciation on
leased assets is computed using the straight-line method over the lease term to
the Bank's estimate of the residual value of the property at the end of the
lease.
F-6
<PAGE> 46
Allowance for Possible Loan Losses - The allowance for possible loan
losses is maintained at a level considered by management to be adequate to
absorb losses inherent in existing loans and loan commitments. The adequacy of
the allowance is based on evaluations that take into consideration such factors
as prior loss experience, changes in the nature and volume of the portfolio,
overall portfolio quality, loan concentrations, specific impaired or problem
loans and commitments, and current and anticipated economic conditions that may
affect the borrower's ability to pay.
Premises and Equipment - Premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation, computed on the
straight-line method, is charged to operations over the useful lives of the
properties. Leasehold improvements are amortized over the terms of their
respective leases or the estimated useful lives of the improvements, whichever
is shorter.
Short-term Borrowings - The Bank includes federal funds purchased in
short-term borrowings. Federal funds purchased generally mature in one to four
days.
Earnings Per Share - Earnings per share is based on the weighted
average number of shares outstanding in each period and is retroactively
adjusted for stock dividends. Fully diluted earnings per share are based on
weighted average shares outstanding assuming the exercise of the dilutive stock
options. The effects of unexercised stock options in 1998 and 1997 are not
dilutive and have not been considered.
Stock Options - The Corporation has two stock option plans (see Note
11). Options granted are accounted for using the intrinsic value method, under
which compensation expense is recorded at the amount by which the market price
of the underlying stock at the grant date exceeds the exercise price of an
option. Under the Corporation's plans, the exercise price on all of the options
granted equals or exceeds the fair value of the stock at the grant date.
Accordingly, no compensation cost is recorded as a result of stock options
awarded under the plans. Other Comprehensive Income - The Corporation adopted
SFAS No. 130, Reporting Comprehensive Income, as of January 1, 1998. Accounting
principles generally require that recognized revenue, expenses, gains and losses
be included in net income. Certain changes in assets and liabilities, however,
such as unrealized gains and losses on available-for-sale securities, along with
net income, are components of comprehensive income.
The adoption of SFAS No. 130 had no effect on the Corporation's net
income or stockholders' equity. Accumulated other comprehensive income at
December 31, 1998 is comprised solely of unrealized gains on available-for-sale
securities, net of tax of $5,000.
Accounting Change - In the fourth quarter of the year ended December
31, 1998, the Corporation adopted Statement of Position (SOP) 98-5, Reporting on
the Costs of Start-up Activities. This SOP requires that the costs of start-up
activities, including organization costs, should be expensed as incurred. The
adoption of this SOP resulted in the Corporation recording a pretax charge of
$100,000 and is reflected as a reduction in other assets.
Reclassifications - Certain prior year amounts have been reclassified
to conform to the current year presentation.
F-7
<PAGE> 47
NOTE 2 - SECURITIES
The amortized cost and estimated market value of investment securities
are as follows:
<TABLE>
<CAPTION>
1998
--------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available-for-sale securities -
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies........................... $8,219 $ 22 $ 8 $8,233
1997
--------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
Held-to-maturity securities -
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies........................... $8,565 $ 2 $ -- $8,567
Available-for-sale securities -
Corporate bonds............................. $5,236 $ -- $ -- $5,236
</TABLE>
The amortized cost and estimated market value of securities at December
31, 1998, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities. Issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
----------------------------------
AMORTIZED ESTIMATED
COST MARKET VALUE
---- ------------
<S> <C> <C>
Due in one year or less.................................. $5,207 $5,199
Due after one year through five years.................... -- --
Due after five years through ten years................... 2,011 2,014
Due after ten years...................................... 1,001 1,020
----- -----
Total................................................. $8,219 $8,233
====== ======
</TABLE>
Securities having a carrying and market value of $2,392,000 and
$2,390,000, respectively, were pledged at December 31, 1998 for purposes
required by law.
F-8
<PAGE> 48
NOTE 3 - LOANS
No directors or executive officers of the Corporation were loan
customers of the subsidiary bank during 1998. Final loan maturities and rate
sensitivity of the loan portfolio at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
WITHIN ONE ONE TO FIVE AFTER FIVE
YEAR YEARS YEARS TOTAL
---- ----- ----- -----
<S> <C> <C> <C> <C>
Commercial........................................ $28,262 $47,344 $ 362 $75,968
Direct financing lease............................ 114 565 363 1,042
Real estate....................................... 607 2,120 717 3,444
Installment....................................... 58 79 -- 137
Home equity....................................... 373 539 98 1,010
------- ------- ------- -------
Total........................................ $29,414 $50,647 $ 1,540 $81,601
======= ======= ======= =======
Loans at fixed interest rates..................... $25,427 $50,143 $ 1,392 $76,962
Loans at variable interest rates.................. 3,987 504 148 4,639
------- ------- ------- -------
Total........................................ $29,414 $50,647 $ 1,540 $81,601
======= ======= ======= =======
</TABLE>
NOTE 4 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
A summary of the activity in the allowance for possible loan losses
(ALL) is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance - Beginning of year...................... $ 467 $ --
Provision charged to operations.................. 1,349 467
Loan losses...................................... -- --
Loan loss recoveries............................. -- --
------ -----
Balance - End of year............................ $1,816 $ 467
====== =====
As a percent of total loans...................... 2.23% 1.43%
</TABLE>
The Corporation considers a loan impaired when it is probable that all
interest and principal will not be collected in accordance with the contractual
terms of the loan agreement. Consistent with this definition, all nonaccrual and
reduced rate loans (with the exception of residential mortgages and consumer
loans) are considered impaired.
The recorded investment in impaired loans was $2,096,000 and $0 at
December 31, 1998 and 1997, respectively. The average recorded investment in
impaired loans during 1998 was insignificant. Included in the impaired loan
total were $2,096,000 of impaired loans for which the specific allowance for
possible loan losses was $820,000 at December 31, 1998.
F-9
<PAGE> 49
NOTE 5 - DIRECT FINANCING LEASES
The following lists the components of the net investment in direct
financing leases as of December 31, 1998:
<TABLE>
<S> <C>
Minimum lease payments receivable................................. $ 1,164
Estimated residual values of leased property (unguaranteed)....... 211
Less unearned income ........................................ (333)
-------
Net investment in direct financing leases......................... $ 1,042
=======
</TABLE>
The following is a schedule by years of minimum future rentals on
direct financing leases as of December 31, 1998:
<TABLE>
<S> <C>
1999......................... $ 166
2000......................... 166
2001......................... 166
2002......................... 166
2003......................... 166
Thereafter................... 334
------
Total........................ $1,164
======
</TABLE>
NOTE 6 - BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1998 and 1997 consisted of
the following:
<TABLE>
1998 1997
---- ----
<S> <C> <C>
Buildings and improvements................ $ 42 $ 42
Furniture and equipment ................. 586 415
---- ----
Total................................ 628 457
Less accumulated depreciation ............ 175 73
---- ----
Net carrying amount....................... $453 $384
====
</TABLE>
NOTE 7 - PROPERTY FOR OPERATING LEASES
The Bank leased equipment to a customer under an operating lease in
1998. The lease expires in 2000 and minimum future rentals on the noncancelable
lease at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........... $1,236
2000........... 721
------
Total .... $1,957
======
</TABLE>
F-10
<PAGE> 50
NOTE 8 - DEPOSITS
The following is a summary of the distribution of deposits at December
31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Noninterest-bearing - Demand ........................ $ 1,042 $ 325
======= =======
Interest-bearing:
NOW accounts .................................... $ 6,022 $ 981
Savings ......................................... 10 111
Money market demand ............................. 2,769 978
Time:
$100,000 and over .......................... 23,769 11,256
Under $100,000 ............................. 54,042 27,077
------- -------
Total interest-bearing .............................. $86,612 $40,403
======= =======
</TABLE>
The remaining maturities of time deposits at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
UNDER $100,000 AND
$100,000 AND OVER
-------- --------
<S> <C> <C>
1999.................... $ 42,135 $ 16,614
2000.................... 8,487 2,497
2001.................... 3,105 2,578
2002.................... 198 --
2003.................... 117 2,080
-------- --------
Total............... $ 54,042 $ 23,769
======== ========
</TABLE>
NOTE 9 - INCOME TAXES
Michigan Heritage Bancorp, Inc. and its subsidiary file a consolidated
federal income tax return. The following is a summary of the provision for
income taxes for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current $ 230 $ -- $ --
Deferred credit (595) -- --
----- ---- ----
Total income tax benefit (365) -- --
Less amount allocated to
cumulative effect 34 -- --
----- ---- ----
Net income tax benefit $(331) $ -- $ --
===== ==== ====
</TABLE>
F-11
<PAGE> 51
The following is a reconciliation of the statutory federal income tax
benefit to the Corporation's effective tax benefit for the years ended December
31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income tax at statutory rate............. $(129) $(204) $ (21)
Change in the valuation allowance........ (225) 204 21
Other ....................... 23 -- --
----- ----- -----
Net income tax benefit................... $(331) $ -- $ --
===== ===== =====
</TABLE>
Deferred income taxes are provided for the temporary differences
between the financial reporting bases and the tax bases of the Corporation's
assets and liabilities. The source of such temporary differences and the
resulting net tax expense are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net operating loss carry forward............ $ 62 $ (62) $ --
Provision for loan loss..................... (444) (145) --
Start-up costs.............................. 8 (13) (21)
Organization costs.......................... (27) -- --
Accretion................................... (3) 14 --
Original issue discount..................... (1) 5 --
Lease financing............................. 50 -- --
Other....................................... (15) (3) --
Increase (decrease) in valuation allowance (225) 204 21
----- ----- --
Total deferred income tax benefit...... $(595) $ -- $ --
===== ===== =====
</TABLE>
The temporary differences that comprise deferred tax assets and
liabilities at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.................... $ -- $ 62
Provision for loan loss............................ 589 145
Start-up costs..................................... 26 34
Organizational costs............................... 27 --
Other.............................................. 18 3
----- -----
Total deferred tax assets.......................... 660 244
Valuation allowance for deferred tax assets............. -- (225)
Deferred tax liabilities:
Accretion.......................................... (11) (14)
Lease financing.................................... (50) --
Unrealized gain on securities...................... (5) --
Original issue discount............................ (4) (5)
----- -----
Total deferred tax liabilities................. (70) (19)
----- -----
Net deferred tax asset.................................. $ 590 $ --
===== =====
</TABLE>
F-12
<PAGE> 52
NOTE 10 - OPERATING LEASE
The Corporation has entered into a lease commitment for an office
building. Rental expense charged to operations was $45,000 and $35,000 for the
years ended December 31, 1998 and 1997, respectively. In 1998, the Corporation
entered into two additional lease commitments for office buildings, which begin
in 1999. The future minimum lease payments are as follows:
<TABLE>
<S> <C>
1999.......... $ 204
2000.......... 326
2001.......... 326
2002.......... 304
2003.......... 281
------
Total..... $1,441
======
</TABLE>
NOTE 11 - STOCK OPTION PLANS
The Corporation has two stock option plans. Options may be granted to
certain directors and employees at not less than the market price of the
Corporation's stock on the date of the grant. The options granted are
exercisable immediately, or vest over one to three years. Under the director
plan, a maximum of 66,000 options to purchase shares may be granted that expire
in seven years, subject to certain cancellation provisions related to service.
Under the employee plan, a maximum of 44,000 options to purchase shares may be
granted that expire in 10 years, subject to certain cancellation provisions
related to employment. At December 31, 1998, 9,900 shares under the director and
3,400 shares under the employee plan were available for future option grants.
The following table summarizes stock option transactions and the related average
exercise prices for the last two years.
<TABLE>
<CAPTION>
1998 1997
--------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Options outstanding at beginning of year.............. 93,500 $ 9.10 -- $ --
Options granted....................................... 3,200 10.24 93,500 9.10
Options exercised..................................... -- -- -- --
Options forfeited..................................... -- -- -- --
Options outstanding at end of year.................... 96,700 9.14 93,500 9.10
Exercisable at end of year............................ 69,025 9.10 55,075 9.10
Weighted average estimated fair value of options
granted during the year........................ $ 4.35 $ 4.29
</TABLE>
F-13
<PAGE> 53
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model. The following weighted average
assumptions were used to estimate the fair value of the options granted for the
following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Dividend yield -- --
Expected average life (years) 10.0 7.9
Volatility 30% 28%
Risk-free interest rate 5.8% 6.0%
</TABLE>
At December 31, 1998, options outstanding have exercise prices between
$10.00 and $11.38 per share and a weighted average remaining contractual life of
6.4 years.
The Corporation accounts for its option plans using the intrinsic value
method. The table below displays pro forma amounts for net loss and net loss per
common share assuming the fair value method of accounting had been used, which
reflects additional compensation cost for option grants based on the value of
the options granted:
<TABLE>
<CAPTION>
1998 1997
------------------------- ------------------------
NET BASIC DILUTED NET BASIC DILUTED
LOSS EPS EPS LOSS EPS EPS
---- --- --- ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
As reported............. $(113) $(0.09) $(0.09) $(602) $(0.57) $(0.57)
Pro forma............... $(153) $(0.12) $(0.12) $(839) $(0.80) $(0.80)
</TABLE>
The effect of unexercised stock options is antidilutive and has not
been considered in the diluted EPS calculation.
NOTE 12 - EMPLOYEE BENEFIT PLANS
The Bank has a 401(k) plan that is a defined contribution savings plan
for employees. Employer contributions are discretionary and are determined
annually by the Board of Directors. Employer contributions were accrued for the
year ended December 31, 1998 in the amount of $12,000. There were no employer
contributions during the year ended December 31, 1997.
NOTE 13 - COMMON STOCK
In April 1998, the Corporation declared a 10 percent stock dividend.
Accordingly, all applicable per share amounts for periods presented have been
retroactively adjusted to reflect the transaction.
NOTE 14 - FINANCIAL INSTRUMENTS
Fair Values of Financial Instruments - The carrying amounts and
estimated fair values of financial instruments are presented below. Certain
assets, the most significant being premises and equipment, do not meet the
definition of a financial instrument and are excluded from this disclosure.
Similarly, deposit base and other customer relationship intangibles are not
considered financial instruments and are not discussed below. Accordingly, this
fair value information is not intended to, and does not, represent the
underlying value of the Corporation. Many of the assets and liabilities subject
to disclosure requirements are not actively traded, requiring fair value to be
estimated by management.
F-14
<PAGE> 54
These estimates necessarily involve the use of judgment about a wide variety of
factors, including, but not limited to, relevancy of market prices of comparable
instruments, expected future cash flows and appropriate discount rates.
<TABLE>
<CAPTION>
1998 1997
--------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Assets:
Cash and equivalents........................... $ 8,258 $ 8,258 $ 4,647 $ 4,647
Securities..................................... 8,233 8,233 13,801 13,801
Loans ...................................... 79,785 80,302 32,138 32,323
Other ...................................... 476 476 304 304
Liabilities:
Deposits....................................... 87,654 87,994 40,728 40,830
Short-term borrowings.......................... 1,750 1,750 -- --
Other ...................................... 393 393 382 382
</TABLE>
The terms and short-term nature of certain assets and liabilities
result in their carrying value approximating fair value. These include cash and
due from banks, interest-bearing deposits in banks, federal funds sold, federal
funds purchased and accrued interest receivable and payable. The following
methods and assumptions were used by Michigan Heritage Bancorp, Inc. to estimate
the fair values of the remaining classes of financial instruments: Securities
are valued based on quoted market prices, where available. If quoted market
prices are not available, fair values are based on quoted market prices of
comparable instruments.
For variable rate loans that reprice frequently, fair values are based
on carrying amounts, as adjusted for estimated credit losses. The fair values
for other loans are estimated using discounted cash flow analyses and employ
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality.
The fair values of demand deposits, savings accounts and money market
deposits are, by definition, equal to the amount payable on demand. The fair
values of fixed rate time deposits are estimated by discounting cash flows using
interest rates currently being offered on certificates with similar maturities.
The fair values of loan commitments and standby letters of credit,
valued on the basis of fees currently charged for commitments for similar loan
terms to new borrowers with similar credit profiles, are not considered
material.
Off-balance-sheet Items - The Bank is party to financial instruments in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and financial guarantees. These
instruments involve, to varying degrees, elements of credit and interest rate
risk that are not recognized in the consolidated balance sheet. Commitments to
extend credit are agreements to lend to a customer as long as there are no
violations of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Fees from issuing these commitments to extend credit are recognized
over the period to
F-15
<PAGE> 55
maturity. Since a portion of the commitments is expected to expire without being
drawn upon, the total commitments do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained upon extension of credit
is based on management's credit evaluation of the customer.
Exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and financial
guarantees written is represented by the contractual notional amount of those
items. The Bank generally requires collateral to support such financial
instruments in excess of the contractual notional amount of those instruments.
The Bank had outstanding loan origination commitments and guarantees
written aggregating $49,200,000 and $12,425,000 at December 31, 1998 and 1997,
respectively, on which $22,700,000 and $3,901,000, respectively, were
outstanding at year end and were included in the consolidated balance sheet.
NOTE 15 - RESTRICTIONS ON DIVIDENDS
Dividends paid by the Corporation would be provided by dividends from
its subsidiary bank. However, certain restrictions exist regarding the ability
of the Bank to transfer funds to the Corporation in the form of cash dividends,
loans or advances. The approval of the Bank's respective primary regulator is
required for the Corporation's subsidiary bank to pay dividends in excess of
regulatory limitations.
NOTE 16 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and discretionary actions by
regulators that could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices.
For 1998 and 1997, since the Bank is considered a de novo or start-up
bank, the minimum Tier 1 leverage ratio is 9.0 percent. Normally, to be
considered adequately capitalized, the Bank must maintain a Tier 1 leverage
ratio of 4.0 percent. As of December 31, 1998, the most recent notification from
the Bank's regulators categorized the Bank as well-capitalized under the
regulatory framework. The regulations define well-capitalized levels of total
capital, Tier 1 and Tier 1 leverage as 10.0 percent, 6.0 percent and 5.0
percent, respectively. There are no conditions or events since that notification
that management believes have changed the Bank's capital category.
F-16
<PAGE> 56
Capital and risk-based capital and leverage ratios for the Bank are
shown below:
<TABLE>
<CAPTION>
AMOUNTS RATIO
------- -----
<S> <C> <C>
December 31, 1998:
Total Capital (to Risk-weighted Assets) $9,400 10.9%
Tier 1 Capital (to Risk-weighted Assets) $8,321 9.6%
Tier 1 Capital (to Average Assets) $8,321 9.1%
December 31, 1997:
Total Capital (to Risk-weighted Assets) $7,614 21.0%
Tier 1 Capital (to Risk-weighted Assets) $7,162 19.8%
Tier 1 Capital (to Average Assets) $7,162 30.0%
</TABLE>
NOTE 17 - PARENT-ONLY FINANCIAL STATEMENTS
The following condensed financial information presents the financial
condition of Michigan Heritage Bancorp, Inc. (the "Parent") only, along with the
results of its operations and its cash flows. The Parent has recorded its
investment in the Bank at cost, less the undistributed loss of the Bank since it
was formed. The Parent recognizes undistributed losses of the Bank as a
noninterest income (expense). The Parent-only financial information should be
read in conjunction with the Corporation's consolidated financial statements.
The condensed balance sheet at December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets:
Cash and cash equivalents
Cash and deposits at subsidiary bank.......................... $ 1 $ 4
Interest-bearing deposits with other banks.................... 1,073 286
----- ------
Total cash and equivalents................................ 1,074 290
----- ------
Investment securities held to maturity............................. -- 2,579
Investment in Subsidiary........................................... 8,701 7,162
Interest receivable and other assets............................... 266 114
------ ------
Total assets.............................................. $10,041 $10,145
======= =======
Liabilities and Stockholders' Equity:
Liabilities - interest payable and other liabilities............... $ -- --
Stockholders' equity............................................... 10,041 10,145
------ ------
Total liabilities and stockholders' equity................ $10,041 $10,145
====== ======
</TABLE>
F-17
<PAGE> 57
The condensed statement of operations for the years ended December 31,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
Operating income:
<S> <C> <C>
Interest and dividends on investments - taxable........................ $ 106 $ 95
Interest on deposits with other banks.................................. 25 26
Total operating income............................................ 131 121
Operating expenses:.................................................... 39 35
----- -----
Income before income taxes, equity in loss of subsidiary
and cumulative effect of change in accounting principle........... 92 86
Income tax expense..................................................... 14 --
----- -----
Income before equity in loss of subsidiary and cumulative
effect of change in accounting principle.......................... 78 86
Equity in loss of subsidiary........................................... (125) (688)
----- -----
Loss before cumulative effect of change in accounting principle........ (47) (602)
Cumulative effect of expensing organization costs, net of tax
effect of $34..................................................... (66) --
----- -----
Net Loss............................................................... $(113) $(602)
===== =====
</TABLE>
F-18
<PAGE> 58
The condensed statement of cash flows for the years ended December 31,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss ........................................................... $ (113) $ (602)
Adjustments to reconcile net loss to net cash from operating
activities:
Equity in loss of subsidiary ................................... 125 688
Change in accounting principle ................................. 66 --
Amortization and accretion of securities ....................... (21) (90)
Amortization of organizational costs ........................... 20 19
Net change in other assets ..................................... (243) 44
Net change in other liabilities ................................ -- (57)
Net cash provided by (used in) operating activities ................ (166) 2
------ --------
Cash Flows from Investing Activities
Investment in bank subsidiary ...................................... (1,650) (7,850)
Proceeds from maturities of held-to-maturity securities ............ 2,600 600
Purchase of held-to-maturity securities ............................ -- (3,089)
Net cash provided by (used in) investing activities ..................... 950 (10,339)
------ --------
Cash Flows from Financing Activities
Proceeds from related party notes payable .......................... -- 10
Payments on related party notes payable ............................ -- (265)
Proceeds from public stock offering ................................ -- 10,815
Net cash provided by financing activities ............................... -- 10,560
------ --------
Net Increase in Cash and Cash Equivalents ............................... 784 223
Cash and Cash Equivalents - Beginning of year ........................... 290 67
------ --------
Cash and Cash Equivalents - End of year ................................. $1,074 $ 290
====== ========
</TABLE>
F-19
<PAGE> 59
NOTE 18 - EARNINGS PER SHARE
Basic earnings per share data is the amount of earnings for the period
available to each share of common stock outstanding during the reporting period.
Diluted earnings per share reflects the earnings available to each share of
common stock outstanding during the reporting period adjusted for dilutive
potential common shares for stock options outstanding. In 1998 and 1997,
outstanding stock options have not been included in the calculation of diluted
weighted average shares outstanding because they would be antidilutive.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net loss before cumulative effect of change in
accounting principle................................. $ (47) $ (602) $ (68)
Cumulative effect of expensing organizational
costs, net of tax benefit of $34..................... (66) -- --
---------- ---------- ------
Net loss.................................................. $ (113) $ (602) $ (68)
========== ========== ======
Average common shares outstanding...................... 1,265,000 1,051,329 1
Loss per share before cumulative effect of change
in accounting principle:
Basic............................................... $ (0.04) $ (0.57) $ --
Diluted............................................. $ (0.04) $ (0.57) $ --
Cumulative effect per share of expensing
organizational costs, net of tax benefit of $34:
Basic............................................... $ (0.05) $ -- $ --
Diluted............................................. $ (0.05) $ -- $ --
Loss per share:
Basic............................................... $ (0.09) $ (0.57) $ --
Diluted............................................. $ (0.09) $ (0.57) $ --
</TABLE>
F-20
<PAGE> 60
FINANCIAL STATEMENTS FOR THE THREE-MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
F-21
<PAGE> 61
MICHIGAN HERITAGE BANCORP, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000S OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31
---------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks, noninterest bearing........................................ $ 514 $ 353
Interest bearing deposits with banks................................................ 4,780 2,864
Federal funds sold.................................................................. 9,450 3,800
-------- -------
Cash and cash equivalents...................................................... 14,744 7,017
U.S. Treasury and agency securities................................................. 4,995 5,557
Other securities and stock.......................................................... 294 5,237
-------- -------
Total investments.............................................................. 5,289 10,794
Loans, gross........................................................................ 84,160 40,444
Less: allowance for loan losses.................................................. 1,563 564
-------- -------
Net loans...................................................................... 82,597 39,880
Leasehold improvements, net......................................................... 102 33
Furniture & equipment, net.......................................................... 462 329
Operating lease equipment, net...................................................... 2,066 0
-------- -------
Total fixed assets............................................................. 2,630 362
Accrued interest receivable......................................................... 544 252
Other assets........................................................................ 799 183
-------- -------
Total other assets............................................................. 1,343 435
-------- -------
Total assets................................................................... $106,603 $58,488
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits...................................................................... $ 95,847 $47,741
Other liabilities................................................................... 610 531
-------- -------
Total liabilities.............................................................. 96,457 48,272
Stockholders' Equity
Preferred stock--no par value; 500,000 shares authorized; none issued.......... 0 0
Common stock--no par value; 4,500,000 shares authorized; shares
issued and outstanding--1,265,000 shares effective June 15, 1998, and
1,150,000 shares prior to June 15, 1998.................................... 12,482 10,815
Retained deficit............................................................... (2,336) (598)
Unrealized gain/(loss) on securities available for sale........................ 0 (1)
- -------
Total stockholders' equity..................................................... 10,146 10,216
-------- -------
Total liabilities and stockholders' equity................................. $106,603 $58,488
======== =======
Total loan loss reserve ratio....................................................... 1.86% 1.39%
Total loan to deposit ratio........................................................ 88% 85%
</TABLE>
F-22
<PAGE> 62
MICHIGAN HERITAGE BANCORP, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(000S OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
OPERATING INCOME:
Interest income .................................................... $ 2,112 $ 1,121
Interest expense ................................................... 1,258 642
---------- ----------
Net interest income before provision for loan losses .......... 854 479
Less provision for loan losses .................................... 367 97
---------- ----------
Net interest income after provision for loan losses ........... 487 382
Operating lease income ............................................. 309 0
Gain on sale of loans .............................................. 215 0
Other income ....................................................... 20 21
---------- ----------
Total other operating income .................................. 544 21
---------- ----------
Total operating income ........................................ 1,031 403
OTHER OPERATING EXPENSE:
Salaries & employee benefits ....................................... 320 180
Occupancy expense .................................................. 39 21
Equipment expense .................................................. 304 26
Data processing expense ............................................ 14 8
Insurance expense .................................................. 5 4
Advertising/promotion expense ...................................... 44 33
Office supplies and printing expense ............................... 9 4
Professional fees .................................................. 69 22
Organization amortization expense .................................. 0 6
Other expense ...................................................... 54 26
---------- ----------
Total other operating expense ................................. 858 330
---------- ----------
Net operating income ...................................... 173 73
Provision for federal income taxes ................................. 59 0
---------- ----------
Net income ................................................ $ 114 $ 73
========== ==========
Per Common Share Data (actual):*
Average primary number of shares outstanding ....................... 1,265,000 1,265,000
Average diluted number of shares outstanding ....................... 1,265,000 1,308,008
Net income per primary share ....................................... $ 0.09 $ 0.06
Net income per diluted share ....................................... $ 0.09 $ 0.06
</TABLE>
* Common shares outstanding and per share amounts have been restated for 1998 to
reflect a 10 percent stock dividend declared on April 16, 1998.
F-23
<PAGE> 63
MICHIGAN HERITAGE BANCORP, INC.
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000S OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Operating activities:
Net income ................................................................ $ 114 $ 73
Adjustments to reconcile net income to net cash provided in
operating activities:
Discount accretion and premium amortization of
investment securities ................................................. (10) (55)
Provision for loan losses ............................................. 367 97
Depreciation .......................................................... 304 23
(Increase) decrease in other assets ................................... (137) 33
Decrease in other liabilities ......................................... (212) (34)
-------- --------
Net cash provided in operating activities ................................. 426 137
Investing activities:
Purchase of U.S. Treasury and agency securities ........................... -- (3,940)
Proceeds from matured or called U.S. Treasury
and agency securities ..................................................... 3,000 7,000
Purchase of Federal Reserve Bank and other stock .......................... (56) --
Purchase of leasehold improvements, furniture and equipment .............. (148) (1)
Net change in gross loans ................................................. (3,179) (7,839)
-------- --------
Net cash used in investing activities ..................................... (383) (4,780)
Financing activities:
Increase in deposits ...................................................... 8,193 7,013
Decrease in borrowed funds ................................................ (1,750) --
-------- --------
Net cash provided by financing activities ................................. 6,443 7,013
-------- --------
Increase in cash and cash equivalents .......................................... 6,486 2,370
Cash and cash equivalents at beginning of year ................................. 8,258 4,647
-------- --------
Cash and cash equivalents at end of period ..................................... $ 14,744 $ 7,017
======== ========
</TABLE>
F-24
<PAGE> 64
MICHIGAN HERITAGE BANCORP, INC.
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(000S OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 TO MARCH 31, 1999
-----------------------------------
UNREALIZED
GAIN OR LOSS
ON SECURITIES
COMMON CAPITAL RETAINED AVAILABLE
SHARES STOCK DEFICIT FOR SALE TOTAL
------ ----- ------- -------- -----
<S> <C> <C> <C> <C> <C>
December 31, 1996............................... 1 $ -- $ (68) $ -- $ (68)
Issuance of common stock, net of
offering costs............................. 1,150 10,815 -- -- 10,815
Retirement of initial share..................... (1) -- -- -- --
Comprehensive loss--net loss.................... -- -- (602) -- (602)
------ ------- ------- ------- -------
Balance-December 31, 1997....................... 1,150 10,815 (670) -- 10,145
Comprehensive loss:
Net loss................................... -- -- (113) -- (113)
Change in net unrealized gain on securities
available for sale, net of tax effect.. -- -- -- 9 9
------ ------- ------- ------- -------
Total comprehensive loss................... (104)
Stock dividend paid............................. 115 1,667 (1,667) -- --
------ ------- ------- ------- -------
Balance-December 31, 1998....................... 1,265 12,482 (2,450) 9 10,041
Comprehensive income:
Net income................................. -- -- 114 -- 114
Change in net unrealized gain on securities
available for sale, net of tax effect.. -- -- -- (9) (9)
------ ------- ------- ------- -------
Total comprehensive income................... 105
-------
Balance-March 31, 1999.......................... 1,265 $12,482 $(2,336) $ -- $10,146
====== ======= ======= ======= =======
</TABLE>
F-25
<PAGE> 65
MICHIGAN HERITAGE BANCORP, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(UNAUDITED)
Item 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:
Michigan Heritage Bancorp, Inc. (the "Company") was incorporated in the State of
Michigan on September 22, 1989. The Company was inactive from that time until
its Articles of Incorporation were amended on November 6, 1996, into its current
form. The Company is a bank holding company whose primary purpose is to own and
operate Michigan Heritage Bank (the "Bank") as the Bank's sole stockholder.
Organizational and other start-up costs were funded with loans from organizers.
Proceeds from the Company's initial public offering were primarily used to
capitalize the Bank which is currently headquartered in Novi, Michigan. The
Company completed an initial public offering of shares of common stock during
the first quarter of 1997, realizing a total of $10.9 million (after payment of
underwriters' commissions and offering expenses). The consolidated financial
statements of the Company include its only subsidiary, the Bank. The quarter
ended March 31, 1999, was the Bank's eighth full quarter of operation. All
adjustments, which in the opinion of management are necessary in order to ensure
that the interim unaudited financial statements are not misleading, have been
included.
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. Actual results could
differ from those estimates and assumptions.
F-26
<PAGE> 66
500,000 SHARES
COMMON STOCK
[LOGO]
MICHIGAN HERITAGE
BANCORP, INC.
Prospectus
June __, 1999
<PAGE> 67
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 elimination 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> 68
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 shares of common stock being registered, other than
underwriting discounts and commissions. All amounts shown are estimates, except
the SEC registration fee and assume sale of 500,000 shares in the offering.
<TABLE>
<S> <C>
SEC registration fee................................................... $ 973
Printing and mailing expenses.......................................... 10,000
Fees and expenses of counsel........................................... 30,000
Accounting and related expenses........................................ 10,000
Blue Sky fees and expenses (including counsel fees).................... 3,000
Miscellaneous.......................................................... 1,027
-------
Total............................................................. $55,000
=======
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The registrant borrowed approximately $200,000 from its organizers during
the nine months prior to commencing operations 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,
prior to the registrant's initial public offering, 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.
Exhibit No. Description
- ----------- -----------
3.1 Restated Articles of Incorporation, as amended to date
(previously filed as Exhibit No. 3.1 to the Registrant's Form
SB-2 Registration Statement, File No. 333-17317, and
incorporated herein by reference)
3.2 Bylaws, as amended to date (previously filed as Exhibit No.
3.2 to the Registrant's Form SB-2 Registration Statement, File
No. 333-17317, and incorporated herein by reference) 4
Specimen Common Stock certificate (previously filed as Exhibit
No. 4 to the Registrant's Form SB-2 Registration Statement,
File No. 333-17317, and incorporated herein by reference)
5 Opinion of Dykema Gossett PLLC (filed herewith)
10.1 Michigan Heritage Bancorp, Inc. 1997 Non-Employee Director
Stock Option Plan (previously filed as Exhibit No. 10.1 to the
Registrant's Form SB-2 Registration Statement, File No.
333-17317, and incorporated herein by reference)
10.2 Michigan Heritage Bancorp, Inc. 1997 Employee Stock Option
Plan (previously filed as Exhibit No. 10.2 to the Registrant's
Form SB-2 Registration Statement, File No. 333- 17317, and
incorporated herein by reference)
10.3 Sublease dated as of September 30, 1996, between Comerica Bank
and Michigan Heritage Bank (previously filed as Exhibit No.
10.3 to the Registrant's Form SB-2 Registration Statement,
File No. 333-17317, and incorporated herein by reference)
II-2
<PAGE> 69
10.4 Lease Agreement between Troy Sports Center, L.L.C. and
Michigan Heritage Bank
(filed herewith)
10.5 Office Building Lease between Rental Investment Company and
Michigan Heritage Bank dated August 31, 1998 (filed herewith)
11 Computation of Per Share Earnings (filed herewith)
21 Subsidiaries of Michigan Heritage Bancorp, Inc. (previously
filed as Exhibit No. 21 to the Registrant's Form SB-2
Registration Statement, File No. 333-17317, and incorporated
herein by reference)
23.1 Consent of Dykema Gossett PLLC (included in opinion filed as
Exhibit 5) (filed herewith)
23.2 Consent of Plante & Moran, LLP (filed herewith)
24 Power of Attorney (included on page II-5)
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) 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.
(2) The registrant will supplement the prospectus, after the end of the
subscription period, to include the results of the subscription offer, the
transactions by the underwriters during the subscription period, the amount of
unsubscribed securities that the underwriters will purchase and the terms of any
later reoffering. If the underwriters make any public offering of the securities
on terms different from those on the cover page of the prospectus, the
registrant will file a post-effective amendment to the state the terms of such
offering.
(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-3
<PAGE> 70
(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-4
<PAGE> 71
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 Registration
Statement be signed on its behalf by the undersigned, in the City of Novi, State
of Michigan, on May 20, 1999.
MICHIGAN HERITAGE BANCORP, INC.
By: /S/ ANTHONY S. ALBANESE
Anthony S. Albanese, President
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Richard Zamojski
and Anthony S. Albanese, or either of them, as his true and lawful
attorneys-in-fact and agents, with full power of substitution, for him and in
his name, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement filed by Michigan
Heritage Bancorp, Inc.,. and to file the same with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
indicated on May 20, 1999.
Signatures Title
---------- -----
/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, Cashier and Vice President-
- ---------------------------- Chief Financial Officer (principal financial and
Darryle J. Parker accounting officer)
/S/ H. PERRY DRIGGS, JR. Director
- ----------------------------
H. Perry Driggs, Jr.
/S/ LEWIS N. GEORGE Director
- ----------------------------
Lewis N. George
/S/ PHILLIP R. HARRISON Director
- ----------------------------
Phillip R. Harrison
/S/ FRANK A. SCERBO Director
- ----------------------------
Frank A. Scerbo
/S/ PHILIP SOTIROFF Director
- ----------------------------
Philip Sotiroff
II-5
<PAGE> 72
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
5 Opinion of Dykema Gossett PLLC
10.4 Lease Agreement between Troy Sports Center, L.L.C. and
Michigan Heritage Bank
10.5 Office Building Lease between Rental Investment Company and
Michigan Heritage Bank dated August 31, 1998
11 Computation of Per Share Earnings
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-5)
<PAGE> 1
EXHIBIT 5
[DYKEMA GOSSETT LETTERHEAD]
May 20, 1999
Michigan Heritage Bancorp, Inc.
21211 Haggerty Road
Novi, Michigan 48375
RE: REGISTRATION STATEMENT ON FORM SB-2
Ladies and Gentlemen:
We have acted as counsel for Michigan Heritage Bancorp, Inc., a
Michigan corporation (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission under the Securities Act of
1933, as amended, of a Registration Statement on Form SB-2 (the "Registration
Statement") relating to the offering of up to 500,000 shares of the Company's
Common Stock, no par value (the "Shares").
In so acting, we have examined and relied upon the originals, or copies
certified or otherwise identified to our satisfaction, of such corporate
records, documents, certificates and other instruments as in our judgment were
necessary or appropriate to enable us to render the opinions expressed below.
Based upon the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is in good standing
under the laws of the State of Michigan.
2. The Shares to which the Registration Statement relates have
been duly authorized for issuance. When issued and sold in the
manner specified in the Registration Statement, the Shares
will be validly issued, fully paid and nonassessable.
<PAGE> 2
Michigan Heritage Bancorp, Inc.
May 20, 1999
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
DYKEMA GOSSETT PLLC
Paul R. Rentenbach
<PAGE> 1
EXHIBIT 10.4
THIS LEASE AGREEMENT ("Lease") is made as of the _____ day of
______________, 1998, by and between TROY SPORTS CENTER, L.L.C., a Michigan
limited liability company ("Landlord"), the address of which is 1819 East Big
Beaver Road, Troy, Michigan 48083 and MICHIGAN HERITAGE BANK, a Michigan
corporation ("Tenant"), the address of which is 21211 Haggerty Road, Novi,
Michigan. For and in consideration of the mutual promises, covenants and
agreements herein contained, the receipt and sufficiency of which consideration
is hereby acknowledged, Landlord and Tenant hereby agree as follows:
ARTICLE I
LEASE SPECIFICS
The Lease Specifics delineated within this Article I contain the
principal terms of this Lease, as more particularly described in the remaining
Articles of this Lease. Each reference in this Lease to any Lease Specific
within this Article I shall be construed to incorporate the data stated herein.
SECTION 1.01 SHOPPING CENTER. The "Shopping Center" is located at 1819
East Big Beaver Road, Troy, Michigan 48083. The real property upon which the
Shopping Center is situated is described on the attached Exhibit "A".
SECTION 1.02 PREMISES. The street address of the Premises is 1917 East
Big Beaver Road, Troy, Michigan. The location of the Premises is shown on
Exhibit "B" attached hereto and incorporated herein by this reference.
SECTION 1.03 TERM. Except as may otherwise be provided herein, the Term
of this Lease shall begin on the Rent Commencement Date, as defined below, and
shall end five years thereafter.
SECTION 1.04 COMMENCEMENT DATE AND RENT COMMENCEMENT DATE. The
"Commencement Date" of Tenant's occupancy of the Premises under this Lease shall
be the date of full execution of this Lease. Delivery of possession of the
Premises to Tenant shall be the date upon which Landlord delivers to Tenant the
keys to the Premises (the "Delivery Date"). The Rent Commencement Date shall
begin on the earlier of 90 days after the Delivery Date or the date on which
Tenant opens its business.
SECTION 1.05 MINIMUM RENT. Monthly Minimum Rent for the term of the
Lease shall be as follows:
<TABLE>
<S> <C>
PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
------
. . . . . . . . . . . . . . . . . . . MONTHLY MINIMUM RENT
--------------------
A. The Rent Commencement . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,625.00
Date thru 60th month.
</TABLE>
<PAGE> 2
The Monthly Minimum Rent specified above shall be payable, in advance, in
consecutive monthly installments. Minimum Rent shall be payable by Tenant on or
before the first day of each month at the address of the Landlord specified in
Section 1.09, or such other address as Landlord may designate from time to time,
without prior demand therefor and without any deductions or set off whatsoever.
In the event the Rent Commencement Date shall be a day other than the first day
of a calendar month, Tenant shall pay pro rata Minimum Rent, in advance, for the
partial lease month at the then applicable rate. In the event that the term of
the Lease expires on a day other than the last calendar day of any month, Tenant
shall pay to Landlord oil the first calendar day of such month, the amount of
the prorated Minimum Rent then applicable.
SECTION 1.06 ADDITIONAL RENT. Additional Rent shall be composed of by
way of example and not limitation, Tenant's Proportionate Share of the
following:
A. Common Area Charges as defined in Section 4.01A
B. Real Estate Taxes as defined in Section 4.01B
C. Utilities Charges as defined in Section 4.01C
D. Landlord's Insurance as defined in Section 4.01D
SECTION 1.07 TENANT'S PERMITTED USES OF PREMISES AND EXCLUSIVE USE
RIGHTS. Tenant shall be permitted to use the Premises only for banking services
and other related and permitted financial services, and for no other purpose
without the prior written consent of Landlord. Provided Tenant is not in default
in the performance of the terms and conditions of this Lease, Landlord covenants
and agrees that it will not lease any other space in the Shopping Center to
another state or federally chartered bank or savings and loan.
SECTION 1.08 ADDRESS FOR PAYMENTS. All payments of Rent and other sums
of money due Landlord shall be paid by Tenant to the following address: 1819
East Big Beaver Road, Troy, Michigan 48083.
SECTION 1.09 OPTIONS TO RENEW. Tenant shall have options ("Options") to
extend the term of this Lease for one (1) five (5) year period in accordance
with all of the covenants, terms and provisions set forth in this Lease, except
for the increase in Minimum Rent, as specified in Section 1.09C. below:
A. The Option may only be exercised by Tenant's delivery to
Landlord of written notice thereof not earlier than two hundred forty
(240) days prior to the expiration of the Lease term or the first
Option period, as the case may be, and no later than one hundred eighty
(180) days prior to such expiration.
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B. The Options may be exercised if, and only if, Tenant shall
not be in material default at the time that the applicable Option is
exercised and if Tenant shall have faithfully performed all covenants
and obligations required of Tenant under the terms and provisions of
this Lease.
C. Minimum Rent for each Option period shall be as follows:
OPTION PERIOD . . . . . . . . . . . . . . . . . . .
MONTHLY MINIMUM RENT
Months 1 thru 60 . . . . . . . . . . . . . . . . .
$3,018.00
D. Landlord agrees to notify Tenant if available adjacent
space becomes available for lease. If Landlord and Tenant do not reach
an agreement within 30 days from the date on which Landlord notified
Tenant that such adjacent space is available, Landlord shall be free to
lease such space to any third party.
SECTION 1.10 SECURITY DEPOSIT. Concurrently with Tenant's execution of
this Lease, Tenant has deposited with Landlord the sum of $2,625.00. Said sum
shall be held by Landlord as security for the faithful performance by Tenant of
all the terms, covenants, and conditions of this Lease to be kept and performed
by Tenant during the term hereof. If Tenant defaults with respect to any
provisions of this Lease, including, but not limited to the provisions relating
to the payment of rent, Landlord may (but shall not be required to) use, apply
or retain all or any part of this security deposit for the payment of any rent
or any other sum in default, or for the payment of any amount which Landlord may
spend or become obligated to spend by reason of Tenant's default, or to
compensate Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant's default. If any portion of said deposit is so used or
applied, Tenant shall, within five (5) days after written demand therefor,
deposit cash with Landlord in an amount sufficient to restore the security
deposit to its original amount and Tenant's failure to do so shall be a default
under this Lease. Landlord shall not be required to keep this security deposit
separate from its general funds, and Tenant shall not be entitled to interest on
such deposit. If Tenant shall fully and faithfully perform every provision of
this Lease to be performed by it, the security deposit or any balance thereof
shall be returned to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interest hereunder) within ten (10) days following expiration of the
Lease term. In the event of termination of Landlord's interest in this Lease,
Landlord shall transfer said deposit to Landlord's successor in interest. Tenant
hereby agrees not to look to the mortgagee, as mortgagee, mortgagee in
possession, or successor in title to the property, for accountability for any
security deposit required by the Landlord herein, unless said sums have actually
been received by said mortgagee as security for the Tenant's performance of this
Lease.
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ARTICLE II
PREMISES AND PARKING
SECTION 2.01 PREMISES. Subject to the terms, covenants, conditions and
provisions of the Lease, Landlord does hereby demise and lease to Tenant and
Tenant does hereby rent and take from Landlord and shall peaceably and quietly
hold and enjoy the Premises, together with the right of non-exclusive use, in
common with others, of the automobile parking areas and other common areas and
facilities which may be furnished by Landlord in common with Landlord and the
other tenants, occupants, agents, employees, customers and invitees of the
Shopping Center; reserving, however, unto Landlord the exterior walls and
windows, the roof, the area beneath the Premises and the right to hereafter
install, maintain, use, repair and replace pipes, ducts, conduits, wires,
appurtenant fixtures, and structural elements leading through the Premises in
locations which will not materially interfere with Tenant's use thereof.
SECTION 2.02 PARKING. Tenant's employees shall park their cars only in
the areas specifically designated by Landlord for that purpose. Automobile
license numbers of Tenant's employees' cars shall be furnished to Landlord upon
Landlord's request. Tenant agrees that Landlord may require all employees of
Tenant to park in the areas specifically designated by Landlord for employee
parking which shall be within a reasonable proximity to the Premises.
SECTION 2.03 NO REPRESENTATIONS. It is agreed that the depiction of the
Shopping Center on Exhibit "B" does not constitute a representation, covenant or
warranty of any kind by Landlord, and Landlord reserves the right to change from
time to time the size, layout and dimension of the Shopping Center and any part
thereof, locate, relocate, alter and/or modify the number and location of
buildings, building dimensions, the number of floors in any of the buildings,
the parking areas, curb cuts, access roads, pylon or monument signs, store
dimensions, identity and type of other stores and/or other tenants and
tenancies, the nature of the businesses, activities and uses to be conducted and
the common areas located from time to time in or on the Shopping Center or any
part thereof. Landlord shall have the right to convey its right, title and
interest in all or any part of the Shopping Center to one or more Third Parties
and thereafter the Third Party shall have the right to remove said conveyed
portion from the definition of "Shopping Center" set forth in this Lease. The
Landlord makes no representation or warranty with respect to the occupancy by
any tenant, the date on which any such tenant accepted or will accept occupancy
of its space or the use to which any other tenant will put its leased space, it
being understood that the Landlord and the owner of all or any part of the
Shopping Center shall have the right to lease space in the Shopping Center to
any tenant and for any purpose Landlord shall deem appropriate, including
retail, office, non-retail and commercial purposes. To use the term "Shopping
Center" shall not constitute a representation or warranty that the Shopping
Center shall be used exclusively or primarily for retail purposes. Tenant agrees
that it shall look solely to that portion of the Shopping Center which
constitutes the Premises with respect to any liability accruing hereunder, it
being expressly understood and agreed that the Shopping
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Center and any real estate which may constitute a portion of the Shopping Center
shall be free from any such liability.
SECTION 2.04 RESERVED TO LANDLORD. Landlord reserves the sole and
exclusive right to use of exterior walls (other than store fronts), demising
walls, and the roof, and the right to install, maintain, use, repair and replace
pipes, ducts, conduits, antennas, roof signs, and wires leading through the
Premises in locations which will not materially interfere with Tenant's use
thereof and serving other parts of the Shopping Center. Further, the Landlord
has the right to use the land below and the area above the Premises in any
manner which does not materially interfere with Tenant's use of the Premises.
ARTICLE III
IMPROVEMENTS
SECTION 3.01 LANDLORD'S PREPARATION OF PREMISES. Landlord shall deliver
the Premises to Tenant ready for Tenant's build out and improvements as more
specifically described on Exhibit "C". Tenant shall accept the Premises upon
Landlord's notice that Tenant is authorized to begin its build out. Tenant
acknowledges that Landlord is making no representation or warranty as to the
condition of the Premises or that the Premises is suited for Tenant's intended
use thereof. Tenant's taking possession of the Premises shall be conclusive
evidence of Tenant's acceptance of the Premises. Notwithstanding the preceding
sentence, Landlord agrees to cause the necessary mains, conduits and other
facilities to be provided to make water, sewer, gas and electricity available to
the Premises as shown on Landlord's construction plans.
SECTION 3.02 TENANT'S PREPARATION OF PREMISES. Tenant agrees that, at
its sole cost and expense, Tenant will build out its space subject to the terms
and conditions set forth herein. Notwithstanding anything to the contrary
contained herein, Minimum Rent shall commence on the Rent Commencement Date
irrespective of whether Tenant's Work (as defined below) is completed and Tenant
is open for business. The following terms and conditions shall govern Tenant's
Work:
A. Tenant hereby agrees that, within ten (10) days of the date
hereof, it shall submit plans and specifications for all of its
proposed alterations to the Premises to Landlord for Landlord's
approval ("Tenant's Work"). Tenant's Work shall also include the
improvements required to be made by Tenant in accordance with Section
3.02L below. Landlord shall have a period of fifteen (15) days
following delivery of the plans and specifications to approve same.
Tenant's failure to promptly deliver the plans and specifications to
Landlord shall in no way delay the Rent Commencement Date. Tenant
acknowledges that the Rent Commencement Date of the Lease shall not be
delayed in the event Tenant has not completed Tenant's Work on or
before the Rent Commencement Date. Any material change in the plans and
specifications for Tenant's Work shall be approved in
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<PAGE> 6
advance by Landlord. Approval of the plans and specifications by
Landlord shall not constitute the assumption of any responsibility by
Landlord for their accuracy or sufficiency.
B. Tenant agrees to complete all of Tenant's Work at its own
cost and expense. Tenant shall not permit the imposition of any lien or
other security interest against the Premises or the real property of
which the Shopping Center constitutes a part. In the event any such
lien or security interest is imposed against the Shopping Center or the
aforesaid property, Tenant shall immediately furnish to Landlord a bond
or other form of security satisfactory to Landlord in its reasonable
discretion which provides for discharge and payment of any such lien or
security interest in a manner satisfactory to Landlord in its
reasonable discretion.
C. Tenant hereby indemnities and holds Landlord and the
principals, agents and employees of Landlord, harmless from and against
any and all damages, claims, costs and/or expenses (including
reasonable attorney's fees) which Landlord or its principals, agents
and/or employees may suffer or incur as a consequence of the
construction and/or installation of Tenant's Work by Tenant or Tenant's
employees, agents or independent contractors.
D. All of Tenant's Work and improvements shall be performed by
contractors and subcontractors approved by Landlord in Landlord's
reasonable discretion, and all of Tenant's Work and improvements shall
conform to applicable statutes, ordinances, regulations and codes of
all governmental units having jurisdiction over the Shopping Center and
any improvements installed therein. Tenant shall obtain and convey to
Landlord all approvals with respect to electrical, water and telephone
work, all as may be required by the utility companies supplying the
said services.
E. Tenant and Tenant's contractors shall carry such type of
insurance and in such amounts as shall be designated by Landlord and
all such policies shall name Landlord as an additional insured party.
Tenant shall deliver evidence of such insurance to Landlord prior to
commencing Landlord's Work.
F. Tenant covenants and agrees that Tenant's Work shall be
constructed in a manner which will not materially or unreasonably
disturb or interfere with the use, occupancy and quiet enjoyment of the
other tenants of the Shopping Center in any manner whatsoever. Tenant
shall be fully responsible for the removal of all construction debris
from the Premises.
G. Tenant covenants and agrees that Tenant's Work will be
constructed in a manner which will not impair the visibility of access
to and from the Shopping Center in any manner whatsoever.
H. Neither Tenant nor Tenant's agents or independent
contractors shall be entitled to cut and/or patch openings in the roof
for ducts, vents, etc., and the right to so cut
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and/or patch openings in the roof shall exclusively belong to Landlord.
However, the cost of such work will be at the expense of Tenant.
I. No approval by Landlord required hereunder shall be deemed
valid unless the same shall be in writing and signed by Landlord or
Landlord's authorized agent.
J. It shall be the responsibility of Tenant, at Tenant's cost,
to obtain a final Certificate of Occupancy for Tenant's use of the
Premises to the extent such certificate is required or available as a
result of Tenant's Work.
K. Tenant shall be required, at its sole cost and expense, to
install all fire protection devices and sprinklers in accordance with
all applicable laws.
SECTION 3.03 PREVENTING REMOTE VESTING. Notwithstanding any other
provisions of this Lease, if the Rent Commencement Date does not occur within
twenty-four (24) months from the date hereof, this Lease will be deemed
terminated on such date without necessity of any notice of act by Landlord or
Tenant. In such event, neither Landlord or Tenant shall have any liability to
the other and this Lease will be deemed null and void and of no further force
and effect. It is the intent of Landlord and Tenant that this Section 3.03 shall
prevent this Lease from being deemed unenforceable by reason of any claim that
it might violate the Rule Against Perpetuities.
ARTICLE IV
ADDITIONAL RENT
SECTION 4.01 ADDITIONAL RENT. Beginning on the Rent Commencement Date,
Tenant shall pay to Landlord, as Additional Rent promptly when the same are due,
without any deductions or set off whatsoever, Tenant's Proportionate Share of
the following charges to which Landlord shall be entitled to add an
administrative fee of fifteen (15%) percent of each of such charges; and
Tenant's failure to pay such amounts or charges when due shall carry with it the
same consequences as Tenant's failure to pay Minimum Rent.
A. COMMON AREA CHARGES - Tenant agrees to pay Landlord, as
Additional Rent, within fifteen (15) days from the invoice date,
Tenant's Proportionate Share of the cost of operating, maintaining,
cleaning, repairing or replacing all of the Common Areas (as such term
is defined in Section 5.01 hereinbelow). However, if Landlord makes a
"replacement", then Landlord shall estimate the useful life of that
replacement. Tenants proportionate share shall be calculated by
dividing the replacement cost by the useful life (months) and charged
to Tenant over the remaining term of the lease. Tenant shall only be
charged for the number of months of the replacement's useful life,
which coincide with the number of months remaining in the lease.
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Landlord may estimate the annual Common Area charges and will
notify Tenant from time to time of its Proportionate Share, which shall
be paid monthly in advance along with the Minimum Rent. An itemized
statement showing in reasonable detail all disbursements and charges
will be furnished Tenant within a reasonable time after each calendar
year and any excess or undercharges will be adjusted in the same manner
that excess or underpayment of real estate taxes are adjusted pursuant
to Section 4.01B hereinbelow.
B. REAL ESTATE TAXES - Tenant agrees to pay Landlord, as
Additional Rent, within five (5) days from the invoice date, Tenant's
Proportionate Share of the amount of all real estate taxes, assessments
(general and special), and other charges which may be levied, assessed
or charged against the real estate and Shopping Center (hereinafter
called "real estate taxes"), accruing or becoming due and payable
during the term of this Lease and any extension thereof. Tenant shall
pay its Proportionate Share of such real estate taxes, whether such
real estate taxes are paid by Landlord prior to the Rent Commencement
Date, during the Term of this Lease or subsequent to the expiration of
this Lease for all such real estate taxes which cover periods during
the Term of this Lease. Real Estate Taxes shall be apportioned for the
first and last years of the Term of this Lease so that Tenant's
liability therefore shall be only for such portions thereof as shall be
attributable to the Term of this Lease.
Landlord will annually estimate the amount of such real estate
taxes and will notify Tenant of its Proportionate Share of such
estimate, which shall be paid by Tenant monthly along with the Minimum
Rent; provided, that in the event Landlord is required under any
mortgage covering the Shopping Center to escrow any real estate taxes,
Landlord may, but shall not be required to, use the amount required to
be so escrowed as a basis for its estimate of the monthly installments,
due from Tenant hereunder. If the total amount paid by Tenant under
this Section 4.01B, during the applicable period of any such real
estate tax with respect to any real estate tax component shall be less
than the actual amount due from Tenant with respect to such real estate
tax component, based upon the actual taxes due, Tenant shall pay to
Landlord the difference between the amount paid by Tenant and the
actual amount due; such deficiency to be paid within thirty (30) days
after demand therefor by Landlord; and if such total amount paid by
Tenant hereunder with respect to any real estate tax component shall
exceed such actual amount due from Tenant with respect to such real
estate tax component, such excess shall be credited against the next
installment of real estate taxes due from Tenant to Landlord hereunder.
Landlord may at its option seek a reduction in the assessed
valuation of the Shopping Center, other improvements or land adjacent
thereto and/or contest any real estate taxes, assessments or other
charges described in this Section. Landlord agrees to use reasonable
discretion in its decision as to whether it will pursue any tax
reductions) during the term of this Lease. All attorneys' fees, costs
and other expenses incurred as a result of such action by Landlord
(including any surety bond, cash deposit or other security reasonably
satisfactory to Landlord) shall be deemed real estate taxes payable (to
the extent of Tenant's
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Proportionate Share) as Additional Rent at the times set forth in this
Section. Any refunds received by Landlord as a result of any such
contest shall be first paid to the tenants of the Shopping Center pro
rata to the extent that the fees, costs and expenses of such contest
were paid by such tenants as a reimbursement to Landlord, and then
Tenant's Proportionate Share of the excess of such refund, if any,
shall be paid to Tenant. Landlord shall have the right and option in
its reasonable discretion to pay or withhold payment of any real estate
tax during the period of any such contest or to abandon any such
contests if Landlord determines in its reasonable discretion that any
part of the real estate or the Shopping Center is in immediate danger
of being forfeited or sold because of any nonpayment thereof.
In the event the State of Michigan shall impose a tax and/or
assessment of any kind or nature upon, against or with respect to
rentals payable by Tenant to Landlord, or on the income of Landlord
derived from the Premises (other than Federal Income Tax), or with
respect to the ownership, occupancy or rental of the land and buildings
comprising the Shopping Center, or upon, against or with respect to the
parking areas or the number of parking spaces pertaining to the
Shopping Center, either by way of substitution for all or any part of
the real estate taxes levied or assessed against such land and
buildings, or in addition thereto, such tax and/or assessment shall be
deemed to constitute a real estate tax against such land and such
buildings for purposes of this Section. The Shopping Center may not be
a separate parcel for tax purposes. Landlord may ask the assessor to
separate the Shopping Center "parcel" into separate tax parcels for tax
purposes, that is, one parcel for the Troy Sports Center, one parcel
for Walgreens, one parcel for Farmer Jack, one parcel for the retail
strip center, or any variation or combination thereof, and such
assessor's determination shall be used as the basis for determining
Tenant's Proportionate Share of the real estate taxes for the Shopping
Center.
C. UTILITIES CHARGES - All utilities servicing the Premises
shall be separately metered. The obligation of Tenant to pay for water,
sewer, gas and electricity, as herein provided, as well as for any
other utility of any kind, shall commence as of the date on which any
such utility is used or consumed on or about the Premises by Tenant,
its agents, servants, employees or contractors.
D. LANDLORD'S INSURANCE - Tenant agrees to pay Landlord, as
Additional Rent, within fifteen (15) days from the invoice date,
Tenant's Proportionate Share of all insurance premiums with respect to
insurance Landlord shall reasonably elect to maintain as provided in
Section 6.02 hereinbelow. Landlord may estimate the annual cost of such
Landlord's Insurance and will notify Tenant from time to time of its
Proportionate Share, which shall be paid monthly, in advance along with
the Minimum Rent. In the event Landlord, in its reasonable discretion,
shall permit Tenant to conduct any business or store any materials
within the Premises which shall result in an increase in the Landlord's
insurance rates, then in addition to payments of Tenant's Proportionate
Share of all insurance premiums, Tenant shall pay such marginal
increased insurance premiums in conjunction with its other payments of
Landlord's insurance pursuant to this Section 4.01D.
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SECTION 4.02 TENANT'S PROPORTIONATE SHARE. Tenant's Proportionate Share
shall be a fraction, the numerator of which shall be the total around floor area
of the Premises and the denominator of which shall be the total ground floor
area of then existing buildings excluding the Troy Sports Center. Subject to the
last sentence of this Section 4.02, the Troy Sports Center Proportionate Share
shall be 30%. If the Farmer Jack building, Troy Sports Center, or any other
free-standing building occupant is required or agrees to separately pay its cost
of any given item of Additional Rent, then, with respect to any such item of
Additional Rent, Tenant's Proportionate Share shall be calculated by excluding
such other building's square footage from the calculation of Tenant's
Proportionate Share. Landlord shall furnish reasonable detail of calculations.
ARTICLE V
MAINTENANCE AND USE OF SHOPPING CENTER
COMMON AREAS AND PREMISES
SECTION 5.01 DESIGNATION OF COMMON AREAS. Whenever used in this Lease
the term "Common Areas" shall include, without limitation, all parking areas
(whether temporary or permanent), access roads, driveways, retaining walls,
lighting facilities, pedestrian sidewalks, foundations, exterior and demising
walls, roofs over the Premises, landscaped and planting areas and facilities,
and such other areas and facilities, which may be furnished by Landlord and
designated from time to time by Landlord as Common Areas, and all other areas
and improvements which may be provided for and so designated by Landlord for the
general use and convenience in common of Tenant and other tenants of the
Shopping Center and their respective officers, agents, employees, patients,
clients, customers and invitees.
SECTION 5.02 MAINTENANCE OF COMMON AREAS. Landlord shall operate and
maintain, clean, repair and replace during the Term of this Lease the Common
Areas or shall cause the same to be operated, maintained, cleaned, repaired and
replaced, in a manner deemed by Landlord to be reasonable and appropriate given
the location and market considerations of the Shopping Center, including:
maintenance, repair and replacement of roofs, building facades, exterior walls,
plantings and landscaping; resurfacing, repainting, restripping, removal and
replacement of paved or otherwise covered floor and ground areas, curbs and car
stops; snow, ice and debris removal; security; and potable water. Tenant shall
pay its Proportionate Share of the costs incurred by Landlord in operating,
maintaining, cleaning, repairing and replacing the Common Areas as set forth in
Section 4.01A above. In the event repairs or replacements are occasioned through
the acts or omissions of Tenant or its officers, agents, employees, patients,
clients, customers or invitees, in which event Tenant shall forthwith, upon
notice from Landlord, pay one hundred (100%) percent of such costs of such
maintenance, repairs and replacements.
SECTION 5.03 USE OF COMMON AREAS. Landlord hereby grants to Tenant and
Tenant's officers, agents, employees, patients, clients, customers and invitees,
during the Term of this Lease,
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unless sooner terminated, the nonexclusive right to use, in common with others
entitled by Landlord to use thereof, the Common Areas of the Shopping Center.
Unless required by the City of Troy or any other governmental authority,
Landlord agrees that it shall refrain from doing any act which shall materially
and adversely impair, obstruct or otherwise be in derogation of Tenant's rights
with respect to the Common Areas. Provided, however, that such use shall be
subject to such reasonable rules and regulations as Landlord may establish and
from time to time and uniformly enforce; that Landlord may in its reasonable
discretion, temporarily close or prohibit use of any Common Area for maintenance
or to prevent a public dedication; that Landlord may make changes to the Common
Areas including, without limitation, exits, parking spaces, parking areas,
and/or direction of traffic flow; that Landlord may increase or decrease the
number of parking spaces, or change the size and configuration thereof; and that
Landlord may construct additional buildings and structures on the Common Areas,
from time to time, or remove buildings (except the Premises) from portions of
the Shopping Center to create, reduce, enlarge or restructure the Common Areas.
Landlord may (a) expand or contract the Shopping Center; (b) may create and sell
any or all parcels or outlots; (c) split into separate parcels any part of the
Shopping Center or overall development; and (d) may sell, mortgage, or lease
such outlots, and parcels or otherwise deal with any outlots and parcels in any
way and manner that the Landlord desires. Tenant shall comply with reasonable
rules promulgated by Landlord from time to time. Tenant's employees shall park
in areas designated for employee parking.
SECTION 5.04 CARE OF PREMISES. Tenant shall at its sole cost and
expense, (a) keep the entire Premises in good order, condition and repair of
equal quality as existent on the Commencement Date, including all plumbing,
electrical, heating, air conditioning, ventilating, water and sewer systems and
equipment, doors, door frames, windows and window frames installed on or in the
Premises, in a clean, sanitary, safe, properly repaired condition in accordance
with all applicable laws and in accordance with all directions, rules,
regulations, ordinances, statutes and orders of all governmental agencies, and
the property offices thereof having jurisdiction over the Premises; (b) not
perform any acts or carry on any practices which may injure the Shopping Center
or be a nuisance or menace to other tenants in the Shopping Center; and (c)
properly store, out of view of the public, and promptly and regularly, as
directed by Landlord, in Landlord's sole and absolute discretion, remove from
the Premises, all garbage, trash and rubbish. Tenant shall not dispose of any
foreign substance in any plumbing facilities, adjoining or connecting sewer
lines or mains, or use such facilities for any purpose other than that for which
they were constructed; and the expense for any breakage, stoppage, damage or
additional repair resulting therefrom and attributable to the acts of Tenant or
its subtenants, concessionaires, licensees, invitees, agents, contractors,
servants or employees, shall be borne by Tenant. Landlord agrees to cooperate
and provide assistance to Tenant, at Tenant's sole cost and expense, in
connection with Tenant obtaining all necessary certificates of occupancy,
building permits, sign permits and variances in connection with Tenant's use of
the Premises as set forth in Section 1.07 above. Tenant shall promptly reimburse
Landlord for any costs incurred by Landlord in connection with the preceding
sentence.
SECTION 5.05 USE OF PREMISES. Tenant covenants and agrees to use the
Premises only for the purposes specified in Section 1.07 above, in a high class
and reputable manner, and shall not use
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the Premises for any purpose in violation of any law, ordinance, regulation, or
building, use or zoning restriction. Tenant shall conduct its business
completely within the Premises and shall allow no noise, odor or fumes to
emanate from the Premises. Tenant hereby agrees to indemnify Landlord from and
against any cost or expense incurred by Landlord of any nature whatsoever in
connection with Tenant's breach of the preceding sentence and Landlord shall
have all available remedies as provided for in this Lease, at law and at equity,
in connection with such breach. Tenant shall be responsible for the installation
and maintenance of all fire suppression equipment required to be in the Premises
under applicable law. Tenant shall comply with all applicable federal, state and
local laws pertaining to the Premises including, but not limited to, the
Americans With Disabilities Act. Tenant shall be required to provide Landlord
with advance notice of the hours it intends on keeping its business in the
Premises open to the general public and advance notice of any change thereof.
Tenant agrees that all receiving and delivery of goods and all removal of trash
and garbage shall be made in areas designated by Landlord in Landlord's sole
discretion. The cost of all trash removal and janitorial service to the Premises
shall be paid for by Tenant. Tenant shall arrange for the regular pickup of such
trash and garbage, the regularity of which shall be approved by Landlord, in
Landlord's sole and absolute discretion. Landlord may direct the use of all pest
extermination and scavenger contractors at such intervals as Landlord may
require, in its reasonable discretion, the cost and expenses of which shall be
borne by Tenant. Tenant covenants and agrees that alcoholic beverages will not
be served on the Premises and agrees that it shall not apply for a liquor
license of the Property without the prior written consent of Landlord, which
consent may be withheld in Landlord's sole and absolute discretion. Tenant shall
not permit the operation of any vending machine or pay telephone at the
Premises. Landlord makes no representation or warranty that the applicable
zoning laws permit Tenant's intended use of the Premises and Tenant shall be
required to conduct its own independent investigation of such laws and
ordinances and make its own determination thereof on or before the date this
Lease Agreement is signed by Tenant.
SECTION 5.06 SIGNAGE AND ADVERTISING. Tenant shall not paint, decorate
or affix any signs, awnings, lighting, or other materials to the exterior of the
Premises or any portion of the Common Areas without Landlord's prior written
consent; and Landlord shall have the right to remove, or demand and upon demand,
Tenant shall promptly remove, any sign or other advertisement or decoration
visible from Common Areas which, in Landlord's reasonable discretion is not in
keeping with the standards of the Shopping Center. All signage shall comply with
all applicable local ordinances. Notwithstanding anything to the contrary
contained herein, Tenant shall be entitled to place one (1) exterior sign on the
Shopping Center provided that Landlord shall have approved the location and
design of such signage in advance, which approval shall not be unreasonably
withheld. Landlord and Tenant acknowledge that the signage shown on Exhibit "D"
has been approved by Landlord. Tenant acknowledges and agrees that Tenant shall
not be entitled to place an exterior monument sign on or about the Common Areas.
If Pylon Signage space becomes available and Landlord has not or does
not intend to grant someone else the right to use such space, then Landlord will
make Pylon Signage space available to the Tenant.
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SECTION 5.07 UTILITIES. Landlord agrees to provide the necessary mains
and conduits in order that water and sewer facilities, gas (if available) and
electricity will be available to the Premises, and Tenant agrees to promptly pay
for its use of the same. Landlord shall not be liable in damages or otherwise
should the furnishing of any services by it to the Premises be interrupted by
fire, accident, riot, strike, act of God, or the making of necessary repairs or
improvements or other causes beyond the reasonable control of Landlord.
SECTION 5.08 ALTERATIONS TO PREMISES. No alteration, addition,
improvement or decoration visible from the exterior of the Premises shall be
made by Tenant without the prior written consent of Landlord. Notwithstanding
anything to the contrary contained herein, Tenant shall be entitled to make
interior, nonstructural alterations to the Premises which have a value of less
than Twenty-Five Thousand and 00/100 ($25,000.00) Dollars without Landlord's
prior written consent. However, Tenant shall be required to notify Landlord of
such alterations within three (3) days of the completion of such alterations.
All alterations, additions, improvements and fixtures (other than trade fixtures
of Tenant) made by either of the parties hereto shall immediately become the
property of Landlord and shall be considered as a part of the Premises.
ARTICLE VI
INSURANCE AND INDEMNIFICATION
SECTION 6.01 TENANT'S INSURANCE. Tenant shall at all times during the
Term of this Lease, subsequent to the Delivery Date, keep in full force and
effect, at its sole cost and expense, the following types and amounts of
insurance:
A. Comprehensive public liability and property damage
insurance and products liability insurance insuring against claims for
personal injury, sickness, disease or death and property damage, in or
about the Premises, including independent contractor coverage, with
limits of public liability not less than Two Million ($2,000,000.00)
Dollars per occurrence and limits of property damage liability of not
less than One Million ($1,000,000.00) Dollars.
B. Fire and extended coverage insurance covering Tenant's
personal property, fixtures, improvements, wall coverings, floor
coverings, window coverings, alterations, furniture, equipment and
plate glass, against loss or damage by fire, windstorm, hail,
explosion, riot, damage from aircraft and vehicles, smoke damage and
vandalism and malicious mischief and such other risks as are from time
to time covered under "extended coverage" endorsements and special
extended coverage endorsements commonly known as "all risks"
endorsements in an amount equal to the greater of the full replacement
value or that required by Landlord's mortgagee from time to time, and
including builder's risk coverage during the pendency of Tenant's Work
prior to the Commencement Date.
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C. If the nature of Tenant's use of the Premises requires that
any or all of its employees be provided coverage under State Workers'
Compensation Insurance or similar statutes, Tenant shall keep in force
Workers' Compensation Insurance or similar statutory coverage
containing statutorily prescribed limits.
It is expressly understood and agreed that the foregoing minimum limits
of insurance coverage shall not limit the liability of Tenant for its acts or
omissions as provided in this Lease. All of the foregoing insurance policies
(with the exception for Workers' Compensation Insurance to the extent not
available under statutory law) shall name Landlord and such other interested
parties as Landlord shall from time to time designate as insured as their
respective interests may appear, and shall provide that any loss shall be
payable to Landlord and any other interested parties as Landlord shall
designate. Tenant may provide the foregoing insurance under a blanket policy,
provided that such blanket policy shall have an endorsement thereto to reflect
the required coverage for Landlord and its designees. All insurance required
hereunder shall be placed with companies licensed to do business in the State of
Michigan and which companies are rated A:XII or better in "Best's Key Rating
Guide." All such policies shall be written as primary policies, non-contributing
with and in excess of coverage which Landlord may carry. Tenant shall deliver
copies of such policies and all endorsements thereto, certified as true and
complete by the issuer thereof, prior to the earlier of beginning its Tenant
Work or the Delivery Date, together with evidence from the insurer that such
policies are fully paid for, and that no cancellation, material change,
non-renewal or lapse in coverage thereof shall be effective except upon thirty
(30) days prior written notice from the insurer to Landlord and its designees.
If Tenant shall fail to procure and/or maintain said insurance, Landlord may,
but shall not be obligated to do so, and without waiving any other rights under
this Lease, procure and maintain any one or more portions of Tenant's required
insurance policies, at the expenses of Tenant; and Tenant shall reimburse
Landlord therefor within ten (10) days of invoice. Not more frequently than
annually, Tenant shall increase the insurance limits above specified if Landlord
so requests pursuant to the reasonable requirements of Landlord's mortgagee.
SECTION 6.02 LANDLORD'S INSURANCE. Landlord shall maintain the
following types and amounts of insurance during the Term of this Lease and
during the pendency of its Landlord's Work:
A. Comprehensive public liability and property damage
insurance and products liability insurance against claims for personal
injury, sickness, disease or death and property damage, in or about the
Shopping Center, including independent contractor coverage, with a
combined single limitation of coverage in an amount not less than One
Million ($1,000,000.00) Dollars, or with limits of public liability not
less than Two Million ($2,000,000.00) Dollars per occurrence and limits
of property damage liability of not less than One Million
($1,000,000.00) Dollars.
B. Fire and extended coverage insurance covering the Shopping
Center (including without limitation, the Common Areas of unrented
storerooms of the Shopping Center) against loss or damage by fire,
windstorm, hail, explosion, riot, damage from aircraft and vehicles,
smoke damage and vandalism and malicious mischief and such other risks
as
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are from time to time covered under "extended coverage" endorsements
and special extended coverage endorsements commonly known as "all
risks" endorsements in an amount equal to the greater of the full
replacement value or that required by Landlord's mortgagee from time to
time, and including builder's risk coverage during the pendency of
Landlord's Work prior to the Commencement Date.
Landlord shall have the right and option, but shall not be obligated,
to change, cancel, decrease or increase the foregoing insurance, or add
additional forms of insurance, as required under this Section 6.02 only, as
Landlord shall deem necessary or desirable in its reasonable discretion; and/or
to obtain the foregoing forms of insurance directly and through umbrella
policies or policies covering both the Shopping Center and other assets owned by
Landlord.
SECTION 6.03 WAIVER OF SUBROGATION. Landlord and Tenant hereby release
each other and their respective agents and employees from any and all liability
to each other or anyone claiming through or under them by way of subrogation or
otherwise for any loss or damage to property caused by or resulting from risks
insured against under Sections 6.01 and 6.02 hereinabove, pursuant to insurance
policies carried by the parties hereto and in force at the time of any such loss
or damage; provided, however, that this release shall be applicable and in force
and effect only to the extent of insurance proceeds actually received by the
releasor from the pertinent insurance carrier, and only with respect to loss or
damage occurring during such time as the releasor's policies contain a clause or
endorsement to the effect that any such release shall not adversely affect or
impair such policies or prejudice the right of the releasor to recover
thereunder. Landlord and Tenant each agree that each will request its insurance
carriers to include in its policies such a clause or endorsement, and will
include such a clause only so long as it is includable without additional cost,
or if additional cost is chargeable therefor, only so long as the other party
pays such additional cost. Each party shall notify the other party of such cost,
and the other party may pay such cost but shall not be obligated to do so.
SECTION 6.04 HOLD HARMLESS AND INDEMNIFICATION.
A. Tenant hereby indemnities and holds Landlord harmless from
and against any and all claims, demands, liabilities and expenses,
including attorney's fees, arising from: (i) the negligence or willful
misconduct of Tenant or its agents, employees or contractors; or (ii)
any breach or default by Tenant of this Lease. In the event any action
or proceeding shall be brought against Landlord by reason of any such
claim, Tenant shall defend the same at Tenant's expense by counsel
reasonably satisfactory to Landlord.
B. Tenant covenants and agrees that Landlord shall not be
liable to Tenant, or to any person or entity claiming any right through
Tenant, as a consequence of the following, unless caused by the
negligence or intentional or willful act of Landlord: (i) any accident,
injury, death, loss or damage whatsoever to any person or to the
property of any person, including the person and property of Tenant and
its employees, agent, officers, patients, guests or as shall occur on
the Premises and the sidewalks adjoining same, the pendency of
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Tenant's completion of its Tenant's Work specified in Section 3.01
hereinabove, and during the completion of any improvements, alterations
or additions to the Premises as set forth in Section 5.08; (ii) any
fires, explosion, falling plaster, steam, gas, electricity, water or
rain which may leak from any part of the Shopping Center or accumulate
thereon or therein, or from the pipes, appliances or plumbing works
therein or from the roof, street or subsurface or from any other place
resulting from dampness or any other cause whatsoever; (iii) any latent
defect in the Premises not known to Landlord; and (iv) any loss or
damage that may be occasioned by or through the acts or omissions of
persons occupying adjoining premises or any part of the Shopping Center
adjacent to or connected with the Premises or located in the Shopping
Center.
C. Landlord hereby indemnifies and holds Tenant harmless from
and against any and all claims, demands, liabilities and expenses,
including attorney's fees, arising from: (i) the negligence or willful
misconduct of Landlord or its agents, employees, contractors or
invitees; or (ii) any breach or default by Landlord of this Lease. In
the event any action or proceeding shall be brought against Tenant by
reason of any such claim, Landlord shall defend the same at Landlord's
expense by counsel reasonably satisfactory to Tenant.
ARTICLE VII
DESTRUCTION OF PREMISES
SECTION 7.01 RECONSTRUCTION. Except as provided in Section 7.02 and
7.04 hereinbelow, if the Premises shall be damaged or destroyed in whole or in
part by fire or other casualty or occurrence and Landlord shall have in force
insurance with respect to such damage or destruction, then this Lease shall
remain in full force and effect and Landlord shall repair the Premises, at its
expense, provided that Landlord shall not be required to expend for such repair
an amount in excess of the insurance proceeds recovered by Landlord or assigned
to Landlord, net of any costs incurred by Landlord to so recover such insurance
proceeds. The obligations of Landlord hereunder shall be limited to restoration
of the Premises to the condition the Premises were in on the Delivery Date.
SECTION 7.02 ELECTION TO TERMINATE. In the event there shall occur (a)
damage or destruction to the Premises or Shopping Center in whole or in part
which Landlord reasonably estimates will cost in excess of Fifty Thousand
($50,000.00) Dollars to repair and Landlord shall not have, by assignment or
otherwise, insurance proceeds to compensate therefor, (b) damage or destruction
to the Premises which constitutes thirty (30%) percent or more of the full
replacement cost of the Premises, (c) damage or destruction to the Shopping
Center which constitutes fifty (50%) percent or more of the full replacement
cost of the Shopping Center, or (d) damage or destruction to the Premises shall
occur during the last eighteen (18) months of this Lease or any extension
thereof; then Landlord shall have the option to either repair and restore the
Premises and/or Shopping Center, as the case may be, in accordance with Section
7.01 hereinabove or to terminate this Lease
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effective upon Landlord giving notice of such election in writing to Tenant or
such later date specified in such notice, which notice shall be delivered within
forty-five (45) days after the occurrence of such damage or destruction. All
rent payable hereunder shall be prorated as of the effective date of any such
termination.
SECTION 7.03 ABATEMENT OF RENTAL. If the casualty, repairing or
rebuilding of the Premises pursuant to Section 7.01 hereinabove shall render the
Premises untenantable, in whole or in part, then, except as provided in Section
7.04 hereinbelow, and except in the event the casualty damage or destruction
shall have been caused, whether all or in part, through the gross negligence or
willful misconduct of Tenant or its subtenants, concessionaires, licensees,
invitees, agents, contractors, servants or employees, a proportionate abatement
of Minimum Rent shall be allowed from the date when the damage occurred until
the date Landlord completes the repairs or rebuilding or, in the event Landlord
elects to terminate this Lease, until the effective date of termination.
Landlord shall be deemed to have completed the repairs at such time as Landlord
shall have substantially completed its re-construction of Landlord's Work. The
abatement of rent, if any, shall be computed on the basis of the ratio which the
floor area of the Premises rendered untenantable bears to the entire floor area
thereof. Other than the abatement referenced above, Tenant shall have no other
rights to abate any amount payable under this Lease. Notwithstanding anything to
the contrary contained in this Lease, in the event casualty to the Premises is
caused by the negligent act of Tenant or Tenant's agents, employees or
independent contractors, there shall be no abatement of any amount required to
be paid by Landlord to Tenant under this Lease.
SECTION 7.04 TENANT'S OBLIGATIONS UPON DESTRUCTION OF PREMISES. Tenant
shall give immediate notice to Landlord in case of fire or accident in the
Premises or the Shopping Center. If Landlord is required or elects to repair or
rebuild the Premises as provided in Sections 7.01 and 7.02 hereinabove, Tenant
shall promptly repair or replace its trade fixtures, furnishings, equipment,
personal property and leasehold improvements in a manner and to a condition
equal to that existing prior to the damage or destruction. Further, in the event
Tenant shall fail to adjust its own insurance or to remove its damaged goods,
equipment or property forthwith after such casualty and, as a result thereof,
the repairing or restoration of the Premises is delayed, there shall be no
abatement of rental during the period of such resulting delay. If for any reason
Premises are not habitable for 180 consecutive days, Tenant can terminate this
Lease.
ARTICLE VIII
EMINENT DOMAIN
SECTION 8.01 TOTAL CONDEMNATION OF PREMISES. In the event that the
whole of the Premises shall be taken in any proceeding by public authorities by
condemnation or otherwise, or be acquired for public or quasi-public purposes,
then the term of this Lease shall cease and terminate as of the later of (a) the
date of title vesting in such public authorities, or (b) the date such public
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authority shall obtain a writ of restitution against Tenant, and all rentals
shall be paid up to that date and Tenant shall have no claim against Landlord
nor the condemning authority for the value of any unexpired term of this Lease.
Whenever there is a reference in this Lease to a taking by public authority,
such reference shall be deemed in each case to include a purchase and sale in
lieu of such a taking.
SECTION 8.02 PARTIAL CONDEMNATION OF PREMISES. In the event that more
than twenty (20%) percent of the floor area of the Premises or more than sixty
(60%) percent of the Common Areas of the Shopping Center shall be taken as
hereinabove described, then either party shall have the option of terminating
this Lease by notifying the other in writing on or before the date of such
taking, and upon such notice being given, the condemnation shall be treated as a
total condemnation pursuant to Section 8.01 hereinabove. In the event that more
than twenty-five (25%) percent of the total square footage of the Shopping
Center leased to other tenants of the Shopping Center shall be taken as
hereinabove described, then Landlord shall have the option of terminating this
Lease by notifying Tenant in writing of its election so to do on or before the
date of such taking and upon such notice being given, the condemnation shall be
treated as a total condemnation pursuant to Section 8.01 hereinabove. In the
event that only a portion of the floor area of the Premises shall be taken as
hereinabove described and this Lease is not or cannot be terminated pursuant to
the provisions of this Section 8.01, then Landlord shall, at its sole cost and
expense, restore the remaining portion of the Premises to the extent necessary
to render it suitable for the purposes for which it was leased, provided that
such work shall not exceed the scope of Landlord's Work. If this Lease shall not
be terminated as herein provided, this Lease shall continue for the balance of
its term as to the part of the Premises remaining, without any reduction or
abatement of or effect upon the term hereof of the liability of Tenant to pay in
full any amount under this Lease, except that the fixed Minimum Rent to be paid
by Tenant after such taking for the Premises shall be reduced pro rata in the
proportion which the floor area of the Premises remaining after any restoration
and repair bears to the entire floor area of the Premises immediately prior to
such taking.
SECTION 8.03 DISTRIBUTION OF AWARD. All compensation awarded or paid
upon a total or partial taking of the Premises shall belong to and be the
property of Landlord whether such damages shall be awarded as compensation for
diminution in value to the leasehold or to the fee of the Premises; provided,
however, that Landlord shall not be entitled to any award made to Tenant for
depreciation to, and cost of removal of, merchandise and trade fixtures, to the
extent such fixtures were paid for and installed by Tenant.
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ARTICLE IX
EXCULPATION OF LANDLORD AND MORTGAGE PROTECTION
SECTION 9.01 MORTGAGE PROTECTION. If Landlord shall fail to perform any
covenant, term or condition of this Lease upon Landlord's part to be performed,
Tenant shall give prompt written notice thereof to Landlord. In addition, Tenant
shall, by registered mail, give a copy of any such notice served upon Landlord
to any mortgagee and/or trust deed holders having an interest in the Shopping
Center; provided that Tenant shall only be required to give such notice to the
said mortgagees and/or trust deed holders if Tenant has been notified, in
writing (by way of notice of assignment of rents or otherwise) of the address of
such mortgagees and/or trust deed holders. Tenant further agrees that if
Landlord shall have failed to cure such claimed failure of performance within a
reasonable time following Landlord's receipt of such notice (which time period
shall not be less than thirty (30) days), then the mortgagee and/or trust deed
holder shall have an additional period of thirty (30) days within which to cure
such default, or if such default cannot be cured within that time, then such
additional time as may be necessary, provided that any such mortgagee and/or
trust deed holder has commenced and is diligently pursuing the remedies
necessary to cure such failure of performance by Landlord, including but not
limited to the institution of foreclosure proceedings. Tenant shall take no
action to terminate this Lease, whether through notice or the institution of
legal proceedings in the event Landlord or any such mortgagee or trust deed
holder shall have cured such failure of performance or shall be diligently
pursuing the same as aforesaid.
SECTION 9.02 EXCULPATION OF LANDLORD. If Landlord shall fail to perform
any covenant, term or condition of this Lease upon Landlord's part to be
performed, and if as a consequence of such default, Tenant shall recover a money
judgment against Landlord, such judgment shall be satisfied only out of the
right, title and interest of Landlord in the Shopping Center, whatever that
interest may be, and out of the rents or other income from such property
receivable by Landlord, or out of the consideration received by Landlord from
the sale or other disposition of all or any part of Landlord's right, title and
interest in the Shopping Center. Tenant, its successors and assigns hereby waive
all rights to proceed against the officers, shareholders, or directors of
Landlord. The term "Landlord" as used in this section, shall mean only the owner
or owners at the time in question of the fee title and in the event of any
transfer of such title, Landlord herein named (and in case of any subsequent
transfers the then grantor) shall be relieved from and after the date of such
transfer of all liability as respects Landlord's obligations thereafter to be
performed, provided that any funds in the hands of Landlord or the then grantor
at the time of such transfer, in which Tenant has an interest, shall be
delivered to the grantee. The obligations contained in this Lease to be
performed by Landlord shall, subject as aforesaid be binding on Landlord and on
Landlord's successors and assigns, only during their respective periods of
ownership. Landlord may, at any time, assign this Lease to a third party and
upon such assignment shall be relieved of all liability from and after the date
of such assignment.
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ARTICLE X
TENANT'S BANKRUPTCY OR INSOLVENCY
SECTION 10.01 CONDITIONS TO THE ASSUMPTION AND ASSIGNMENT OF THE LEASE
UNDER CHAPTER 7 OF THE BANKRUPTCY CODE. Tenant hereby acknowledges that the
Premises are within a "Shopping Center" as such term is used in the Bankruptcy
Code, Section 365, 11 U.S.C. 365. In the event that Tenant shall become a Debtor
under Chapter 7 of the Bankruptcy Code, and the Trustee or Tenant shall elect to
assume this Lease for the purpose of assigning the same or otherwise, such
election and assignment may only be made if all of the terms and conditions of
Section 10.02 and Section 10.03 hereof are satisfied. If such Trustee shall fail
to elect to assume this Lease within sixty (60) days after the filing of the
Petition, this Lease shall be deemed to have been rejected. Landlord shall
immediately thereupon be entitled to possession of the Premises without further
obligation to Tenant or Trustee, and this Lease shall be cancelled, but
Landlord's right to be compensated for damages in such liquidation proceeding
shall survive.
SECTION 10.02 CONDITIONS TO THE ASSUMPTION OF THE LEASE IN BANKRUPTCY
PROCEEDINGS.
A. In the event that a Petition for reorganization or
adjustment of debts is filed concerning Tenant under Chapter 11 or 13
of the Bankruptcy Code, or a proceeding is filed under Chapter 7 under
the Bankruptcy Code and is transferred to Chapter 11 or 13, the Trustee
or the Tenant, as Debtor-In-Possession, must elect to assume the Lease
within one hundred twenty (120) days from the date of the filing of the
Petition under Chapter 11 or 13, or the Trustee or Debtor-In-Possession
shall be deemed to have rejected this Lease. No election by the Trustee
or Debtor-In-Possession to assume this Lease, whether under Chapter 7,
11, or 13, shall be effective unless each of the following conditions,
which Landlord and Tenant acknowledge are commercially reasonable in
the context of a bankruptcy proceedings of Tenant, have been satisfied,
and Landlord has so acknowledged in writing:
1. The Trustee or the Debtor-In-Possession has
provided Landlord with adequate assurance of the future
performance of each of Tenant's, Trustee's or
Debtor-In-Possession's obligations under the Lease, which
shall include without limitation, that the Trustee or
Debtor-In-Possession shall deposit with Landlord, as security
for the timely payment of rent, an amount equal to three (3)
months' rent and other monetary charges accruing under this
Lease.
2. The assumption (and any contemplated assignment)
of the Lease will not breach any provision in any other lease,
mortgage, financing agreement or other agreement by which
Landlord is bound relating to the Shopping Center.
B. For purposes of this Section 10.02, Landlord and Tenant
acknowledge that, in the context of a bankruptcy proceeding of Tenant,
at a minimum "adequate assurance"
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shall mean that the Trustee or the Debtor-In-Possession has and will
continue to have sufficient unencumbered assets after the payment of
all secured obligations and administrative expenses to assure Landlord
that the Trustee or Debtor-In-Possession will have sufficient funds to
fulfill the obligations of Tenant under this Lease.
SECTION 10.03 CONDITIONS TO THE ASSIGNMENT OF THE LEASE IN BANKRUPTCY
PROCEEDINGS. If the Trustee or Debtor-In-Possession has assumed the Lease
pursuant to the terms and provisions of Section 10.01 or Section 10.02
hereinabove, for the purpose of assigning (or elects to assign) the Tenant's
interest under this Lease or the estate created thereby, to any other person,
such interest or estate may be so assigned only if Landlord shall acknowledge in
writing that the intended assignee has provided adequate assurance as defined in
this Section 10.03 of future performance of all of the terms, covenants and
conditions of this Lease to be performed by Tenant.
For purposes of this Section 10.03, Landlord and Tenant acknowledge
that, in the context of a bankruptcy proceeding of Tenant, at a minimum
"adequate assurance of future performance" shall mean, in addition to the
adequate assurances set forth in Bankruptcy Code Section 365, that each of the
following conditions have been satisfied, and Landlord has so acknowledged in
writing:
A. The assignee has submitted a current financial statement
audited by a Certified Public Accountant which shows a net worth and
working capital in amounts determined to be sufficient by Landlord to
assure the future performance by such assignee of the Tenant's
obligations under this Lease;
B. The assignee, if requested by Landlord, shall have obtained
guarantees in form and substance satisfactory to Landlord from one or
more persons who satisfy Landlord's standards of credit worthiness;
C. The Landlord has obtained all consents or waivers from any
third party required under any lease, mortgage, financing arrangement
or other agreement by which Landlord is bound to permit Landlord to
consent to such assignment; and
D. The assignment of the Lease will not breach any provisions
in any other lease, mortgage, financing agreement or other agreement by
which Landlord is bound relating to the Shopping Center.
SECTION 10.04 USE AND OCCUPANCY CHARGES. When, pursuant to the
Bankruptcy Code, the Trustee or Debtor-In-Possession shall be obligated to pay
reasonable use and occupancy charges for the use of the Premises or any portion
thereof, such charges shall not be less than the Minimum Rent as defined in this
Lease and other monetary obligations of Tenant pursuant to Sections 1.05, 1.06
and 1.07 hereinabove for the payment of maintenance, common area charges, real
estate taxes, merchants' association dues, insurance and similar charges.
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SECTION 10.05 TENANT'S INTEREST NOT TRANSFERABLE BY VIRTUE OF STATE
INSOLVENCY LAW WITHOUT LANDLORD'S CONSENT. Neither Tenant's interest in the
Lease, nor any lesser interest of Tenant herein, nor any estate of Tenant hereby
created, shall pass to any trustee, receive, assignee for the benefit of
creditors, or any other person or entity, or otherwise by operation of law under
the laws of any state having jurisdiction of the person or property of the
Tenant ("state law") unless Landlord shall consent to such transfer in writing.
No acceptance by Landlord of rent or any other payments from any such trustee,
receiver, assignee, person or other entity shall be deemed to have waived, nor
shall it waive the need to obtain Landlord's consent or Landlord's right to
terminate this Lease for any transfer of Tenant's interest under this Lease
without such consent.
SECTION 10.06 LANDLORD'S OPTION TO TERMINATE UPON INSOLVENCY OF TENANT
UNDER STATE INSOLVENCY LAW OR UPON FEDERAL BANKRUPTCY ACT. In the event the
estate of Tenant created hereby shall be taken in execution or by other process
of law, or if Tenant shall be adjudicated insolvent pursuant to the provisions
of any present or future insolvency law under the laws of any state having
jurisdiction ("state law"), or if a Receiver or Trustee of the property of
Tenant or guarantor shall be appointed under state law by reason of Tenant's
failure or inability to pay its debts as they become due or otherwise, or if any
assignment shall be made of Tenant's property for the benefit of creditors under
state law; then and in such event Landlord may, at its option, terminate this
Lease and all rights of Tenant hereunder by giving Tenant written notice of the
election to so terminate within thirty (30) days after the occurrence of such
event.
ARTICLE XI
DEFAULT OF TENANT
SECTION 11.01 DEFAULT. The occurrence of any of the following shall
constitute an event of default by Tenant hereunder:
A. Delinquency in the payment of rent or any other amount
payable by Tenant under this Lease, or any part thereof, for a period
of five (5) days after the due date. The Landlord agrees not to seek
any remedy described in 11.02 or 11.03 unless the Landlord shall have
first provided Tenant within five (5) days written notice of nonpayment
of rent.
B. Delinquency by Tenant in the performance or compliance with
any of the terms, covenants or agreements to be performed under this
Lease, other than those described in the foregoing Section 11.01A, and
failure to rectify or remove said default(s) immediately, in the event
Tenant's Insurance pursuant to Section 6.01 hereinabove shall lapse, or
a Mechanic's Lien shall be filed against the Shopping Center and to be
discharged within ten (10) days of notice thereof as provided in
Section 16.01 hereinbelow, or within fifteen (15) days after written
notice of any other such default has been given to Tenant.
Notwithstanding the foregoing, in the event that the nature of the
default under this Section
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11.01B is such that it cannot be cured within said fifteen (15) day
period and Tenant has commenced cure of such default within said
fifteen (15) day period and proceeds to diligently cure such default
within thirty (30) days of Tenant's notice of such default, the
Landlord's rights and remedies as set forth in this Section 11 shall be
inapplicable. A breach by Tenant under Section 3.02L and/or M of the
Lease shall not be deemed to provide Tenant with the cure period
provided in this Section 11.01B.
C. Filing by Tenant in any court pursuant to any federal or
state statute or a petition in bankruptcy or insolvency, or for
reorganization or rearrangement, or for the appointment of a receiver
or trustee of all or a portion of Tenant's property, or any assignment
of the property of Tenant for the benefit of creditors.
D. Filing against Tenant in any court pursuant to any federal
or state statute of a petition in bankruptcy or insolvency, or for
reorganization or rearrangement, or for the appointment of a receiver
or trustee of all or a portion of Tenant's property, unless such
proceeding against Tenant shall have been dismissed within sixty (60)
days after commencement.
E. Abandonment, vacation or desertion of the Premises. Failure
to remain open for business to the general public for in excess of ten
(10) consecutive full business days during any six (6) month period,
except during such time as Tenant shall be prevented from doing so
because of fire or similar casualty.
F. Assignment or encumbrance of this Lease or subletting of
the Premises other than in accordance with the terms of this Lease if
such default is not cured within fifteen (15) days after written notice
of such default has been mailed or delivered to Tenant by Landlord.
SECTION 11.02 RIGHT TO RE-ENTER. Upon default, Landlord shall have the
immediate right to bring an action to re-enter and may remove all persons and
property within the Premises. Such property may be removed and stored in a
public warehouse or elsewhere at the cost of, and for the account of Tenant, in
accordance with a court order. All of the rights and remedies of Landlord under
this Lease are cumulative and shall be in addition to any other rights or
remedies accorded Landlord by law.
SECTION 11.03 RIGHT TO RELET. Should Landlord elect to re-enter, or
take possession by summary proceedings or other appropriate legal action or
proceedings, or pursuant to notice provided for by law, it may either terminate
this Lease or from time to time, without terminating this Lease, make such
alterations and repairs necessary to relet, and relet the Premises or any part
thereof for such term or terms (which may be for a term extending beyond the
term of this Lease) and at such rental or rentals and upon such other terms and
conditions as Landlord in its sole discretion may deem advisable. Upon each such
reletting, all rentals and other sums received by Landlord shall be applied (a)
to the payment of any indebtedness other than rent due; (b) to the payment of
any costs and expenses of reletting, including brokerage and attorneys' fees,
and costs of alterations and
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repairs; (c) to the payment of rent and other charges due and unpaid hereunder;
(d) the residue, if any, shall be held by Landlord and applied in payment of
future rent as the same may become due and payable. If such rentals and other
sums received from reletting are less than that to be paid by Tenant, Tenant
shall immediately pay such deficiency to Landlord. Such deficiency shall be
calculated and paid monthly. No such re-entry or taking possession of said
premises or acceptance of the keys to said premises by Landlord shall be
construed as an election to terminate this Lease unless written notice of such
intention be given to Tenant or unless the termination be decreed by a court of
competent jurisdiction. Notwithstanding reletting without termination, Landlord
may at any time thereafter elect to terminate this Lease for any previous
breach. Should Landlord terminate this Lease for any breach, in addition to
other remedies, it may recover all damages incurred by reason of such breach,
including the cost of recovering the Premises, reasonable attorneys' fees and
the present worth at termination of the excess, if any, of the amount of rent
and charges equivalent to rent reserved in this Lease for the remainder of the
stated term over the then reasonable rental value of the Premises for the
remainder of the stated term and all such amounts shall be immediately due and
payable. Such present worth shall be computed by discounting the excess to the
date of termination at the rate of five (5%) percent per annum. In determining
the then reasonable rental value of the Premises, if the Premises or any part is
relet for the unexpired term of this Lease, or any part thereof, before
presentation of proof of such liquidated damages, the amount of rent reserved in
such reletting shall be prima facie evidence of such rental value for the part
of the whole of the Premises so relet. Should this Lease, at any time, be
terminated under the terms and conditions hereof, or in any other way, Tenant
shall immediately surrender and deliver the premises and property peaceably to
Landlord.
SECTION 11.04 CURING OF TENANT'S DEFAULT. Notwithstanding anything
herein contained to the contrary, if Tenant shall be in default in the
performance of any of the terms or provisions of this Lease and Landlord gives
notice in writing to Tenant of such default specifying the nature thereof, and
Tenant fails to cure the default within the time provided or immediately if an
emergency exists, then Landlord may, in addition to its other remedies, cure
such default at the cost and expense of Tenant and the sums so expended by
Landlord shall be deemed to be Additional Rent and shall be paid by Tenant on
the day when Minimum Rent shall next become due together with interest on such
amounts at the rate of twelve (12%) percent per annum.
SECTION 11.05 LEGAL EXPENSES. Tenant shall pay to Landlord all
reasonable costs and expenses, including reasonable attorneys' fees, incurred by
Landlord for the recovery of any rent, arising out of any breach by Tenant of
the terms and provisions of this Lease and/or in the case suit shall be brought
for recovery of possession of the Premises.
SECTION 11.06 WAIVER OF LIEN. Landlord hereby waives any contractual
statutory or other Landlord's lien on Tenant's furniture, fixtures, supplies,
equipment and inventory.
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ARTICLE XII
ACCESS BY OWNER
SECTION 12.01 RIGHT OF ENTRY. Landlord shall have the right to install,
maintain, use, repair and replace pipes, ducts, wires and conduits leading
through the Premises in locations which will not materially interfere with
Tenant's use of Premises and serving other parts of the Shopping Center.
Landlord or its agents shall have the right to enter the Premises at all
reasonable times to examine it, upon reasonable advance written notice, show it
to prospective lenders, purchasers or lessees, or to make decorations, repairs,
alterations, improvements, or additions as Landlord may deem necessary or
desirable provided that such activity does not unreasonably interfere with
Tenant's business or jeopardize security. Landlord shall be allowed to take
material into the Premises without constituting an eviction of Tenant in whole
or in part and the rent reserved shall not be abated. Nothing herein contained,
however, shall be deemed or construed to impose upon Landlord any obligation,
responsibility, or liability for the care, supervision, or repair of the
Premises other than as herein provided.
ARTICLE XIII
SURRENDER OF PREMISES, HOLDING OVER
SECTION 13.01 SURRENDER OF PREMISES. On or before the expiration or
earlier termination of this Lease, Tenant shall surrender to Landlord the
Premises, (a) broom clean, with all of Tenant's alterations, additions,
improvements and fixtures which Tenant is required to leave upon the Premises at
the expiration of the Lease pursuant to Section 5.08 hereinabove in good order
and condition (excepting reasonable wear and tear occurring after the last
necessary maintenance of Tenant and/or destruction to the Premises described in
Article VIII hereof); (b) free of all alterations, additions, improvements or
fixtures that Tenant has the right to remove or is obligated to remove pursuant
to Section 5.08 hereinabove, which Tenant shall remove on or before the
expiration or earlier termination of this Lease and (c) and Tenant shall repair
any damage to the Premises caused by Tenant's removal of its alterations,
additions and improvements, restoring the Premises to the condition existent
prior to Tenant's installation of such alterations, additions and improvements.
All such property which is not so removed within such period shall be deemed to
have been abandoned by Tenant, may be retained by Landlord as its property or
removed and disposed of in such manner as Landlord may see fit, and Tenant shall
be liable to Landlord for any and all costs and expenses incurred in connection
with any such removal and disposal, including court costs, attorneys' fees and
storage charges for such property.
SECTION 13.02 HOLDING OVER. Any holding over after the expiration of
the Term of this Lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month at one
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and one-quarter (1.25) times the Minimum Rent herein reserved (including
Additional Rent monthly averaged in the most recently preceding twelve (12)
month period) and on the terms and conditions herein set forth.
ARTICLE XIV
ASSIGNMENT AND SUBLETTING
SECTION 14.01 CONSENT REQUIRED. Tenant shall not by operation of law,
voluntarily or involuntarily sell, assign, mortgage, pledge or encumber this
Lease or in any manner transfer this Lease or any interest in this Lease, nor
sublet or permit the Premises or any part thereof to be used by others, without
the prior written consent of Landlord in each instance, which consent Landlord
shall not unreasonably withhold subject to Section 16.17 below. If this Lease is
assigned, or if the Premises or any part thereof is sublet, or occupied by
anybody other than Tenant, Landlord may, after default by Tenant, collect rent
from the assignee, subtenant, or occupant and apply the net amount collected to
the rent herein reserved. No such assignment, subletting, occupancy, or
collection shall be deemed a waiver of this covenant, or the acceptance of the
assignee, subtenant, or occupant as tenant, or a release of Tenant from the
further performance by Tenant of the covenants in this Lease. The consent by
Landlord to an assignment or subletting shall not be construed to relieve Tenant
from obtaining the consent in writing of Landlord to any further assignment or
subletting. If Tenant or Tenant's guarantor is a partnership, limited
partnership, corporation or other joint venture or association, an assignment of
Tenant's interest in this Lease shall also include the dissolution, merger,
consolidation or other reorganization of Tenant or Tenant's guarantor, the sale
or other transfer of fifty (50%) percent or more of the voting power or equity
interest of Tenant or Tenant's guarantor, or the sale of fifty (50%) percent or
more of the value of Tenant's or Tenant's guarantor's property. In the event
Landlord shall consent to a sublease or assignment hereunder, Tenant shall pay
Landlord's reasonable costs and expenses, including attorneys' fees associated
with Landlord's review of Tenant's potential assignee or sublessee and the
processing of documents necessary or desirable, in Landlord's discretion to the
granting of such consent. Tenant shall submit all requests for an assignment or
sublease in writing with sufficient information for Landlord to make an informed
decision as to the qualifications of the proposed assignee/sublessee and
Landlord shall not be under any obligation to render its decision until
Landlord, in its sole discretion, has sufficient information. In the event of a
permitted sublease hereunder, any rent to be paid by any subtenant to Tenant, as
sublessor, in excess of the rental payments due hereunder, shall belong and be
paid over to Landlord. It is expressly understood and agreed that in the event
any options or rights to renew or extend this Lease are concurrently or
hereafter granted by Landlord to Tenant, such option or right shall be personal
to Tenant and shall, in the event of any assignment or sublease of this Lease,
whether or not permitted by Landlord, immediately terminate and be of no further
force and effect. Landlord reserves the right, as a condition to granting its
consent to assign or sublet this Lease, to increase the Minimum Rent payable
hereunder to an amount equal to the rent then being charged by Landlord to new
tenants in
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substantially comparable premises in the Shopping Center. Landlord shall not be
obligated to provide its consent to such assignment or subletting in the event
that there are then vacant leasable premises in the Shopping Center, suitable,
in Landlord's reasonable discretion, for Tenant's proposed assignee or
subtenant.
SECTION 14.02 MERGER/SALE OF ASSETS. Notwithstanding the foregoing,
Tenant may assign this Lease in connection with a merger of the Tenant, or, a
sale by the Tenant of substantially all of its assets to a third party. The
terms of Section 14.01 shall not apply to any assignment of this Lease under
this Section 14.02.
ARTICLE XV
OFFSET, ATTORNMENT AND SUBORDINATION
SECTION 15.01 OFFSET STATEMENT. Within ten (10) days after request by
Landlord at any time or times, Tenant shall execute in recordable form and
deliver to Landlord a statement, in writing, certifying (a) that this Lease is
in full force and effect, (b) the date of Commencement Date of this Lease, (c)
that rent is paid currently without any offset or defense thereto, (d) the
amount of rent, if any, paid in advance, and (e) that there are no uncured
defaults by Landlord or stating those defaults claimed by Tenant with
specificity.
SECTION 15.02 ATTORNMENT. Tenant shall, in the event of the sale or
assignment of Landlord's interest in the Premises, or in the event any
proceedings are brought for the foreclosure of such interest or in the event of
exercise of the power of sale under any mortgage made by Landlord covering the
Premises, or for the eviction of Landlord under any underlying lease by
Landlord, attorn to the purchaser-transferee and recognize such
purchaser-transferee or lessor as the Landlord under this Lease, notwithstanding
the fact that this Lease may terminate upon the termination of Landlord's
interest. Such attornment shall be self-operative upon demand without the
execution or delivery of any further instrument by Tenant; however, no such
attornment (except in the event of the sale for value of the Premises) shall
cause such subsequent Landlord to be liable for any act or omission of Landlord
or subject it to any offsets or defenses against Landlord or bind it for any
rent which Tenant may have paid in advance to Landlord.
SECTION 15.03 SUBORDINATION. Tenant hereby agrees that this Lease is
and shall be subject and subordinate at all times to any and all present and
future ground or underlying leases, leasehold mortgages, mortgages and building
loan mortgagees, and management contracts affecting Landlord's interest in the
Premises and on the land and buildings including the Shopping Center of which
the Premises are a part or upon any buildings or other improvements hereafter
placed upon the land of which the Premises form a part. Tenant also covenants
and agrees that any mortgagee, overriding or ground lessor or management
contractee may elect to treat this Lease as prior in time to its interest in the
Shopping Center, and in the event of such election and upon notification to
Tenant to that
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effect, this Lease shall thereupon be deemed so prior, whether this Lease is, in
fact, dated prior or subsequent to the date of such other interest.
Notwithstanding the foregoing, as long as Tenant is not in default under the
terms of this lease, Landlord agrees that Tenant's leasehold interest will not
be disturbed by any party to whom Tenant has subordinated its interest in this
lease.
SECTION 15.04 ACKNOWLEDGMENTS BY TENANT. Tenant hereby covenants and
agrees to execute and deliver upon demand such documents and instruments as may
be required to carry out the intentions of this Article XV, and in the event of
Tenant's failure to execute and deliver any such documents or instruments within
twenty (20) days after requested by Landlord, Tenant shall be liable to Landlord
for any and all damages, costs and expenses associated with and/or arising out
of such failure or refusal.
SECTION 15.05 TENANT FINANCING. Tenant shall have the right from time
to time during the term of this Lease to grant and assign a mortgage or other
security interest in Tenant's interest in this Lease and all of Tenant's
property contained in the Premises to Tenant's lenders in connection with
Tenant's financing arrangements. Notwithstanding anything to the contrary
contained in the preceding sentence, Tenant shall be required to provide
Landlord with advance notice of any such arrangement and Landlord shall have the
right to disapprove of any proposed assignment or other security interest in
Tenant's interest in this Lease. Landlord shall also have the right to
disapprove all documents in connection therewith, including, but not limited to,
any documents which will be recorded against the Shopping Center and/or Premises
and Landlord hereby reserves the right to request reasonable changes thereto as
a condition precedent to Landlord's approval.
SECTION 15.06 ESTOPPEL LETTER. Provided that Tenant is not in default
under the terms of this Lease, from time to time but not more than once a year,
Landlord shall, upon request of Tenant, execute, acknowledge and deliver an
instrument, stating, if the same be true, that to the best of the "then current
knowledge of Landlord," this Lease is a true and exact copy of this Lease
between the parties hereto, that there are no amendments hereof (or stating what
amendments there may be), that the same is then in full force and effect and
that, to the best of its knowledge, there are no offsets, defenses or
counterclaims with respect to the payment of rent reserved hereunder or in the
performance of the other terms, covenants and conditions hereof on the part of
Tenant or Landlord, as the case may be, to be performed, and that as of such
date no default has been declared hereunder by Landlord or Tenant or if a
default has been declared, such instrument shall specify same. Such instrument
will be executed by Landlord and delivered to the requesting party within
forty-five (45) days.
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ARTICLE XVI
MISCELLANEOUS
SECTION 16.01 LIENS. In the event mechanic's lien(s) shall be filed
against the Premises or Tenant's interest as a result of the work undertaken by
Tenant, Tenant shall, within ten (10) days after receipt of notice, discharge
such lien(s) by payment of the indebtedness or by filing a bond (as provided by
statute) as security therefor. Tenant agrees to indemnify Landlord for any costs
or expenses Landlord incurs as a result of Tenant's breach of this Section. In
the event Tenant shall fail to discharge such lien, Landlord shall have the
right (but is not obligated) to discharge by films, such bond, and Tenant shall
pay the cost of the bond to Landlord as Additional Rent upon the first days that
rent shall be next due thereunder, or if no rent is due, then within five (5)
days following Landlord's request therefor.
SECTION 16.02 LATE PAYMENT. If Tenant fails to pay any monthly
installment of the Minimum Rent, or any other monies payable to Landlord
hereunder on or before five (5) days after the date due, then Tenant shall
immediately, without demand therefor, pay to Landlord a service charge of five
(5%) percent of the amount of any such late payment, but not less than Fifty and
00/100 ($50.00) Dollars (the "Service Charge"). The Service Charge is in
addition to and not in limitation of any other remedy or right provided herein,
and is intended to compensate Landlord for its fairly estimated additional
administrative expenses associated with monitoring, receiving, recording,
accounting, administering and otherwise handling delinquent payments. The
Service Charge is not intended and shall not be deemed or construed as an
unenforceable penalty.
A. INTEREST. If Tenant neglects or fails to pay any amount
payable under this Lease when due, Tenant shall pay interest on the
unpaid balance at the annual rate of: (i) twelve (12%) percent.
B. RETURNED CHECK CHARGE. In the event any check or draft
tendered in payment of any monies due hereunder is dishonored for any
reason and returned unpaid by the drawee bank, Tenant shall,
immediately, without demand therefor, pay to Landlord a returned check
charge of Twenty-Five ($25.00) Dollars ("Returned Check Charge"), and
thereafter, Landlord may require Tenant to make all future rental and
other payments with certified funds only (i.e., Money Order, Certified
or Cashier's Check).
C. APPLICATION OF PAYMENTS. Landlord may apply all or any part
of the subsequent payments of Minimum Rent to any accrued and unpaid
Service Charges, Returned Check Charges, or interest charges. Landlord
shall have no obligation to accept less than the full amount of monthly
installments plus Service Charges, Returned Check Charges and interest
charges thereon, if any, and of all other charges hereunder which are
due and owing by Tenant to Landlord. If Landlord shall accept less than
the full amount owing, Landlord may apply the sums received toward any
of Tenant's obligations at
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Landlord's discretion, but acceptance of partial payment shall not be
deemed as satisfaction of Tenant's obligations.
D. CUMULATIVE CHARGES. The Service Charge and Returned Check
Charge, and interest on overdue payments are separate and cumulative
remedies, and in addition to each other and all other remedies provided
herein.
SECTION 16.03 RECORDING. Tenant shall not record this Lease. In the
event Tenant shall violate the provisions of this Section 16.03, Landlord shall
have the right and option at any time after learning of said violation to
declare this Lease null and void and in such event Landlord shall have all of
the remedies provided in Article XI hereinabove. Landlord agrees that Tenant
shall be entitled to record a Memorandum of Lease in a form acceptable to
Landlord.
SECTION 16.04 GARBAGE CONTAINERS. Tenant agrees to supply, pay for and
maintain its own garbage container(s), with the minimum pickup schedule to
maintain a clean and orderly area. Notwithstanding the foregoing, if Landlord
elects to provide garbage containers and/or pickup service, then Tenant agrees
to pay for its proportionate share of the cost of such containers and/or
service. All garbage containers shall be kept covered and shall be kept in such
locations as Landlord may designate.
SECTION 16.05 TAXES ON LEASEHOLD. Tenant shall be responsible for and
shall pay before delinquency all municipal, county, or state taxes, assessments,
or other charges levied, assessed or charged during the term of this Lease
against any leasehold interest or improvement or personal property of any kind
affecting the Premises. If any such amounts are levied against Landlord or
Landlord's property, or if the assessed value of the Shopping Center or other
improvements on the real estate is increased by the inclusion of a value placed
on such items, Tenant, on demand, shall immediately reimburse Landlord for the
amount of taxes so levied against Landlord or the portion of the taxes of
Landlord resulting from such increase.
SECTION 16.06 ACCORD AND SATISFACTION. No payment by Tenant or receipt
by Landlord of a lesser amount than the rent or any other amounts due hereunder
shall be deemed to be other than on account of the earliest rent and/or other
amounts due, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment under this Lease be deemed an accord and
satisfaction. Landlord may accept such check or payment without prejudice to its
right to recover the balance of the amount due hereunder or pursue any other
remedy; and Landlord shall have the sole right and option to apply any sum of
money received from Tenant to any monetary obligation of Tenant to Landlord
without regard to the order in which any such sum became due to Landlord and
without regard to any statement of Tenant on or accompanying such payment as to
Tenant's proposed or demanded application thereof.
SECTION 16.07 WAIVER. No default in the payment of rent or any other
amount set forth herein, nor the failure of Landlord to enforce the provisions
of this Lease upon any default by Tenant shall be construed as creating a custom
of deferring payment or as modifying in any way the terms
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of this Lease or as a waiver of Landlord's right to terminate or cancel, or
otherwise to enforce the provisions hereof. Failure by Landlord to assess or
collect any portion of Additional Rent due by Tenant to Landlord pursuant to
Section 4.02 hereinabove at the time same shall become due on any one or more
occasion shall not constitute a waiver or subsequent waiver of the right of
Landlord to collect such Additional Rent at any time thereafter. No express
waiver by Landlord of any provision, condition, or term shall affect any other
than the provision, condition or term specified, and then only as specifically
stated, and shall not be deemed to imply or constitute a subsequent waiver of
such provisions, condition or term. No breach of a covenant or condition of this
Lease shall be deemed to have been waived by Landlord unless in writing by
Landlord. It is expressly agreed that time shall be of the essence of this
Agreement.
SECTION 16.08 REAL ESTATE BROKERS. The parties acknowledge and agree
that a commission on this transaction will be paid by Landlord to Friedman Real
Estate Group. Each party hereto represents that it has had no dealings with any
other real estate brokers, finder or other person with respect to this Lease in
any manner whose commissions or fees, if any, shall be payable by Landlord (and
not by Tenant) in accordance with the provisions of a separate commission
contract. Each party hereto shall indemnify and hold the other party harmless
from all damages resulting from any claims which may be asserted against the
other party by any other brokers, finder or other person with whom the other
party has or purportedly has dealt.
SECTION 16.09 APPLICABLE LAW. This Lease shall be governed by and
construed in accordance with the laws of the State of Michigan. The
unenforceability, invalidity or illegality of any term or provision of this
Lease shall not render any other term or provision unenforceable, invalid or
illegal. If any provision of this Lease is held by a court of competent
jurisdiction to be invalid, void or unenforceable in any manner, the remaining
provisions of this Lease shall nonetheless continue in full force and effect
without being impaired or invalidated in any way. In addition, if any provision
of this Lease may be modified by a court of competent jurisdiction such that it
may be enforced, then said provision shall be so modified and as modified shall
be fully enforced.
SECTION 16.10 ENTIRE AGREEMENT. Except as otherwise stated herein, this
Lease contains the entire understanding of the parties hereto with respect to
the subject matter contained herein, supersedes all prior and contemporaneous
agreements, understandings and negotiations; and no parol evidence of prior or
contemporaneous agreements, understandings and negotiations shall govern or be
used to construe or modify this Lease. No modification or alteration hereof
shall be deemed effective unless in writing and signed by the parties hereto.
SECTION 16.11 NOTICES. Any notice or communication permitted or
required hereunder shall be made by letter either sent by certified mail with a
return receipt requested, or by personal delivery, (a) to Landlord at the
address stated in Section 1.09 hereinabove and/or such other address as Landlord
shall provide Tenant, or (b) to Tenant at its addresses first above written. Any
written notice sent by mail shall be deemed to have been served as of the next
regular day for the delivery of mail after the date it was mailed in accordance
with the preceding sentence.
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SECTION 16.12 EXECUTION OF LEASE. If either party hereto is a
partnership, limited partnership, corporation or other joint venture or
association, the individual(s) executing this Lease on behalf of such entity
warrants and represents that such entity is validly organized and existing and
authorized to do business under the laws of the State of Michigan, that the form
of entity is as set forth in the introductory paragraph of this Lease and the
acknowledgments at the end of this Lease, that the entity has full power and
lawful authority to enter into this Lease in the manner and form herein set
forth, and that the execution of this Lease by such individual(s) is proper and
sufficient to legally bind such entity in accordance with the terms and
conditions hereof. If Tenant consists of more than one person or entity, then
the obligations imposed on Tenant shall be joint and several.
SECTION 16.13 CAPTIONS AND SECTION NUMBERS. The table of contents,
captions, article numbers, and section numbers appearing in this Lease are
inserted only as a matter of convenience and in no way define, limit, construe
or describe the scope or intent of such articles or sections.
SECTION 16.14 INTENT OF THE PARTIES - NET LEASE. It is the intent of
the parties hereto that this Lease shall be a Net Lease with Landlord incurring
no obligation, monetary or otherwise, which is not specifically and expressly
provided for in this Lease.
SECTION 16.15 ADVICE OF COUNSEL. The advice of legal counsel has been
obtained by each of the parties to this Lease prior to the signing of this Lease
and the undersigned have executed this Lease voluntarily and for reasons of
their own and in so doing do not and have not relied upon any statement of any
person or entity affiliated with or related to any party hereto as to the legal
sufficiency, legal effect or tax consequences or this Lease.
SECTION 16.16 ENVIRONMENTAL LAWS. Tenant, its agents, employees,
sublessees or assignees, shall not do, or cause to be done any work or activity
on the Premises, which may cause the Premises, the Shopping Center, or any parts
thereof, to be in violation of any federal, estate or local environmental health
or safety statute, ordinance, rules, regulation, order or decree, relating to
the environment, or imposing liability or standards concerning or in connection
with hazardous, dangerous or toxic materials, waste or substances, including any
common law theories based on nuisance, negligence or strict liability (the
"environmental laws"). Tenant shall defend and indemnify Landlord from and
against any losses, claims, damages, penalties, liabilities, costs (including
clean-up costs) and expenses (including reasonable attorneys' fees) resulting
from Tenant's, its agents, employees, sublessees or assignees breach or
violation of any such environmental laws. Landlord shall defend and indemnify
Tenant from and against any losses, claims, damages, penalties, liabilities,
costs (including clean up costs) and expenses (including reasonable attorneys
fees) resulting from Landlord, its agent or employees' breach of any
environmental laws.
SECTION 16.17 CONSENT. Wherever in this Lease Landlord or Tenant is
required to give its consent or approval, such consent or approval shall not be
unreasonably withheld, conditioned or delayed except in instances where Landlord
is precluded from acting in a reasonable manner in order to satisfy the
requirements of any governmental requirements.
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SECTION 16.18 ADDITIONAL RULES AND REGULATIONS. Tenant acknowledges the
following Shopping Center Regulations which Landlord may change or modify from
time to time and Tenant agrees to abide by such Regulations.
(1) All storefront signs will be fully illuminated from
one-half (1/2) hour before dusk until 10:30 p.m. or later each and
every day unless prevented from doing so by loss of power, fire, or
other casualty. The electrical power source and method of activation of
turn on and turn off of all store front signage shall be determined by
the Landlord in the exercise of its reasonable judgment.
(2) To display no merchandise and solicit no business outside
the Demised Premises nor in any way obstruct the sidewalks adjacent
thereto, and not to burn or place garbage, rubbish, trash, merchandise,
containers, or other incidentals outside the Demised Premises. In the
event that Tenant, its agents, employees or those claiming or holding
under Tenant, place merchandise, rubbish, refuse or other articles
outside the Demised Premises, Landlord may cause the same to be
removed, and Tenant shall pay the cost of such removal to Landlord,
upon demand. In the event of a dispute over Tenant's responsibility for
such merchandise, rubbish, refuse or other articles at any time during
the construction of the Demised Premises or the balance of the term of
this Lease, the decision of Landlord shall be binding upon Tenant.
(3) To load or unload all merchandise, supplies, fixtures,
equipment and furniture and to cause the collection of rubbish only
through the rear service door of the Demised Premises, unless the
Demised Premises have no such service door.
(4) Not to injure the Demised Premises, and to prevent the
Demised Premises from being used in any way which will injure the
reputation of the same or of the Shopping Center, or which may be a
nuisance, annoyance, inconvenience or damage to the other Tenants of
the Shopping Center or owners or tenants of neighboring buildings.
(5) To keep the Demised Premises, at all times, in a clean,
attractive, careful, safe and proper manner, free and clear from
rubbish and dirt, to keep the outside sidewalk and curb areas adjoining
the Demised Premises clean of debris, not to cause the Demised Premises
or Common Areas to be in other than a clean and sanitary condition.
(6) To erect no antenna, wiring or aerials upon the roof of
the Demised Premises or the building of which they are a part, without
the prior written consent of Landlord.
(7) Not to install any used or second-hand fixtures, display
cases, racks or equipment in or about the Demised Premises without the
prior written approval of Landlord; to store or stock in the Demised
Premises only such goods, wares and merchandise as Tenant intends to
offer for sale at retail from the Demised Premises; and to use for
office, clerical
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<PAGE> 34
or other non-selling purposes only such space in the Demised Premises
as is reasonably required for Tenant's business therein.
(8) Not to operate, without the prior written consent of
Landlord, any coin or token operated vending machine, or similar device
for the sale of any goods, wares, merchandise, food, beverages, or
services, including but not limited to pay lockers, pay toilets,
scales, amusement devices and machines for the sale of beverages, food,
candy, cigarettes, or other commodities. But this paragraph shall not
preclude Tenant from operating an automatic teller machine.
(9) To adequately heat and air condition the Demised Premises
at all times, whether or not Tenant is open for Business.
(10) To use any trash collection facilities or services which
Landlord may from time to time provide, and to pay the reasonable cost
thereof within ten (10) days after being billed therefor. The basis for
computing Tenant's share of the cost of such trash collection shall be
determined by Landlord in the exercise of its reasonable judgment.
(11) Not to permit any noise or disorders in the Demised
Premises which are objected to by Landlord or any Tenant or occupant of
the Shopping Center, and to allow Landlord, at its sole discretion, to
hire a security guard to control general disruptions in and about the
Demised Premises, and to charge whatever Tenant it deems appropriate
for such expense.
(12) To install and maintain at its own expense, fire
extinguisher and other fire protection devices as may be required from
time to time by any agency having jurisdiction thereof, and by any
insurance underwriters who are insuring the building where the Demised
Premises are located, and to further comply with any and all
requirements of the insurance underwriters insuring the Demised
Premises.
(13) Tenant shall use, at Tenant's cost, such pest
extermination at such intervals as may be required to maintain the
Premises in a sanitary condition, and upon written notice from
Landlord, Tenant shall provide Landlord with a copy of Tenant's pest
control contract.
(14) Tenant shall not house domesticated pets i.e., cats,
dogs, etc., in or about their Demised Premises at anytime unless said
animals are accompanied by the handicapped as required by law.
SECTION 16.19 MERCHANTS' ASSOCIATION. If a majority of tenants in the
Shopping Center shall determine that it is in the best interests of the Shopping
Center, Tenant will become a member of, and participate fully in, and remain in
good standing in the Merchants' Association (as soon as the same has been
formed), organized for tenants occupying premises in the Shopping Center, and
Tenant will abide by the regulations of such Association. Each member tenant
shall have one (1)
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vote, and the Landlord shall also have one (1) vote, in the operation of said
Association. The objects of such Association shall be to encourage its members
to deal fairly and courteously with their customers, to encourage ethical
business practices, and to assist the business of the tenants by sales promotion
and center wide advertising. The Tenant agrees to pay minimum dues to the
Merchants' Association, provided however, that in no event shall the dues paid
by Tenant in any fiscal year of said Association be in excess of twenty (.20)
cents per square foot of Premises leased to Tenant. Default in payment of dues
shall be treated in similar manner to default in rent with like rights of
Landlord at its option to the collection thereof on behalf of the Merchants'
Association.
SECTION 16.20 WAIVER OF JURY TRIAL AND COUNTERCLAIM. The parties hereto
shall and they hereby do waive trial by jury in any action, proceeding or
counterclaim brought by either of the parties hereto against the other on any
matters whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Demised
Premises, and/or any claim of injury or damage. In the event Landlord commences
any proceedings for non-payment of rent, minimum rent, percentage rent or
additional rent, Tenant shall not interpose any counterclaim of whatever nature
or description in any such proceeding. This shall not, however, be construed as
a waiver of Tenant's right to assert such claims in any separate action brought
by Tenant.
SECTION 16.21 SALE OF PREMISES BY LANDLORD. In the event of any sale of
the Premises by Landlord, Landlord shall be and is hereby entirely freed and
relieved of all liability under any and all of its covenants and obligations
contained in or derived from this Lease, arising out of any act, occurrence or
omission occurring after the consummation of such sale; and the purchaser, at
such sale or any subsequent sale of the Premises shall be deemed, without any
further agreement between the parties or their successors in interest or between
the parties and any such purchaser, to have assumed and agreed to carry out any
and all of the covenants and obligations of the Landlord under this Lease.
SECTION 16.22 APPROVAL. Landlord agrees that tenant shall have 50 days
to obtain approval of this Lease by the State of Michigan Financial Institutions
Bureau and that if such approval is not received within said period of time,
Tenant or Landlord may terminate this agreement.
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<PAGE> 36
THIS LEASE AGREEMENT has been executed as of the date and year first
set forth above.
WITNESS: "LANDLORD"
TROY SPORTS CENTER, L.L.C., a
Michigan limited liability company
By:
- ------------------------------ ------------------------------
Its:
- ------------------------------ ------------------------------
"TENANT"
MICHIGAN HERITAGE BANK, a
Michigan corporation
By:
- ------------------------------ ------------------------------
Its:
- ------------------------------ ------------------------------
36
<PAGE> 1
EXHIBIT 10.5
28270 Orchard Lake Road
Farmington Hills, Michigan
OFFICE BUILDING LEASE
THIS LEASE is made this _____ day of ________________, 1998, between
RONTAL INVESTMENT COMPANY, a Michigan co-partnership ("Landlord"), whose address
is 13675 Plymouth Road, Detroit, Michigan 48227-3097 and MICHIGAN HERITAGE BANK,
a Michigan financial corporation ("Tenant"), whose address is 21211 Haggerty
Road, Novi, Michigan 48375.
1. BASIC LEASE TERMS AND PROVISIONS:
The following is intended to summarize the principal terms of
this Lease, but is not intended to be all inclusive. In the event that anything
contained in this Section 1 conflicts with other provisions hereinafter
contained in this Lease, the latter shall be deemed to control in the absence of
express statements to the contrary.
A. Building: 28270 Orchard Lake Road
Farmington Hills, Michigan 48334
B. Leased Premises: Suite No. 100 located on the first
(1st) floor of the Building and containing
approximately 1,200 rentable square feet. The term
"rentable square feet" is defined in Paragraph 34 of
the Lease.
C. Lease Term: Term of fifteen (15) years, commencing
upon July 1, 1999 ("Commencement Date"), and
terminating upon June 30, 2014 ("Termination Date").
D. Base Rent:
Monthly Annually
--------- ----------
Years 1 - 5 $2,200.00 $26,400.00
Years 6 - 10 $2,500.00 $30,000.00
Years 11 15 See Paragraph 3(c)
E. Base Operating Expenses: $6.75 per rentable square
foot in the Building.
F. Use: General Office Purposes.
G. Maximum Occupancy: N/A.
H. Security Deposit: Intentionally Omitted.
I. Broker: N/A.
2. PREMISES:
Landlord hereby leases to Tenant those certain premises
designated on the Plans attached hereto as Exhibit "A" (the "Premises"), as more
particularly defined in subparagraph B of
Landlord:
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Tenant:
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<PAGE> 2
Paragraph 1 hereof, together with a non-exclusive right, subject to the
provisions hereof, to use all appurtenances thereunto, including but not limited
to, uncovered parking areas and any other areas and facilities designated by
Landlord for use in common by tenants of the Building. The Building, real
property on which the same is situated, parking areas, other areas and
appurtenances are hereinafter collectively sometimes called the "Building
Complex". This Lease is subject to the terms, covenants and conditions set forth
herein and Tenant and Landlord each covenant as a material part of the
consideration for this Lease to keep and perform each and all of said terms,
covenants and conditions by it to be kept and performed and that this Lease is
made upon the condition of such performance. Subject to the provisions of
Paragraph 23 below, Tenant hereby acknowledges that portions of the covered
parking areas may be designated by Landlord for use by tenants of the Building
on an exclusive basis and that certain portions of the uncovered parking areas
may be designated by Landlord for the exclusive use by tenants or other
occupants of the Building.
3. TERM:
(a) The term of this Lease shall be for the period of
years referred to in subparagraph C of Paragraph 1
hereof (the "Primary Lease Term") commencing at 12:01
a.m. on the Commencement Date, and terminating at
12:00 midnight on Termination Date, unless sooner
terminated pursuant to this Lease.
(b) The Commencement Date shall be the first day of the
month after the date on which Landlord has delivered
possession of the Premises to Tenant Ready for
Occupancy, as said term is defined in Paragraph 20(a)
hereof; provided, however, the Premises shall not be
deemed Ready for Occupancy by Tenant unless Landlord
has provided Tenant with written notice at least
thirty (30) days prior to the date on which Landlord
anticipates the Premises shall be delivered. Except
as provided below, in the event Landlord fails to
deliver the Premises on the Commencement Date because
the Premises are not then ready for occupancy, or for
any other cause beyond Landlord's control, Landlord
shall not be liable to Tenant for any damages as a
result of Landlord's delay in delivering the Premises
and the Commencement Date shall be postponed until
such date as the Premises are ready for Tenant's
occupancy and the Termination Date shall be postponed
for a like number of days. In the event of any such
postponement, the parties agree to enter into a
Supplement to Lease at the time that the Commencement
Date is determined. Such Supplement to Lease shall
stipulate the Commencement Date and Termination Date
of this Lease.
(c) It is understood and agreed by Landlord and Tenant
that the rent to be paid by Tenant during years
eleven (11) through fifteen (15) of the Primary Lease
Term shall be the "prevailing market rate" for
similar space in the Building and in substantially
equivalent buildings in the general neighborhood of
the Building. The parties agree to negotiate, in good
faith, such rental based on leases executed during
the one (1) year period prior to the commencement of
the eleventh (11th) lease year. For the purpose
hereof, substantially equivalent buildings shall be
deemed to be the following buildings:
[Weight Watchers], Orchard Lake Road, Farmington
Hills, Michigan
[Berry Center], Orchard Lake Road, Farmington Hills,
Michigan
[Mind], Orchard Lake Road, Farmington Hills, Michigan
In no event, however, shall the rental to be paid by
Tenant during said years be less than Twenty-Five
Dollars ($25.00) per rentable square foot, nor more
than Twenty-Seven Dollars ($27.00) per rentable
square foot.
Tenant:
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(d) In the event that any portion of the first (1st)
floor of the Building contiguous to the Premises
shall become available for occupancy after the
initial occupancy thereof by a third party, then
Landlord shall notify Tenant as to the availability
of same and Tenant shall have ten (10) days after
receipt of such notice to advise Landlord as to its
interest in entering into a lease agreement covering
such space. In the event Tenant elects to lease such
space designated in Landlord's notice, the parties
shall have thirty (30) days after the date of
Tenant's positive response during which to agree upon
the terms and conditions of Tenant's occupancy of
such space, which terms and conditions shall be based
upon the then prevailing market rate for the
Building. In the event Tenant fails to notify
Landlord of its interest in such space within the
appropriate time period after Landlord's notification
or, after having notified Landlord of such interest,
the parties are unable to reach a mutually
satisfactory agreement regarding Tenant's occupancy
of same within fifteen (15) days after submission by
Landlord of a lease agreement containing the terms
and conditions agreed upon by the parties, Landlord
shall have the right to lease such space to any other
party.
(e) Provided Tenant is not in default under the terms of
this Lease at the time that the option hereinafter
granted is exercisable or is to commence and Tenant
has not assigned its interest under this Lease
(except for a subsidiary or affiliate of Tenant),
Tenant shall have the right to extend the term of
this Lease for an additional period of five (5) years
(the "Renewal Term") on the same terms and conditions
contained in this Lease, except for the increase in
Base Rent as hereinafter provided. Written notice of
an election by Tenant to extend the term of this
Lease must be delivered to Landlord by certified
mail, return receipt requested, at least three
hundred (300) days prior to the commencement date of
the Renewal Term, but not more than three hundred
sixty-five (365) days prior to such commencement
date. In the event the option hereinabove provided is
not exercised within and in the manner herein
provided, then the same shall expire and be of no
further force or effect so long as Landlord has given
Tenant written notice at least four hundred (400)
days prior to the commencement date of the applicable
Renewal Term.
In the event Tenant exercises the option to extend
the term of this Lease, as hereinabove set forth, the
Base Pent to be paid by Tenant during the Renewal
Term shall be the product obtained by multiplying the
total number of rentable square feet then occupied by
Tenant in the Building by Thirty-Two Dollars
($32.00).
4. RENT:
Tenant shall pay to Landlord, as Base Rent for the Premises,
the rental set forth in subparagraph D of Paragraph 1 hereof. All rent shall be
payable on the first day of each calendar month during the term hereof. All such
rent shall be paid in advance without deduction or offset at the office of
Landlord or to such other person or at such other place as Landlord may
designate in writing.
In the event Tenant shall fail to pay, within five (5) days
after the same is due and payable, any installment of the Base Rent or any
additional rent to be paid by Tenant to Landlord under the terms of this Lease,
then such unpaid amounts shall bear interest from the due date thereof to the
date of payment at the rate of ten percent (10%) per annum. In any event,
however, Tenant shall be charged a service charge with respect to each monthly
installment of rental not received by the fifth (5th) day of the calendar month
for which said installment is due. Such service charge shall reimburse Landlord
for the additional administrative expenses incurred by Landlord in connection
with the collection of such late installment of monthly rental. The service
charge shall be Twenty and 00/100ths Dollars ($20.00) for any rental not paid by
the fifth (5th) day of the month and Fifty and 00/100ths Dollars ($50.00) for
any rental not paid by the fifteenth (15th) day of such month.
Tenant:
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5. RENT ADJUSTMENT:
(a) The following terms shall have the following
meanings with respect to the provisions of
this Paragraph 5:
(1) "Base Operating Expenses" shall mean the
amount set forth in subparagraph E of
Paragraph 1 of this Lease.
(2) "Tenant's Pro Rata Share" shall mean that
proportion of any increase in Operating
Expenses (as hereinafter defined) for any
calendar year over the Base Operating
Expenses as the total number of rentable
square feet of the Premises compares to the
total number of rentable square feet in the
Building. At such time, if ever, any space
is added to the Premises pursuant to the
terms of this Lease, Tenant's Pro Rata Share
shall be increased by the percentage
calculated by dividing the number of
additional rentable square feet by the total
number of rentable square feet in the
Building.
(3) "Operating Expenses" shall:
A. Mean all reasonable operating expenses of
any kind or nature with respect to the
Building Complex as determined in accordance
with industry standards and shall include,
but not be limited to, all general and
special real estate or ad valorem taxes or
special assessments levied against the
Building Complex by the State of Michigan or
any instrumentality thereof or any taxes or
assessments which shall be levied on the
Building Complex in lieu of or in addition
to all or any portion of any such real
estate taxes or assessments, or which shall
be levied on the rentals of the Building
Complex (other than net income taxes), but
in this case, the computation shall be made
as if this were Landlord's only building, or
which shall be levied on Landlord as a
result of the use, ownership or operation of
the Building Complex; the cost of Building
Complex supplies; costs incurred in
connection with all energy sources for the
common areas of the Building Complex such as
propane, butane, natural gas, steam,
electricity, solar energy and fuel oil; the
costs of water and sewer services;
janitorial services; general maintenance and
normal repair of the Building Complex,
including the heating and air conditioning
systems of the Building Complex; landscaping
maintenance; maintenance, repair, striping
and replacement of all parking areas
furnished by Landlord for use by tenants of
the Building; the cost of rubbish removal,
snow removal and service contracts for the
elevator, HVAC and alarm systems of the
Building Complex; the cost of such security
guard and protection services as may be
deemed reasonably necessary by Landlord;
insurance in amounts and coverage determined
by Landlord, including fire and extended
coverage, rental interruption, sprinkler
leakage, plate glass and public liability
insurance (but Tenant shall have no interest
in such insurance or the proceeds thereof);
labor costs incurred in the operation and
maintenance of the Building Complex,
including wages and other payments, costs to
Landlord of Workers' Compensation and
disability insurance; payroll taxes, and
welfare benefits; professional building
management fees; legal, accounting,
inspection and consultation fees incurred in
connection with the Building Complex solely
to the extent required by any governmental
authority or any other inspection or
consultation fees required for the normal
prudent operation of the Building Complex
and not normally the responsibility of the
managing agent; the cost of any capital
improvements to the Building
Tenant:
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<PAGE> 5
Complex of a repair or replacement nature
only, which costs shall be amortized over
the useful life of the capital improvement
(as designated by Internal Revenue Service
regulations and guidelines); the cost of
obtaining an extended roof warranty for the
period between the eleventh (11th) and
fifteenth (15th) years of the Primary Lease
Term inspection and consultation fees for
professional roof inspections to be
conducted by Landlord; all other common area
costs and expenses relating to the Building
Complex and all other charges properly
allocable to the repair, operation and
maintenance of the Building Complex in
accordance with generally accepted
accounting principles. If the Building is
not fully occupied during any calendar year,
those components of Operating Expenses for
such year which vary according to the level
of occupancy shall be adjusted to reflect
the greater of: (a) actual occupancy; or (b)
a 95 percent (95%) occupancy of the
Building. If Landlord selects an accrual
accounting basis for calculating Operating
Expenses, Operating Expenses shall be deemed
to have been paid when such expenses have
accrued in accordance with generally
accepted accounting principles.
B. Expressly exclude Landlord's income
taxes, Single Business Tax or any gross
receipt tax; leasing commissions, interest
on debt or amortization payments on any
mortgages or deeds of trust and rental under
any ground or underlying leases or lease;
any costs or expenses which are incurred in
connection with, or for the benefit of, any
specific tenant; advertising and promotional
expenditures; the cost of any repairs to the
extent of any insurance proceeds recovered
by Landlord with respect thereto; and any
other expense which under generally accepted
accounting principles would not be
considered a normal maintenance or operating
expense, except as otherwise specifically
provided herein.
C. Expressly exclude, in addition, any costs
relating to the repair, replacement or
maintenance of the roof or outer walls of
the Building. Any cost incurred in replacing
the parking areas of the Building Complex
during the ten (10) year period subsequent
to the Commencement Date shall also be
excluded. In the event Landlord shall make a
capital expenditure, including, but not
limited to, the replacement of said parking
areas at any time subsequent to said tenth
(10th) anniversary date, then the cost(s)
thereof shall be amortized over the useful
life for such replacement (as determined by
Internal Revenue Service guidelines) and the
proportionate share of such cost allocable
to any year subsequent to the performance of
such replacement shall be included in the
Operating Expenses during each subsequent
year during the balance of the Primary Lease
Term and any Renewal Term.
(b) It is hereby agreed that during each calendar year of
the term hereof, Tenant shall pay to Landlord
Tenant's Pro Rata Share of the amount of any excess
Operating Expenses over Tenant's Pro Rata Share of
the Base Operating Expenses. Beginning with the first
calendar year in which this Lease commences, the
monthly rent to be paid by Tenant to Landlord shall
be increased by an amount equal to 1/12th of the
estimated increase, if any, in Tenant's Pro Rata
Share of the Operating Expenses for each calendar
year over Tenant's Pro Rata Share of the Base
Operating Expenses, with an adjustment to be made
between the parties at a later date as hereinafter
provided. However, in computing the increases in the
monthly rental for Tenant's Pro Rata Share of the
Operating Expenses for any calendar year based upon
the estimated increase thereof, there shall be taken
into account
Tenant:
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5
<PAGE> 6
any prior increases in the monthly rent attributable
to Tenant's Pro Rata Share of the estimated increases
in such Operating Expenses. As soon as practicable
following the end of each calendar year during the
term of this Lease, [but in no event later than
ninety (90) days thereafter], Landlord shall submit
to Tenant a statement setting forth the exact amount
of the increase, if any, in Tenant's Pro Rata Share
of the Operating Expenses for the calendar year just
completed over Tenant's Pro Rata Share of the Base
Operating Expenses, and the difference, if any,
between Tenant's actual Pro Rata Share of the
Operating Expenses for the calendar year just
completed and the estimated amount of Tenant's Pro
Rata Share of the Operating Expenses (on which its
rent was based) for such year. Prior to the end of
each calendar year during the term hereof, Landlord
shall submit to Tenant a statement setting forth the
amount reasonably estimated by Landlord as the
increase, if any, in the Base Operating Expenses for
the subsequent year and the amount of the increased
monthly rent to be paid by Tenant for such subsequent
year computed in accordance with the foregoing
provisions. It is to be understood and agreed that
all estimating provisions as referenced above shall
be computed on the basis of the Operating Expenses
being adjusted as if the Building were not less than
95 percent (95%) occupied. To the extent that
Tenant's Pro Rata Share of the actual Operating
Expenses for the period covered by such statement is
different from the estimated increases upon which
Tenant paid rent during the calendar year just
completed, Landlord shall pay to Tenant, or Tenant
shall pay to Landlord, as the case may be, the
difference within thirty (30) days following receipt
of said statement from Landlord, but in no event
shall such statement be submitted later than ninety
(90) days after the end of the calendar year. In
addition, with respect to the monthly rent, until
Tenant receives such statement, Tenant's monthly rent
for the new calendar year shall continue to be paid
at the then current rate, but Tenant shall commence
payment to Landlord of the monthly installments of
rent on the basis of the statement beginning on the
first day of the month following the month in which
Tenant receives such statement. Moreover, Tenant
shall pay to Landlord, or shall receive a credit
against the next installment due hereunder, as the
case may be, on the date required for the first
payment of rent as adjusted, the difference, if any,
between the monthly installments of rent so adjusted
and the monthly installments of rent actually paid
during the new calendar year. In no event shall any
adjustment hereunder result in a decrease in the Base
Rent or additional rent payable pursuant to any other
provision of this Lease (except escalation pursuant
to this Paragraph 5), it being agreed that the
payments under this Paragraph 5 are an obligation
supplemental to Tenant's obligation to pay the Base
Rent.
(c) If Tenant occupies the Premises for less than a full
calendar year during the first or last calendar years
of the term hereof, Tenant's Pro Rata Share for such
partial year shall be calculated by proportionately
reducing the Base Operating Expenses to reflect the
number of months in such year during which Tenant
occupied the Premises (the "Adjusted Base Operating
Expenses"). The Adjusted Base Operating Expenses
shall then be compared with the actual Operating
expenses for said partial year to determine the
amount, if any of any increases in the actual.
Operating Expenses for such partial year over the
Adjusted Base Operating Expenses. Tenant shall pay
its Pro Rata Share of any such increases within
thirty (30) days following receipt of notice thereof.
(d) Landlord's failure during the Lease term to prepare
and deliver any statements or bills, or Landlord's
failure to make a demand under this Paragraph or
under any other provision of this. Lease shall not in
any way be deemed to be a waiver of, or cause
Landlord to forfeit or surrender, its rights to
collect any items of additional rent which may have
become due
Tenant:
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pursuant to this Paragraph during the term of this
Lease, except as otherwise specifically set forth in
this Lease and provided that if such failure shall
exist for more than twelve (12) months, Landlord
shall be deemed to have waived any claim therefor.
Tenant's liability for all additional rent due under
this Paragraph 5 shall survive the expiration or
earlier termination of this Lease.
(e) Statements required hereunder shall be in reasonable
detail identifying the amount and nature of the
estimates, and/or the final accounting calculations.
Tenant shall have the right to request an audit of
Landlord's books and records relating to Operating
Expenses, at its expense. If there is a dispute
arising out of Landlord's calculations, Landlord
shall make copies of its records available to Tenant.
(Any dispute not resolved between the parties shall
be submitted to binding arbitration.
(f) Notwithstanding anything to the contrary contained in
this Paragraph 5, in no event shall Tenant be
responsible for the payment of Tenant's Pro Rata
Share of any Operating Expenses allocable to the
calendar year of 1999.
Thereafter, commencing with Tenant's Pro Rata Share
for the calendar year 2000 and continuing throughout
the balance of the Primary Lease Term and any Renewal
Term, Landlord agrees that those components of
Operating Expenses, exclusive of real estate taxes,
utility charges, insurance premiums, and capital
expenditures permitted to be amortized pursuant to
Paragraph 5(a)C. above, shall not exceed one hundred
five percent (105%) of the Operating Expenses, on a
cumulative basis, for the same components incurred
during the preceding calendar year.
6. CHARACTER OF OCCUPANCY:
(a) The Premises are to be used only for those purposes
set forth in subparagraph F of Paragraph 1 hereof and
any other incidental use which is legally permitted
and is not inconsistent with the character and type
of tenancy found in first-class office buildings in
the Detroit, Michigan Metropolitan Area. The parties
hereto agree that Tenant shall have the right to
install a drive-up window and ATM machine (or in a
kiosk in the parking lot) at the Premises so long as
Landlord can obtain all required municipal approvals
therefore which Landlord shall undertake to obtain as
part of the overall approval process. The design and
location of any kiosk shall be subject to the
reasonable approval of Landlord. Tenant shall
maintain and repair, at Tenant's sole expense, any
such kiosk. Tenant shall also, at Tenant's expense,
remove the kiosk at the expiration of the lease term
and repair any damage to the parking lot caused by
such removal. The parties hereto. further agree that
the Premises may only be occupied by the maximum
number of persons stipulated in subparagraph G of
Paragraph 1 hereof and in the event of any violation
of such provision, Tenant agrees, upon notice from
Landlord, to reduce the number of persons occupying
the Premises to the maximum number set forth therein.
(b) Tenant shall not suffer nor permit the Premises nor
any part thereof to be used in any manner, nor
anything to be done therein, nor suffer or permit
anything to be brought into or kept therein, which
would in any way (i) make void or voidable any fire
or liability. insurance policy then in force with
respect to the Building; (ii) make unobtainable from
reputable insurance companies authorized to do
business in Michigan any fire insurance with extended
coverage, or liability, elevator, boiler or other
insurance required to be furnished by Landlord under
the terms of any lease or mortgage to which this
Lease is subordinate at standard rates provided
Tenant is not deprived of its intended use of the
Premises; (iii) cause or in Landlord's reasonable
Tenant:
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<PAGE> 8
opinion be likely to cause physical damage to the
Building or any part thereof (iv) constitute a public
or private nuisance; (v) impair, in the reasonable
opinion of Landlord, the appearance, character or
reputation of the Building; (vi) discharge
objectionable fumes, vapors or odors into the
Building air conditioning system or into the Building
flues or vents not designed to receive them or
otherwise in such manner as may unreasonably offend
other occupants; (vii) impair or interfere with any
of the Building services or impair or interfere with
or tend to impair or interfere with the use of any of
the other areas of the Building by, or occasion
discomfort, or annoyance to Landlord or any of the
other tenants or occupants of the Building, any such
impairment or interference to be in the reasonable
judgment of Landlord; (viii) increase on an ongoing
periodic basis the pedestrian traffic in and out of
the Premises or the Building above an ordinary level;
(ix) constitute waste; or (x) make any noise or set
up any vibration which will disturb other tenants,
except in the course of permitted repairs or
alterations.
(c) Tenant shall not use the Premises nor permit anything
to be done in or about the Premises which will in any
way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which
may hereafter be enacted or promulgated. Tenant shall
give prompt notice to Landlord of any notice it
receives of the violation of any law or requirement
of any public authority with respect to the Premises
or the use or occupation thereof. Landlord shall give
prompt notice to Tenant of any notice it receives
relative to the violation by Tenant of any law or
requirement of any public authority with respect to
the Premises or the use or occupation thereof.
7. SERVICES AND UTILITIES:
(a) Landlord agrees, without charge except as provided
herein, and in accordance with standards reasonably
established from time to time prevailing for office
buildings in the Metropolitan Detroit Area, to
furnish water to the Building for use in lavatories
and drinking fountains (and to the Premises if the
plans for the Premises so provide); during the hours
from 8:00 a.m. to 6:00 p.m. on Monday through Friday
and 8:00 a.m. to 1:00 p.m. on Saturday, (excluding
holidays) to furnish such heated or cooled air to the
Premises as may, in the judgment of Landlord, be
reasonably required for the comfortable use and
occupancy of the Premises provided that Tenant
complies with the recommendations of Landlord's
engineer regarding occupancy and use of the Premises;
to provided janitorial services for the Premises
(including such interior and exterior window washing
as may be determined by Landlord but no less
frequently than two (2) times per year), such
janitorial services to be provided after 6:00 p.m.
five (5) days a week or Monday through Friday
(excluding, legal holidays); during ordinary business
hours to cause electric current to be supplied for
lighting the public portions of the Building or
Building Complex; and to furnish such snow removal
services to the Building Complex as may, in the
judgment of Landlord, be reasonably required for safe
access to the Building Complex.
Landlord agrees to maintain the Building at a
habitable level at all times and Tenant will have the
ability to override the system to provide, at
Tenant's cost, for HVAC before or after Building
standard hours.
(b) Tenant hereby agrees to pay all charges with respect
to electrical services furnished to or used within
the Premises. Landlord agrees to provide and install
appropriate meters at the Premises for measuring
Tenant's consumption of electricity as part of
Landlord's construction work pursuant to Paragraph 20
(a) hereof. Tenant shall pay all such charges for
electricity within ten (10) days after the date of
submission of a monthly statement to
Tenant:
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<PAGE> 9
Tenant. Charges for electricity shall be at the same
rates, terms and conditions as rates, terms and
conditions for comparable services from The Detroit
Edison Company.
(c) If Tenant requires water in excess of that usually
furnished or supplied for use in the Premises as
general office space, Tenant shall first procure the
consent of Landlord for the use thereof. Tenant
agrees to pay to Landlord such amounts as Landlord
reasonably determines are necessary to cover the
costs of such increased use of water, including any
cost incurred in connection with the installation of
a meter required to measure such use.
(d) Tenant agrees that Landlord shall not be liable for
failure to supply any heating, air conditioning,
elevator, electrical, janitorial, lighting or other
services during any period when Landlord uses
reasonable diligence to supply such services, or
during any period Landlord is required to reduce or
curtail such services pursuant to any applicable
laws, rules or regulations, now or hereafter in force
or effect, it being understood that Landlord may
discontinue, reduce or curtail such. services, or any
of them (either temporarily or permanently), at such
times as it may be necessary by reason of accident,
unavailability of (Employees, repairs, alterations,
improvements, strikes, lockouts, riots, acts of God,
application of applicable laws, statutes, rules and
regulations, or due to any other happening beyond the
control of Landlord. In the event of any such
interruption, reduction or discontinuance of
Landlord's services (either temporary or permanent),
Landlord shall not be liable for damages to persons
or property as a result thereof, except for damage
relating solely to its negligence, nor shall the
occurrence of any such event in any way be construed
as an eviction of Tenant or cause or permit an
abatement, reduction or setoff of rent, or operate to
release Tenant from any of Tenant's obligations
hereunder.
Anything in this Lease to the contrary
notwithstanding if the stoppage of services which
Landlord is obligated to provide for Tenant causes
any portion of the Premises to become unusable by
Tenant or access to the Premises is barred thereby
for more than three (3) consecutive days, then and in
that event, Tenant shall be entitled to a pro rata
abatement of rent as to such unusable portion of
Premises commencing with the fourth (4th) day that
the same are unusable; provided; however, that Tenant
shall not be entitled to any abatement of rent due to
unusability: (a) caused by any act or omission of
Tenant or any of Tenant's servants, employees,
agents, visitors or licensees; or (b) where Tenant
requests Landlord to make a decoration, alteration,
improvement or addition; or (c) where the repair in
question or the services in question are those which
Tenant is obligated to make or furnish under any of
the provisions of this Lease.
(e) Whenever heat generating machines or equipment are
used by Tenant in the Premises which affect the.
temperature otherwise maintained by the air
conditioning system, Landlord reserves the right to
install supplementary air conditioning units in the
Premises in the event Landlord's independent
consulting engineer determines same are reasonably
necessary as a result of Tenant's use of lights or
equipment which generate heat loads in excess of
those for which the HVAC system is designed and the
cost therefor, including the cost of installation,
operation and maintenance thereof, shall be paid by
Tenant to Landlord upon demand by Landlord.
8. QUIET ENJOYMENT:
Landlord warrants and agrees to defend Tenant in the quiet
enjoyment and possession of the Premises during the term of this Lease
so long as Tenant complies with the provisions
Tenant:
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<PAGE> 10
hereof. In the event of any transfer or transfers of Landlord's
interest in the Premises or in the real property which is inclusive of
the Premises other than a transfer for security purposes only, the
transferor shall be automatically relieved of any and all obligations
and liabilities on the part of Landlord accruing from and after the
date of such transfer other than the obligation to refund any security
deposits, rebates, operating expenses or other payments or damages for
which Landlord was liable or for which a claim arose during its period
of ownership.
9. MAINTENANCE AND REPAIRS:
(a) Landlord agrees to maintain the Building and Building
Complex in a first class condition consistent with
the standards therefor set by similar type buildings
located in the same general area as the Building.
Landlord shall make all necessary repairs and
replacements to the non-leasable areas of the
Building, to the Treating, air conditioning and
electrical systems located in the Building, and to
the common areas, including parking areas, and
Landlord shall also make all repairs to the Premises
which are structural in nature; provided, however,
that Tenant shall make all repairs and replacements
arising from its act, neglect or default and that of
its agents, servants and employees,
In the event that the Landlord shall deem it
necessary, or be required by any governmental
authority to repair, alter, remove, reconstruct or
improve any part of the Premises or of the Building
(unless the same result from Tenant's act, neglect,
default or mode of operation in which event Tenant
shall make all such repairs, alterations and
improvements), then the same shall be made by
Landlord with reasonable dispatch, and should the
making of such repairs, alterations or improvements
cause any interference with Tenant's use of the
Premises, such interference shall not relieve Tenant
from the performance of its obligations hereunder.
(b) Tenant, at Tenant's sole cost and expense, except for
services furnished by Landlord pursuant to Paragraph
7 hereof, shall maintain the Premises in good order,
condition and repair, reasonable wear and tear
excepted; and to the extent such items exceed
Building standards, plumbing pipes, electrical
wiring, switches, fixtures and other special items
subject to the provisions of Paragraph 15. In the
event Tenant fails to maintain the Premises in good
order, condition and repair, Landlord shall give
Tenant detailed written notice to do such acts as are
reasonably required to so maintain the Premises. In
the event Tenant fails to promptly commence such work
and diligently prosecute it to completion, then
Landlord shall have the right, but shall not be
required, to do such acts and expend such funds at
the expense of Tenant' as are reasonably required to
perform such work. Landlord shall have no liability
to Tenant for any damage, inconvenience or
interference with the use of the Premises by Tenant
as a result of performing any such work; other than
liability for the gross negligence and wilful
misconduct of Landlord, its agents or employees.
(c) Landlord and Tenant shall each do all acts required
to comply with all applicable laws, ordinances,
regulations and rules of any public authority
relating to their respective maintenance obligations
as set forth herein.
10. ALTERATIONS AND ADDITIONS:
(a) Tenant shall make no alterations, additions or
improvements to the Premises or any part thereof
without obtaining the prior written consent of
Landlord, which shall consent not be unreasonably
withheld. Landlord may impose, as a condition to the
aforesaid consent, such requirements as Landlord may
Tenant:
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<PAGE> 11
deem necessary in its reasonable judgment, including
without limitation the manner in which the work is
done, a right to require Tenant to use Landlord's
contractor and the times during which it is to be
accomplished. Tenant further agrees not to connect
with Building systems, including electric wires,
water pipes, fire safety and mechanical systems, any
apparatus, machinery or device without the prior
written consent of Landlord.
(b) All alterations and additions to the Premises
(whether performed with or without Landlord's consent
as provided herein), shall be deemed a part of the
real estate and the property of Landlord and shall
remain upon and be surrendered with the Premises as
apart thereof without molestation, disturbance or
injury at the end of said term, whether by lapse of
time or otherwise, unless Landlord, by notice given
to Tenant no later than fifteen (15) days after
Tenant's written request to install any alterations,
additions or improvements after the completion of the
initial improvements to the Premises by Landlord,
shall require Tenant to remove all or any of such
alterations or additions excluding standard Tenant
finish work and non-movable office walls), and in
such event, Tenant shall promptly remove, at its sole
cost and expense, such alterations and additions and
restore the Premises to the condition in which the
Premises were prior to the making of the same,
reasonable wear and tear excepted. Any such removal,
whether required or permitted by Landlord, shall be
at Tenant's sole cost and expense, and Tenant shall
restore the Premises to the condition in which the
Premises were prior to the making of the same,
reasonable wear and tear excepted. All movable
partitions, trade fixtures, machines and equipment
which are installed in the Premises by or for the
account of Tenant, without expense to Landlord, and
can be removed without permanent structural damage to
or defacement of the Building or the Premises, and
all furniture, furnishings and other articles of
personal property owned by Tenant and located in the
Premises (all of which are herein called "Tenant's
Property"), shall be and remain the property of
Tenant and may be removed by it at any time during
the term of this Lease. However, if any of Tenant's
Property is removed, Tenant shall repair or pay the
cost of repairing any damage to the Building or the
Premises resulting from such removal. All additions
or improvements which are to be surrendered with the
Premises shall be surrendered with the Premises, as a
part thereof, at the end of the term or the earlier
termination of this Lease.
(c) If Landlord authorizes persons requested by Tenant to
perform any alterations, repairs, modifications or
additions to the Premises, then prior to the
commencement of any such work, Tenant shall on
request of Landlord deliver to Landlord certificates
issued by insurance companies qualified to do
business in the State of Michigan evidencing that
Workers' Compensation, public liability insurance and
property damage insurance, all in amounts, with
companies and on forms reasonably satisfactory to
Landlord, are in force and effect and maintained by
all such contractors and subcontractors engaged by
Tenant to perform such work. All such policies shall
name Landlord as an additional insured. Each such
certificate shall provide that the same may not be
cancelled or modified without thirty (30) days prior
written notice to Landlord.
(d) Tenant, at its sole cost and expense, shall cause any
permitted alterations, decorations, installations,
additions or improvements in or about the Premises to
be performed in compliance with all applicable
requirements of insurance bodies having jurisdiction,
and in such manner as hot to interfere with, delay,
or impose any additional expense upon Landlord in the
construction, maintenance or operation of the
Building, and so as to maintain harmonious labor
relations in the Building.
Tenant:
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<PAGE> 12
11. ENTRY BY LANDLORD:
Landlord and its agents shall have the right to enter the
Premises at all reasonable times during normal business hours, and upon
reasonable notice [at least twenty four (24) hours prior to proposed entry,
except in the event of emergency] for the purpose of examining or inspecting the
same, to supply any services to be provided by Landlord for Tenant hereunder, to
show the same to prospective purchasers of the Building, to make such
alterations, repairs, improvements or additions to the Premises or to the
Building of which they are a part as Landlord may deem necessary, and to show
the same to prospective tenants of the Premises (provided that in the event of
a bona fide emergency, Landlord may enter the Premises without advance notice.
solely for the purpose of taking emergency action). Landlord may for the purpose
of supplying scheduled janitorial services, enter the Premises by means of a
master key without liability to Tenant and without affecting this Lease.
12. CONSTRUCTION LIENS:
Tenant shall pay or cause to be paid all costs for work done
by Tenant or caused to be done by Tenant on the Premises of a character which
will or may result in liens on Landlord's interest therein and Tenant will keep
the Premises free and clear of all construction liens and other liens on account
of work done for Tenant or persons claiming under it. Tenant and Landlord each
hereby agree to indemnify, defend and save each other harmless of and from all
liability, loss, damage, injury, costs or expenses, including reasonable
attorneys' fees, incurred on account of any claims of any nature whatsoever for
work performed for, or materials or supplies furnished to Tenant, including lien
claims of laborers, materialmen or others. Should any such liens be filed or
recorded against the Premises with respect to work done or for materials
supplied to or on behalf of Tenant or any action affecting the title thereto be
commenced, Tenant shall cause such liens to be removed of record within five (5)
days after notice from Landlord. If Tenant desires to contest any such claim of
lien, it shall furnish Landlord with adequate security of at least 125 percent
(125%) of the amount of the claim, plus estimated costs and interest, and if a
final judgment establishing the validity or existence of any lien for any amount
is entered, Tenant shall pay and satisfy the same at once. If Tenant shall be in
default in paying any charge for which such construction lien or suit to
foreclose such a lien has been recorded or filed and shall not have given
Landlord security as aforesaid, Landlord may (but without being required to do
so) pay such lien or claim and any costs, and the amount so paid, together with
reasonable attorneys' fees incurred in connection therewith, shall be
immediately due from Tenant to Landlord.
13. DAMAGE TO PROPERTY, INJURY TO PERSONS:
(a) Tenant hereby indemnities and agrees to hold Landlord
harmless from and to defend Landlord against any and
all claims of liability for any injury or damage to
any person or property whatsoever occurring in, on or
about the Building Complex, the Premises or any part
thereof and provided that such injury or damage is
caused in whole by the act, neglect, fault or
omission of any duty with respect to the same by
Tenant, its agents, contractors or employees. Tenant
further indemnifies and agrees to hold Landlord
harmless from and against any and all claims arising
from any breach or default in the performance of any
obligation on Tenant's part to be performed under the
terms of this Lease, or arising from any act or
negligence of Tenant, or any of its agents,
contractors or employees from and against all costs,
reasonable attorneys' fees and expenses.
Landlord agrees to indemnify and hold Tenant harmless
from and defend Tenant against any and all claims of
liability for any injury or damage to any person or
property whatsoever when such injury or damage is
caused in part or whole by the act, neglect, fault or
omission of any duty with respect to same by
Landlord, its agents, contractors, employees or
invitees.
Tenant:
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<PAGE> 13
(b) Landlord shall not be liable to Tenant for any damage
by or from any act or negligence of any co-tenant or
other occupant of the Building, or by any owner or
occupant of adjoining or contiguous property. To the
extent not covered by normal fire and extended
coverage insurance, Tenant agrees to pay for all
damage to the Building Complex, as well as all damage
to tenants or occupants thereof, caused by Tenant's
misuse or neglect of the Premises or any portion of
the Building Complex.
(c) Neither Landlord nor its agents shall be liable for
any damage to property entrusted to Landlord, its
agents or employees of the building manager, if any,
nor for the loss or damage to any property by theft
or otherwise, nor for any, injury or damage to
persons or property resulting from fire, explosion,
falling plaster, steam, gas, electricity, sprinkler
system leakage, water or rain which may leak from any
part of the Building or from the pipes, appliances or
plumbing works therein or from the roof, street or
subsurface or from any other place or resulting from
dampness or any other cause whatsoever; provided,
however, nothing contained herein shall be construed
to relieve Landlord front liability for any property
damage, personal injury resulting from its negligence
or wilful misconduct or that of its agents, servants
or employees. Landlord or its agents shall not be
liable for interference with the lights, view or
other incorporeal hereditaments. Landlord and Tenant
shall give prompt notice mutual notice to each other
in case of fire or accidents in the Premises or in
the Building or of defects therein or in the fixtures
or equipment.
(d) In case any action or proceeding is brought against
Landlord or Tenant by reason of any obligation on
their respective parts to be performed Lender the
terms of this Lease, or arising from any of their
acts or negligence of them, respectively, or of their
agents or employees, such party, upon notice from the
other party shall defend the same at its expense by
counsel reasonably satisfactory to the party giving
such notice.
14. INSURANCE:
(a) Tenant shall procure and keep in effect public
liability and property damage insurance, naming the
Landlord as an additional insured, with companies and
in a form satisfactory to Landlord, in the sum of One
Million and 00/100ths Dollars ($1,000,000.00)for
damages resulting to one person, and Two Million and
00/100ths Dollars ($ 2,000,000.00) for damages
resulting from one casualty, and Two Million and
00/100ths Dollars ($2,000,000.00) for damage to
property resulting from any one occurrence and shall
deliver said policies or certificates to Landlord
prior to initial occupancy and continuously maintain
such coverage thereafter. Landlord shall have the
right, upon not less than thirty (30) days' prior
written notice, to raise the limits hereinabove set
forth not more often than every three (3) years
during the term of this Lease. Landlord may, procure
the same for the account of Tenant, and the cost
thereof shall be paid to Landlord upon receipt by
Tenant of bills therefore.
(b) Tenant shall procure and maintain at its own cost
during the term of this Lease and any extension
hereof fire and extended coverage insurance on
property of Tenant.
(c) Each party agrees to use its best efforts to include
in each of its policies insuring against loss, damage
or destruction by fire or other casualty (insuring
the Building and Landlord's Property therein and
rental value thereof, in the case of Landlord, and
insuring Tenant's Property and business interest in
the Premises [business interruption insurance] in the
case of
Tenant:
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<PAGE> 14
Tenant), a waiver of the insurer's right of
subrogation against the other party, or if such
waiver should be unobtainable or unenforceable (i) an
express agreement that such policy shall not be
invalidated if the insured waives the right of
recovery against any party responsible for a casualty
covered by the policy before the casualty, or (ii)
any other form of permission for the release of the
other party. If such waiver, agreement or permission
shall not be, or shall cease to be, obtainable
without additional charge or at all, the insured
party shall so notify the other party promptly after
learning thereof. In such case, if the other party
shall so elect and shall pay the insurer's additional
charge therefor, such waiver, agreement or permission
shall be included in the policy, or the other party
shall be named as an additional insured in the
policy. Each such policy which shall so name a party
hereto as an additional insured shall contain, if
obtainable, agreements by the insurer that the policy
will not be cancelled without at least thirty (30)
days prior notice to both insureds and that the act
or omission of one insured will, not invalidate the
policy as to the other insured.
(d) Each party hereby releases the other party with
respect to any claim (including a claim for
negligence) which it might otherwise have against the
other party for loss, damage or destruction with
respect to its property (including the Building,
Building Complex, the Premises and rental value or
business interruption) occurring during the term of
this Lease, but only to the extent to which it is
covered by insurance under a policy or policies
containing a waiver of subrogation or permission to
release liability or naming the other party as an
additional insured as provided above.
(e) Any building employee to whom property shall be
entrusted by or on behalf of Tenant shall be deemed
to be acting as Tenant's agent with respect to such
property and neither Landlord nor its agents shall be
liable for any damage to the property of Tenant or
others entrusted to employees of the Building, nor
for the loss of or damage to any property of Tenant
by theft or otherwise.
15. DAMAGE OR DESTRUCTION TO BUILDING:
(a) In the event the Premises or the Building are damaged
by fire or other insured casualty and the insurance
proceeds have been made available therefor by the
holder or holders of any mortgages or deeds of trust
covering the Building, the damage shall be repaired
by and at the expense of Landlord to the extent of
such insurance proceeds available therefor, provided
such repairs and restoration can, in Landlord's
reasonable opinion, be made within one hundred eighty
(180) days after the occurrence of such damage
without the payment of overtime or other premiums,
and until such repairs and restoration are completed
the rent shall be abated in proportion to the part of
the Premises which is unusable by Tenant in the
conduct of its business (but there shall be no
abatement of rent by reason of any portion of the
Premises being unusable for a period equal to three
(3) days or less). Landlord agrees to notify Tenant
within thirty (30) days after such casualty if it
estimates that it will be unable to repair and
restore the Premises within said one hundred eighty
(180) day period. Such notice' shall set forth the
approximate length of time Landlord estimates will be
required to complete such repairs and restoration.
Notwithstanding anything to the contrary contained
herein, if Landlord cannot or estimates it cannot
make such repairs and restoration within said one
hundred eighty (180) day period, then Tenant may, by
written notice to Landlord, cancel this Lease as of
the date of the occurrence of such damage, provided
such notice is given to Landlord within fifteen (15)
days after Landlord notifies Tenant of the estimated
time for completion of such repairs and restoration.
Except as provided in this Paragraph 15, there shall
be no abatement of rent and no liability of Landlord
by reason of any injury
Tenant:
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<PAGE> 15
to or interference with Tenant's business or property
arising from the making of any such repairs,
alterations or improvements in or to fixtures,
appurtenances and equipment. Tenant understands that
Landlord will not carry insurance of any kind on
Tenant's furniture and furnishings or on any fixtures
or equipment removable by Tenant Lender the
provisions of this Lease, and that Landlord shall not
be obligated to repair any damage thereto or replace
the same. Landlord shall not be required to repair
any injury or damage by fire or other cause, or to
make any repairs or replacements of improvements
installed in the Premises by or for Tenant.
(b) In case the Building throughout shall be so injured
or damaged, whether by fire or otherwise (though the
Premises may not be affected, or if affected, can be
repaired within said ninety (90) days) that Landlord,
within sixty (60) days after the happening of such
injury, shall decide not to reconstruct or rebuild
the Building, then notwithstanding anything contained
herein to the contrary, upon notice in writing to
that effect given by Landlord to Tenant within said
sixty (60) days, Tenant shall pay the rent, properly
apportioned up to date of such occurrence, this Lease
shall terminate from the date of delivery of said
written notice, and both parties hereto shall be
freed and discharged from all further obligations
hereunder, provided that if usable in part Tenant may
hold over at pro rata rent for upon to one hundred
fifty (150) days.
16. CONDEMNATION:
(a) If the whole of the Premises or so much thereof as to
render the balance unusable by Tenant for the proper
conduct of its business shall be taken under power of
eminent domain or transferred Lender threat thereof,
then this Lease, at the option of either Landlord or
Tenant exercised by either party giving notice to the
other of such termination within thirty (30) days
after such conveyance or taking possession whichever
is earlier, shall forthwith cease and terminate and
the rent shall be duly apportioned as of the date of
such taking or conveyance. No award for any partial
or entire taking shall be apportioned, and Tenant
hereby assigns to Landlord any award which may be
made in such taking or condemnation, together with
any and all rights of Tenant now or hereafter arising
in or to the same or any part. thereof; provided,
however, that nothing contained herein shall be
deemed to give Landlord any interest in or to require
Tenant to assign to Landlord any award made to Tenant
for the taking of personal property and fixtures
belonging to Tenant and/or for expenses of moving to
a new location or for Tenant's interest in the
leasehold estate. In the event of a partial taking
which does not result in a termination of this Lease,
rent shall be reduced in proportion to the reduction
in the size of the premises so taken and this Lease
shall be modified, accordingly. Promptly after
obtaining knowledge thereof, Landlord or Tenant, as
the case may be, shall notify the other of any
pending or threatened condemnation or taking
affecting the Premises or the Building.
(b) If all or any portion of the Premises shall be
condemned or taken for governmental occupancy for
less than ninety (90) days, this Lease shall not
terminate and Tenant shall be entitled to receive the
entire award therefor (whether paid as damages, rent
or otherwise) unless the period of governmental
occupancy extends beyond the expiration of this
Lease, in which case Landlord shall be entitled to
such part of such award as shall be properly
allocable to the cost of restoration of the Premises
to the extent any such award is specifically made for
such purpose, and the balance of such award shall be
apportioned between Landlord and Tenant as of the
date of such expiration. If the termination of such
governmental occupancy is prior to the expiration of
this Lease, Tenant shall, to the extent an award has
been
Tenant:
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made for such purpose, restore the premises as nearly
as possible to the condition in which they were prior
to the condemnation or taking.
17. ASSIGNMENT AND SUBLETTING:
Tenant covenants not to assign or transfer this Lease or
hypothecate, or mortgage the same or sublet the Premises or any part thereof or
use or permit them to be used for any purpose other than above-mentioned,
without the consent of Landlord, which consent shall not be unreasonably
withheld.
Notwithstanding anything to the contrary hereinabove
contained, it is hereby agreed that Landlord shall not be deemed to have
unreasonably withheld its consent if Landlord refuses to consent to a proposed
assignment or subletting of the Premises or any portion thereof for use by the
proposed assignee or subtenant: (i) as an office furnishing drug, alcohol or
similar counseling services; (ii) as an office of any governmental agency
(including, without limitation, social service agency); or (iii) for any purpose
which is not consistent with the then existing tenant mix in the building.
Notwithstanding the above, Tenant shall have the right to
assign or sublet to any entity which is a subsidiary or affiliate of Tenant, an
entity which Tenant merges with or into, or an entity purchasing all or
substantially all of Tenant's assets without Landlord's approval.
18. ESTOPPEL CERTIFICATE:
Tenant further agrees at any time and from time to time, on or
before ten (10) days after written request by Landlord, to execute, acknowledge
and deliver to Landlord an estoppel certificate certifying (to the extent it
believes the same to be true) that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the same is in full force
and effect as modified, and stating the modifications), that there have been no
defaults thereunder by Landlord or Tenant (or if there have been defaults,
setting forth the nature thereof), and the date to which the rent and other
charges have been paid, if any, it being intended that any such statement
delivered pursuant to this Paragraph may be relied upon by any prospective
purchaser of all or any portion of Landlord's interest herein, or a holder of
any mortgage encumbering any portion of the Building Complex. Tenant's failure
to deliver such statement within such time shall be a default under this Lease
and shall be conclusive upon Tenant that:
(a) This Lease is in full force and effect without
modification except as may be represented by
Landlord;
(b) There are no uncured defaults in Landlord's
performance;
(c) Not more than one (1) month's rent has been paid in
advance; and
(d) The amount of any security deposit paid to, and held
by, Landlord.
19. DEFAULT:
(a) The following events (herein referred to as an "event
of default") shall constitute defaults of Tenant
hereunder:
(1) Tenant shall default in the due and punctual
payment of rent, or any other amounts
payable hereunder, and such default shall
continue for ten (10) days after receipt of
written notice from Landlord;
(2) This Lease or the estate of Tenant hereunder
shall be transferred to or shall pass to or
devolve upon any other person or party in
violation of
Tenant:
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<PAGE> 17
this Lease, except with respect to an
assignment of subletting permitted under
Paragraph 17 above, or except as permitted
herein;
(3) This Lease or the Premises or any part
thereof shall be taken upon execution or by
other process of law directed against
Tenant, or shall be taken upon or subject to
any attachment at the instance of any
creditor or claimant against Tenant, and
said attachment shall not be discharged or
disposed of within sixty (60) days after the
levy thereof;
(4) Tenant shall file a petition in bankruptcy
or insolvency or for reorganization or
arrangement under the bankruptcy laws of the
United States or under any insolvency act of
any state, or shall voluntarily take
advantage of any such law or act by answer
or otherwise, or shall be dissolved or shall
make an assignment for the benefit of
creditors, unless such action n will permit
Tenant to continue performance of this
Lease;
(5) Involuntary proceedings under any such
bankruptcy law or insolvency act or for the
dissolution of Tenant shall be instituted
against Tenant, or a receiver or trustee
shall be appointed of all or substantially
all of the property of Tenant, and such
proceeding shall not be dismissed or such
receivership or trusteeship vacated within
ninety (90) days after such institution or
appointment unless such action will permit
Tenant to continue performance of this
Lease;
(6) Tenant shall fail to take possession of the
Premises within ninety (90) days of the
Commencement Date;
(7) Tenant shall abandon the Premises for sixty
(60) consecutive days; and
(8) Tenant shall fail to perform any of the
other agreements, terms, covenants or
conditions hereof on Tenant's part to be
performed, and such non-performance shall
continue for a period of thirty (30) days
after notice thereof by Landlord to Tenant,
or if such performance cannot be reasonably
had within such thirty (30) day period,
Tenant shall not in good faith have
commenced such performance with such thirty
(30) day period and shall not diligently
proceed therewith the to completion.
(b) Upon the occurrence of an event of default, Landlord
shall have the right, at its election, then or at any
time thereafter and while any such event of default
shall continue, either:
(1) To give Tenant written notice of Landlord's
intention to terminate this Lease on the
date of such given notice or on any later
date specified therein, whereupon the date
specified in such notice, Tenant's right to
possession of the Premises shall cease and
this Lease shall thereupon be terminated,
except as to Tenant's liability, as if the
expiration of the term fixed in such notice
were the end of the term herein originally
demised; or
(2) To re-enter and take possession of the
Premises or any part thereof, and repossess
the same as Landlord's former estate and
expel Tenant and those claiming through or
under Tenant, and remove the effects of both
or either, using such force for such
purposes as may be reasonably necessary,
without being liable for prosecution
thereof,
Tenant:
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<PAGE> 18
without being deemed guilty of any manner of
trespass, and without prejudice to any
remedies for arrears of rent or preceding
breach of covenants or conditions. Should
Landlord elect to re-enter as provided in
this Paragraph 19(b)(2) or should Landlord
take possession pursuant to legal
proceedings or pursuant to any notice
provided for by law, Landlord may, from time
to time, without terminating this Lease,
relet the Premises or any part thereof in
Landlord's or Tenant's name, but for the
account of Tenant, for such term or terms
(which may be greater or less than the
period which would otherwise have
constituted the balance of the term of this
Lease) and on such conditions and upon such
other terms (which may include concessions
of free rent and alteration and repair of
the Premises) as Landlord, in its sole
discretion, may determine, and Landlord may
collect and receive the rents therefor.
Landlord shall in no way be responsible or
liable for any failure to relet the
Premises, or any part thereof, or for any
failure to collect any rent due upon such
reletting. No such re-entry or taking
possession of the Premises by Landlord shall
be construed as an election on Landlord's
part to terminate this Lease unless a
written notice of such intention be given to
Tenant. No notice from Landlord hereunder or
under a forcible entry and retainer statute
or similar law shall constitute an election
by Landlord to terminate this Lease unless
such notice specifically so states. Landlord
reserves the right following any such
re-entry and/or reletting to exercise its
right to terminate this Lease by giving
Tenant such written notice, in which event
this Lease will terminate as specified in
said notice.
Notwithstanding anything to the contrary
hereinabove contained, it is understood and
agreed that Landlord shall use its best
efforts to mitigate any damages caused by an
event of default by Tenant on a commercially
reasonable basis; provided, however,
Landlord shall not be obligated to prefer
the Premises in any reletting to other
vacant premises in the Building.
(c) In the event that Landlord does not elect to
terminate this Lease as permitted in Paragraph
19(b)(1) hereof, but on the contrary, elects to take
possession as provided in Paragraph 1 9(b)(2), Tenant
shall pay to Landlord: (i) the rent and other sums as
herein provided, which would be payable hereunder if
such repossession had not occurred, less (ii) the net
proceeds, if any, of any reletting of the Premises
after deducting all Landlord's expenses in connection
with such reletting, including, but without
limitation, all repossession costs, brokerage
commissions, legal expenses, attorneys' fees,
expenses of employees, alteration and repair costs
and expenses of preparation for such reletting. If,
in connection with any reletting, the new lease term
extends beyond the existing term, or the premises
covered thereby include other premises not part of
the Premises, a fair apportionment of the rent
received from such reletting and the expenses
incurred in connection therewith as provided
aforesaid will be made in determining the net
proceeds from such reletting.
(d) In the event this Lease is terminated, Landlord shall
be entitled to recover forthwith against Tenant as
damages for loss of the bargain and not as a penalty,
an aggregate sum which, at the time of such
termination of this Lease, represents the excess, if
any, of the aggregate of the rent and all other sums
payable by Tenant hereunder that would have accrued
for the balance of the term over the aggregate rental
value of the Premises (such rental value to be
computed on the basis of a tenant paying not only a
rent to Landlord for the use and occupation of the
Premises, but also such other charges as are
Tenant:
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<PAGE> 19
required to be paid by Tenant under the terms of this
Lease) for the balance of such term, both discounted
to present worth at the rate of 10 percent (10%) per
annum.
(e) Suit or suits for the recovery of the amounts and
damages set forth above may be brought by Landlord,
from time to time, at Landlord's election and nothing
herein shall be deemed to require Landlord to await
the date whereon this Lease or the term hereof would
have expired by limitation had there been no such
default by Tenant or no such termination, as the case
may be. Each right and remedy provided for in this
Lease shall be cumulative and shall be in addition to
every other right or remedy provided for in this
Lease or now or hereafter existing at law or in
equity or by statute or otherwise, including, but not
limited to, suits for injunctive relief and specific
performance. The exercise or beginning of the
exercise by Landlord of any one or more of the rights
or remedies provided for in this Lease or now or
hereafter existing at law or in equity or by statute
or otherwise shall not preclude the simultaneous or
later exercise by Landlord of any and all other
rights or remedies provided for in this Lease or now
or hereafter existing at law or in equity or by
statute or otherwise. All costs incurred by Landlord
in connection with collecting any amounts and damages
owing by Tenant pursuant to the provisions of this
Lease or to enforce any provision of this Lease,
including reasonable attorneys' fees from the date
any such matter is turned over to an attorney, shall
also be recoverable by Landlord from Tenant.
(f) No failure by Landlord to insist upon the Strict
performance of any agreement, term, covenant or
condition hereof or to exercise any right or remedy
consequent upon a breach thereof, and no acceptance
of full or partial rent during the continuance of any
such breach, shall constitute a waiver of any such
breach of such agreement, term, covenant or
condition. No agreement, term, covenant or condition
hereof to be performed or complied with- by Tenant,
and no breach thereof, shall be waived, altered or
modified except by written instrument executed by
Landlord. No waiver of any breach shall affect or
alter this Lease, but each and every agreement, term,
covenant and condition hereof shall continue in full
force and effect with respect to any other then
existing or subsequent breach thereof.
Notwithstanding any unilateral termination of this
Lease, this Lease shall continue in force and effect
as to any provisions her thereof which require
observance or performance of Landlord or Tenant
subsequent to termination.
(g) Any amounts paid by either party to cure any defaults
of the other hereunder, shall, if not repaid by the
other party within ten (10) days of demand by the
party paying such amount, the hereinafter bear
interest at the rate of two percent (2%) above the
prime rate as established by the First of America
Bank - Detroit, N.A., or as quoted in the Wall Street
Journal, whichever is higher, until paid.
(h) Landlord and Tenant hereby acknowledge that a
subsidiary of Tenant, Michigan Heritage Bancorp, a
Michigan corporation, has entered into a lease with
Landlord covering other Premises in the Building (the
"Headquarters Lease"). The parties agree that any
default by the tenant under the Headquarters Lease,
shall constitute an event of default under this Lease
entitling Landlord to exercise all remedies available
to Landlord in the event of default hereunder as if
Tenant had committed an event of default hereunder.
Tenant:
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<PAGE> 20
20. COMPLETION OF PREMISES:
(a) Landlord has agreed to complete the Premises as more
fully set forth in plans and specifications to be
prepared by Landlord and approved by Tenant. In
connection with the completion of the Premises,
Landlord shall contribute the sum of $27.50 per
rentable square foot in connection with the
installation of: (i) suite entrance door; (ii)
partitions; interior doors; (iv) ceiling treatment;
(v) wall treatment; (vi) window covering treatment;
(vii) floor treatment; (viii) light fixtures; (ix)
light switches; W electrical wall outlets; (xi)
telephone outlets; (xii) sound conditioning; and
(xiii) any other improvements over and above, and
alterations to, the standard building shell necessary
to prepare the Premises for Tenant's occupancy. In
the event, Tenant does not utilize the entire
contribution available from Landlord, the amount not
used by Tenant shall be a credit against rent and
other charges owed by Tenant under this Lease. In any
event, Landlord shall not have any obligation for the
repair or replacement of any. portions of the
interior of the Premises which are damaged or wear
out during the term hereof, regardless of the cause
therefore including, but not limited to, carpeting,
draperies, window coverings, wall coverings, painting
or any of Tenant's Property or betterments in the
Premises, except as otherwise specifically set forth
in this Lease. Except as otherwise provided in
Paragraph 3 of this Lease, the postponement of rent
and extension of the Commencement Date as herein
provided for such period shall be in full settlement
for all claims which Tenant might have. If Tenant
wishes to take possession of all or any part of the
Premises prior to the date the Premises are Ready for
Occupancy, it must first secure the prior written
consent of Landlord, and in such event, all terms and
provisions of this Lease shall apply. "Ready for
Occupancy" as that term is used herein shall mean the
date when all major construction aspects of the
Premises to be performed by Landlord to the extent
set forth in the approved plans and specifications,
are completed although minor items are not completed
(including, but not limited to, touch-up plastering
or repainting which does not unreasonably interfere
with Tenant's ability to carry on its business in the
Premises), all common areas and lobbies are finished
in accordance with building standards, interior and
exterior lighting installed, parking lot and covered
parking areas completed and striped and construction
equipment and refuse containers used in conjunction
with the construction are removed, and HVAC has been
tested and fully functional. The certificate of the
architect (or other, rep representative of Landlord)
in charge of supervising the completion of the
Premises and the issuance of a temporary certificate
of occupancy shall control the date upon which the
Premises are Ready for Occupancy.
(b) Tenant shall be permitted to enter into the Premises
for the purpose of installing furniture, fixtures and
equipment and other leasehold improvements,
including, but not limited to wall and floor
coverings, millwork and draperies, subject to the
terms of any prior written approval given by Landlord
therefor (which approval shall not be unreasonably
withheld), prior to the Commencement Date at its sole
risk and with no obligation to pay rent and provided
that such entry and work do not unreasonably
interfere in any way with the performance of
Landlord's work. At any time during such period of
prior entry, if Landlord notifies Tenant that
Tenant's entry or work is interfering with or
delaying the performance of work to be performed by
Landlord, Tenant shall forthwith discontinue any
further work and shall remove from the Premises, and
shall cause its workmen or contractors to remove
therefrom, any equipment, materials or installations
which are the subject of Landlord's notice.
(c) In the event that this Lease provides that Landlord
shall cause any work to be performed in the Premises
for Tenant, then the cost of such work shall be
Tenant:
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<PAGE> 21
paid by Tenant on or before the tenth (10th) day
after receipt of an invoice from Landlord for such
completed job.
(d) At or before the commencement of the eleventh (11th)
year of the Primary Lease Term, Landlord shall make
available to Tenant a renovation and remodeling
allowance in an amount equal to the product obtained
by multiplying the total number of rentable square
feet then occupied by Tenant in the Building by Five
Dollars ($5.00). Said amount shall be disbursed by
Landlord to Tenant upon presentation to Landlord of
proof of payment for all alterations and renovations
made by Tenant at or about said time.
21. REMOVAL OF TENANT'S PROPERTY:
All movable furniture and personal effects of Tenant not
removed from the Premises within sixty (60) days after the vacation or
abandonment thereof or upon the termination of this Lease for any cause
whatsoever shall conclusively be deemed to have been abandoned and may
be appropriated, sold, stored, destroyed or otherwise disposed of by
Landlord without notice to Tenant and without obligation to account
therefor, and Tenant shall pay Landlord for all expenses incurred in
connection with the disposition of such property.
22. HOLDING OVER:
Should Tenant, with Landlord's written consent, hold over
after the termination of this Lease, Tenant shall become a tenant from
month to month only upon each and all of the terms herein provided as
may be applicable to such month to month tenancy and any such holding
over shall not constitute an extension of this Lease. During such
holding over, Tenant shall pay rent equal to 125 percent (125%) of the
last monthly rental rate and the other monetary charges as provided
herein. Such tenancy shall continue until terminated by Landlord or
Tenant by a written notice of its intention to terminate such tenancy
given at least ten (10) days prior to the date of termination of such
monthly tenancy.
23. PARKING AREAS:
Tenant, its employees, agents and visitors agree to obey and
abide by all rules and regulations established, modified and amended
from time to time by Landlord for the safety, protection, cleanliness
and preservation of order in connection with such parking ingress and
egress and other automobile and pedestrian use of the Building Complex.
Except as otherwise provided below with respect to customers of Tenant,
Landlord reserves the right to specifically assign and reassign from
time to time any and all of said parking spaces among the tenants of
the Building in any manner in which Landlord deems reasonable, in
Landlord's sole judgment and opinion or to allow the reservation of
parking spaces for the specific use of designated tenants of the
Building. Landlord shall not be responsible to Tenant, its employees,
agents or visitors for violations by any other tenant, visitor or user
of said parking facilities of said rules and regulations or assignment
of spaces, nor shall Landlord have any obligation to police the
unauthorized use of any such parking spaces. Tenant shall have the
right to utilize, at no additional expense, six (6) uncovered parking
spaces in a location close to the entrance of the Building nearest the
Premises for the exclusive use of Tenant's customers. In no event shall
Landlord be responsible for policing the unauthorized use of Tenant's
spaces.
24. SURRENDER AND NOTICE:
Upon the expiration or earlier termination of this Lease, Tenant shall
promptly quit and surrender to Landlord the Premises broom clean, in
good order and condition, ordinary wear and tear excepted, and Tenant
shall remove all of its movable furniture and other effects arid such
alterations, additions and improvements as Landlord. shall require
Tenant to remove pursuant to Paragraph 1 0. In the event Tenant fails
to vacate the Premises on a timely basis as required, Tenant shall be
responsible to Landlord for all costs incurred by Landlord as a
Tenant:
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<PAGE> 22
result of such failure, including, but not limited to, any a mounts
required to be paid to third parties who were to have occupied the
Premises.
25. ACCEPTANCE OF PREMISES BY TENANT:
Taking possession of the Premises by Tenant shall be
conclusive evidence as against Tenant that the Premises were in the
condition agreed upon between Landlord and Tenant, and acknowledgment
of satisfactory completion of the fix-up work which Landlord has agreed
in writing to perform, except as otherwise set forth herein or as
stated in a written Punch list delivered to Landlord within twenty (20)
days after the Commencement Date.
26. SUBORDINATION AND ATTORNMENT:
(a) This Lease, and all rights of Tenant hereunder, are
and shall be subject and subordinate in all respect
to all present and future ground leases, overriding
leases and underlying leases and/or grants of term of
the land and/or the Building or the Building Complex
now or hereafter existing and to all mortgages, deeds
of trust and building loan agreements, including
leasehold mortgages, deeds of trust and building loan
agreements, which may now or hereafter affect the
Building or the Building Complex or any of such
leases, whether or not such mortgages or deeds of
trust shall also cover other lands or buildings, to
each and every advance made or hereafter to be made
under such mortgages or deeds of trust, and to all
renewals, modifications, replacements and extensions
of such leases and such mortgages or deeds of trust.
This Paragraph shall be self-operative and no further
instrument of subordination shall be required. In
confirmation of such subordination, Tenant shall
promptly execute and deliver any instrument, in
recordable form if required, that Landlord, the
lessor of any such lease or the holder of any such
mortgage or deed of trust, or any of their respective
successors in interest may reasonably request to
evidence such subordination. The leases to which this
Lease is, at the time referred to, subject and
subordinate pursuant to this Paragraph are
hereinafter sometimes called "superior lease" and the
mortgages or deeds of trust to which this Lease is,
at the time referred to, subject and subordinate are
hereinafter sometimes called "superior mortgages".
The lessor of a superior lease or the beneficiary of
a superior mortgage or their successors in interest
are hereinafter sometimes collectively referred to as
a "superior party".
(b) Tenant shall take no steps to terminate this Lease,
without giving written notice to such superior party,
and a reasonable opportunity to cure (without such
superior party being obligated to cure), any default
on the part of Landlord under this Lease, provided
that Tenant has been given written notice of the name
and address of any such superior party.
(c) In the event any proceedings are brought for the
foreclosure of, or in the event of the conveyance by
deed in lieu of foreclosure of, or in the event of
the exercise of the power of sale under, any superior
mortgage, Tenant hereby attorns to, and covenants and
agrees to execute an instrument in writing reasonably
satisfactory to the new owner whereby Tenant attorns
to, such successor in interest and recognizes such
successor as the Landlord under this Lease.
(d) If, in connection with the procurement, continuation
or renewal of any financing for which the Building or
the Building Complex, or of which the interest of the
lessee therein under a. superior lease, represents
collateral in whole or in part, an institutional
lender shall request reasonable modifications of this
Lease as a condition of such financing, Tenant will
not unreasonably withhold its consent thereto
provided that such modifications do not increase
Tenant:
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<PAGE> 23
the obligations of Tenant under this Lease or
adversely affect any rights of Tenant or decrease the
obligations of Landlord under this Lease.
(e) So long as Tenant is not in default under this Lease,
Landlord agrees to obtain a non-disturbance agreement
from any superior party.
27. PAYMENTS AFTER TERMINATION:
No payments of money by Tenant to Landlord after the
termination of this Lease in any manner, or after giving of any notice
(other than a demand for payment of money) by Landlord to Tenant, shall
reinstate, continue or extend the terry) of this Lease or affect any
notice given to Tenant prior to the payment of such money, it being
agreed that after the service of notice of the commencement of a suit
or other final judgment granting Landlord possession of the Premises,
Landlord may receive and collect any sums of rent due, or any other
sums of money due under the terms of this Lease or otherwise exercise
its rights and remedies hereunder. The payment of such sums of money,
whether as rent or otherwise, shall not waive said notice or in any
manner affect any pending suit or judgment theretofore obtained.
28. AUTHORITIES FOR ACTION AND NOTICE:
(a) Except as herein otherwise provided, Landlord may act
in any matter provided for herein by its building
manager or any other person who shall from time to
time be designated in writing.
(b) All notices or demands required or permitted to be
given to Landlord hereunder shall be in writing, and
shall be deemed duly served when received, if hand
delivered, or five (5) days after deposited in the
United States mail, with proper postage prepaid,
certified or registered, return receipt requested,
addressed to Landlord at its principal office in the
Building, or at the most recent address of which
Landlord has notified Tenant in writing. All notices
or demands required to be given to Tenant hereunder
shall be in writing, and shall be deemed (July served
when received if hand delivered or within five (5)
days after deposited in the United States mail, with
proper postage prepaid, certified, or registered,
return receipt requested, addressed to Tenant at its
principal office in the Building. Either party shall
have the right to designate a different address to
which notice is to be mailed by serving on the other
party a written notice in the manner hereinabove
provided.
29. SECURITY DEPOSIT: [INTENTIONALLY OMITTED]
30. LIABILITY OF LANDLORD:
Tenant shall look only to Landlord's estate and interest in
the Building (or to the proceeds thereof) for the satisfaction of
Tenant's remedies for the collection of any judgment (or other judicial
process) requiring the payment of money by Landlord in the event of any
default by Landlord under this Lease, and no other property or other
assets of Landlord shall be subject to levy, execution or other
enforcement, procedure for the satisfaction of Tenant's remedies under
or with respect to this Lease and neither Landlord nor any of the
partners comprising the partnership which is the Landlord herein, shall
be liable for any deficiency. Nothing contained in this Paragraph shall
be construed to permit Tenant to offset against rents due a successor
landlord, a judgment (or other judicial process) requiring the payment
of money by reason of any default of a prior landlord, except as
otherwise specifically set forth herein.
Tenant:
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31. BROKERAGE:
Landlord agrees to be responsible for any fee or brokerage
commission due to Kirco Management Services, Ltd. in connection with the
execution of this Lease. Tenant agrees to be responsible for any fee or
brokerage commission due to Colliers Trerice Tosto in connection with the
execution of this Lease. Landlord and Tenant each hereby agree to indemnify and
hold the other harmless of and from any and all loss, cost, damage or expense
(including, without limitation, all counsel fees and disbursements) by reason of
any claim of or liability to any other broker claiming through it and arising
out of or in connection with the execution and delivery of this Lease. In the
event any claim shall be made by any other broker who shall claim to have
negotiated this Lease on behalf of Tenant or to have introduced Tenant to the
Building or to Landlord, Tenant shall have the right to defend any such action
by counsel to be selected by Tenant and approved by Landlord, which approval
shall not be unreasonably withheld, and in the event such broker shall be
successful in any such action, Tenant shall, in addition to making payment of
the claim of such broker, be responsible for all counsel fees incurred in such
action. Landlord agrees to be responsible for any fee or commission due to Kirco
Management Service, Ltd., with respect to the execution of this Lease and Tenant
agrees to be responsible for any fee or commission due to Colliers Trerice
Tosto, with respect to the execution of this Lease.
32. SIGNAGE:
No other sign, advertisement or notice shall be inscribed,
painted or affixed on any part of the inside or outside of the Building unless
of such color, size and style and in such place upon or in the Building, as
shall be first designated by Landlord, but there shall be no obligation or duty
on Landlord to allow any sign, advertisement or notice to be inscribed, painted
or affixed on any part of the inside or outside of the Building, A directory in
a conspicuous place, with the names of Tenant, not to exceed two names per 1,000
square feet of space contained in the Premises, shall be provided by Landlord.
Any necessary revision to such directory shall be made by Landlord at Tenant's
expense, within a reasonable nine after notice from Tenant of the change making
the revision necessary. Landlord shall have the right to remove all
non-permitted signs without notice to Tenant, and at the expense of Tenant.
33. NAME OF BUILDING PROJECT:
Landlord hereby reserves the right, at any time and from time to time,
without notice to Tenant, to name of the Building or thereafter change the
Building name, at Landlord's sole discretion.
34. MEASUREMENT OF PREMISES:
The rentable square footage of the Premises, as stated in
Paragraph 1 hereof, shall be determined by the Building architect and is subject
to final construction documents and actual measurement of the Premises by the
Building architect. All measurements shall be made in accordance with the
American National Standard, Method for Measuring Floor Area in Office Buildings,
ANSI Z65.1 - 1990, also known as the "BOMA Standard", applied on a building
wide, fully multi-tenant basis. The Base Rent and other charges due hereunder
shall be adjusted based upon such measurement by the Building architect.
35. MISCELLANEOUS:
(a) The rules and regulations attached hereto and marked
Exhibit "B", as well as such rules and regulations as
may hereafter be adopted by Landlord for the safety,
care and cleanliness of the Premises and the Building
and the preservation of good order thereon, are
hereby expressly made a part hereof, and Tenant
agrees to obey all such rules and regulations. The
violation of any of such rules and regulations by
Tenant shall be deemed a breach of this Lease by
Tenant affording Landlord all the remedies set forth
herein. Landlord shall not be responsible to Tenant
for the nonperformance by any
Tenant:
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<PAGE> 25
other tenant or occupant of the Building of any of
said rules and regulations. Notwithstanding the
provisions of this Paragraph 35, Landlord agrees that
it will not change or modify the rules and
regulations or adopt new rules and regulations as to:
(i) diminish or otherwise reduce the specific
obligations of Landlord to perform under the terms
and conditions of this Lease or (ii) interfere with
Tenant's use and enjoyment of the Premises, or (iii)
interfere with the conduct of Tenant's normal
business.
(b) The term "Landlord", as used in this Lease, so far as
covenants or obligations on the part of Landlord are
concerned, shall be limited to mean and include only
the owner or owners of the Building at the time in
question, and in the event of any transfer or
transfers of the title thereto, Landlord herein named
(and in the case of any subsequent transfers or
conveyances, the then grantor) shall be automatically
released from and after the date of such transfer or
conveyance of all liability in respect to the
performance of any covenants or obligations on the
part of Landlord contained in this Lease thereafter
to be performed and. relating to events occurring
thereafter; provided that any funds in the hands of
Landlord or the then grantor at the time of such
transfer in which Tenant has an interest shall be
turned over to the grantee, and any amount then due
and payable to Tenant by Landlord or the then grantor
under any provisions of this Lease shall be paid to
Tenant.
(c) If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws
effective during the term of this Lease, then and in
that event, it is the intention of the parties hereto
that the remainder of this Lease shall not be
affected thereby, and it is also the intention on of
the parties to this Lease that in lieu of each clause
or provision of this Lease that is illegal, invalid
or unenforceable, there shall be added as a part of
this Lease a clause or provision as similar in terms
to such illegal, invalid or unenforceable clause or
provision as may be possible and be legal, valid and
enforceable, provided such addition does not increase
or decrease the obligations of or derogate from the
rights or powers of either Landlord or Tenant.
(d) The captions of each paragraph are added as a matter
of convenience only and shall be considered of no
effect in the construction of any provision or
provisions of this Lease.
(e) Except as herein specifically set forth, all terms,
conditions and covenants to be observed and performed
by the parties hereto shall be applicable to and
binding upon their respective heirs, administrators,
executors and assigns. The terms, conditions and
covenants hereof shall also be considered to be
covenants running with the land.
(f) If there is more than one entity or person which or
who are the Tenants under this Lease, the obligations
imposed upon Tenant under this Lease shall be joint
and several.
(g) No act or thing done by Landlord or Landlord's agent
during the term hereof, including, but not limited
to, any agreement to accept surrender of the Premises
or to amend or modify this Lease, shall be deemed to
be binding upon Landlord unless such act or things
shall be by an officer of Landlord or a party
designated in writing by Landlord as so authorized to
act. The delivery of keys to Landlord, or Landlord's
agent, employees or officers shall not operate as a
termination of this Lease or a surrender of the
premises. No payment by Tenant, or receipt by
Landlord, of a lesser amount than the monthly rent
herein stipulated, shall be deemed to be other than
on account of the earliest stipulated rent, nor shall
any endorsement or statement on any
Tenant:
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25
<PAGE> 26
check or any letter accompanying any such, or payment
as rent, be deemed an accord and satisfaction, and
Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance
of such rent or pursue any other remedy available to
Landlord.
(h) Landlord shall have the right to construct other
buildings or improvements in any plaza, or other area
designated by Landlord for use by tenants or to
change the location, character, or make alterations
of, or additions to, any of said plazas, or other
areas.
(i) Tenant acknowledges and agrees. that it has not
relied upon any statements, representations,
agreements or warranties except such as are expressed
in this Lease.
(j) Time is of the essence hereof.
(k) Tenant represents to Landlord that the party
executing this Lease is authorized to do so by
requisite action of the Board of Directors, or
partners, as the case may be, and agree upon request
to deliver to each other a resolution or similar
document to that effect.
(l) This Lease shall be governed by and construed in
accordance with the laws of the State of Michigan.
(m) This Lease, together with the Addendum and Exhibits
attached hereto, contains the entire agreement of the
parties and may not be amended or modified in any
manner except by an instrument in writing signed by
both parties.
36. GOVERNMENTAL APPROVALS/LANDLORD:
The parties acknowledge and agree that this Lease is
contingent upon Landlord obtaining from the City of Farmington Hills:
(i) rezoning of a portion of the Building Complex; and (ii) site plan
approval for the development of the Building and related improvements
from the City of Farmington Hills on or before September 30, 1998. In
the event Landlord is unable to obtain such rezoning and/or site plan
approval before the aforesaid date, Landlord shall have the right to
terminate this Lease by notifying Tenant in writing of such election.
In the event of any such election by Landlord, this Lease shall cease
and terminate and the parties shall thereafter have no further right or
responsibility hereunder.
37. LANDLORD'S WARRANTY:
Landlord warrants to Tenant that the Building Complex and all
equipment utilized in its operation, including, but not limited to, Hearing,
ventilation and air conditioning systems, elevators, security systems, alarms,
electrical, lighting sprinkler and fire safety equipment, plumbing and metering
systems, as well as all systems used by the management company with respect to
the accounting for rent and operating expenses, and all associated and related
hardware, software, and firmware, (including any substitutions, modifications
and replacements therefor) ("Listed Items") installed in or on the Building
Complex or used by Landlord, its agents and employees in the operation of the
Building Complex, shall be able to accurately process date related data
(including, but not limited to, calculating, comparing, and sequencing) from,
into, and between the year 1999 and the year 2000, including leap year
calculations, when used in accordance with the documentation provided by the
manufacturer thereof and when used in combination with other Listed Items shall
properly exchange date related data with it.
If the operation of the Building Complex requires that the
Listed Items must perform as a system in accordance with the foregoing warranty,
then that warranty shall apply to those Listed
Tenant:
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26
<PAGE> 27
Items as a system. The duration of this warranty and the remedies available to
the Tenant for breach of this warranty shall be for the term of this Lease and
any extensions, including substitutions and replacements therefore.
Prior to the Commencement Date of this Lease, Landlord shall or cause a
vendor to perform a demonstration test in the presence of Tenant and, if
requested, federal or state financial institution personnel ("Regulator") to
confirm that each Listed Item complies with this clause. If the Item does not
comply, it will not be accepted. If the Tenant or Regulator decides it is not
practicable for Landlord to perform the demonstration test, Landlord will
instead, within five (5) business days of delivery, provide a certificate to the
Tenant stating that the purchased Items comply with this clause. If the
certificate is not received, acceptance of the Items will be revoked. If
non-compliance with the clause is discovered at any time after acceptance but
before February 1, 2001, the remedies available to the Tenant under this
warranty shall include repair, replacement or reimbursement for reprocurement of
an acceptable replacement Item including the full costs of the Item itself, and
all costs associated with such repair, replacement or reprocurement shall be
borne by the Landlord and shall not be deemed an Operating Expense which is
subject to reimbursement by the Tenant. Nothing in this warranty shall be
construed to limit any rights or remedies the Tenant may otherwise have under
this Lease with respect to defects other than Year 2000 performance.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the
day and year first above written.
In the Presence of: RONTAL INVESTMENT COMPANY,
a Michigan co-partnership,
By:
- ------------------------------ ------------------------------
Its: Partner
- ------------------------------ -----------------------------
LANDLORD
MICHIGAN HERITAGE BANK,
a Michigan financial corporation
By:
- ------------------------------ ------------------------------
Its:
- ------------------------------ ------------------------------
TENANT
Tenant:
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<PAGE> 1
EXHIBIT 11 -- COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
BASIC AND FULLY DILUTED* 1998 1997 1996
------------------------ ---- ---- ----
<S> <C> <C> <C>
Net Loss $(113,000) $(602,000) $(68,000)
Average Shares Outstanding 1,265,000 1,051,329 1
Net Loss Per Share $(0.09) $(0.57) --
</TABLE>
* Based on the net loss for the periods, there was no dilutive effect.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated January 20, 1999 on the financial
statements of Michigan Heritage Bancorp, Inc. for the years ended December 31,
1998, 1997 and 1996 in this SB-2 Registration Statement (File No. 333-17317) for
the registration of 500,000 shares of its common stock. We also consent to the
reference to us under the heading "Experts" in the registration statement.
/s/ Plante & Moran, LLP
Bloomfield Hills, MI
May 19, 1999
