U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number: 333-17317
MICHIGAN HERITAGE BANCORP, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-3318018
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
28300 Orchard Lake Road, Suite 200, Farmington Hills, MI 48334
(Address of principal executive offices with zip code)
248-538-2525
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes: [X] No: [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recently completed fiscal year:
$10,496,000
The aggregate market value of the voting and no-voting common equity held by
non-affiliates, computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of
February 28, 2000, was $6,327,251.
As of February 28, 2000, there were 1,488,765 shares of Common Stock of the
Issuer issued and outstanding.
Traditional Small Business Disclosure Format (check one): Yes: [ ] No: [X]
Portions of the registrant's Proxy Statement for its 1999 Annual Meeting of
Shareholders to be held April 20, 2000, to the extent expressly so stated
herein, are incorporated by reference into Part III of this Report.
TABLE OF CONTENTS
PART I Page
Item 1 Description of Business 2
Item 2 Description of Properties 6
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a Vote of Security Holders 6
PART II
Item 5 Market for Common Equity and Related Stockholder Matters 7
Item 6 Management's Discussion and Analysis 7
Item 7 Financial Statements 14
Item 8 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 14
PART III
Item 9 Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) 15
Item 10 Executive Compensation 15
Item 11 Security Ownership of Certain Beneficial
Owners and Management 15
Item 12 Certain Relationships and Related Transactions 15
Item 13 Exhibits, List and Reports on Form 8-K 15
Signatures 41
Exhibit Index 42
PRELIMINARY NOTE: The Company wishes to caution readers not to place undue
reliance on any "forward-looking statements" contained in the following
discussion, and advises readers that various factors, including regional and
national economic conditions, substantial changes in levels of market
interest rates, credit and other risks of lending and investment activities
and competitive and regulatory factors, could affect the Company's financial
performance and could cause the Company's actual results for future periods
to differ materially from those anticipated or projected. The Company does
not undertake, and specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences or unanticipated events of
circumstances after the date of such statements.
1
PART I
Item 1. Description of Business.
General
Michigan Heritage Bancorp, Inc. (the "Company") was incorporated in 1989 as a
Michigan corporation and was inactive from the time of its formation until
November 1996. Michigan Heritage Bank, the Company's wholly-owned subsidiary
(the "Bank"), is a Michigan banking corporation with depository accounts
insured by the Bank Insurance Fund of the Federal Deposit Insurance
Corporation. The Bank provides a range of commercial and consumer banking
services primarily in Oakland and western Wayne counties including Novi,
Farmington, Farmington Hills, Livonia, Northville, Northville Township, and
Troy.
The Bank's present lending activities are primarily focused on commercial
equipment financing and commercial term loans to businesses secured by the
assets of the borrower. The Bank originates loans primarily through third
party referral sources such as leasing companies and mortgage brokers, many
of whom are known to management. The bank's retail strategy focuses on
single-family mortgage loans, home equity loans, and, to a lesser extent,
other forms of consumer lending. The Bank offers ATM cards, competitive rates
on various deposit products and other attractive products and services. Those
services reflect the Bank's intended strategy of serving small- to
medium-sized businesses and individual customers in its market area.
The Bank's main office is currently located along the rapidly developing
Haggerty road corridor in the southeast corner of Novi, Michigan. The Bank
leases and has renovated a former bank branch building. The communities that
comprise the Bank's primary service area are Novi, Farmington, Farmington
Hills, Livonia, Northville, Northville Township, and Troy. Management
believes these communities have an expanding and diverse economic base, which
includes a wide range of small- to medium-sized businesses engaged in
manufacturing, high technology research and development, computer services
and retail. The Bank's secondary service area is the remaining portions of
Oakland County and Wayne County not included within the primary service area.
In January 1999, the Company opened its second branch location in Troy,
Michigan. The branch office is leased with leasehold improvements of
approximately $80,000. Furniture and equipment purchased for the new location
is approximately $50,000.
The headquarters for both the Company and the Bank was relocated to the
northeast area of Farmington Hills in December 1999. Leasehold improvements,
furniture and equipment for the new headquarters were approximately $400,000.
The Bank entered into a 15 year lease at approximately $220,000 annual rent
net of rental income.
In January 2000, the Company opened its third branch on the first floor of
the Bank's new headquarters in Farmington Hills, Michigan. The branch office
located in the new building is leased with minimal leasehold improvements.
Furniture and equipment purchased for the new location is approximately
$24,000.
Lending
The Bank's 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. The Bank
considers a loan impaired when it is probable that all interest and principal
will not be collected. For the period ended December 31, 1999, impaired loans
were $113,000 resulting from two commercial loan customers. Specific
allowances for impaired loans were $63,000 at year-end 1999. Management
believes the total specific allowances for impaired loans will adequately
provide for expected charge-offs for the two customers. Management is not
aware of any other potential problem loans which could have a material effect
on the Bank's operating results, liquidity, or capital resources.
Furthermore, except for the two customers above, management is not aware of
any other factors that
2
it believes would cause future net loan charge-offs, in total and by loan
category, to significantly differ from those experienced by institutions of
similar size.
The following sets forth outstanding loan balances at December 31, 1999 and
1998, by category of loan.
($ in thousands)
Amount as of December 31,
Type of Loan 1999 1998
- ------------ ---- ----
Commercial, financial and agricultural $74,005 $75,968
Real estate--construction 417 0
Real estate--mortgage 6,334 4,454
Installment loans to individuals 166 137
Lease financing 948 1,042
------- -------
Total loans $81,870 $81,601
The Bank has made only domestic loans.
Allowance for Loan Losses
The following table summarizes changes in the allowance for loan and lease
losses arising from additions to the allowance which have been charged to
expense, selected ratios, and the allocation of the allowance for loan
losses.
($ in thousands)
Amount as of December 31,
1999 1998
---- ----
Average loans outstanding $82,523 $53,368
Total loans at year end 81,870 81,601
Allowance for loan losses at beginning of period 1,816 467
Provision charged to expense 1,072 1,349
Loan charge-offs during the period 969 0
Loan recoveries during the period 68 0
Allowance for loan losses at end of year 1,987 1,816
Ratio of net charge-offs during the period to
average loans outstanding 1.09% --
Allowance for loan losses as a percentage
of loans at period end 2.43% 2.23%
Specific allowance for impaired loans 63 820
Unallocated allowance 1,924 996
Total allowance for loan losses 1,987 1,816
In each accounting period, the allowance for loan and lease losses is
adjusted by management to the amount necessary to maintain the allowance at
adequate levels. Through its credit department, management attempts to
allocate specific portions of the allowance for loan losses based on
specifically identifiable problem loans. Management's evaluation of the
allowance is further based on consideration of actual loss experience, the
present and prospective financial condition of borrowers, industry
concentrations within the portfolio and general economic conditions.
3
The primary risk element considered by management with respect to each
installment and residential real estate loan is lack of timely payment.
Management has a reporting system that monitors past due loans and has
adopted policies to pursue its creditor's rights in order to preserve the
Bank's position. The primary risk elements with respect to commercial loans
are the financial condition of the borrower, the sufficiency of collateral,
and lack of timely payment. Management has a policy of requesting and
reviewing periodic financial statements from its commercial loan customers.
There can be no assurance that the Bank will not sustain losses in any given
period which could be substantial in relation to the size of the allowance
for loan and lease losses.
Deposits
The following summarizes certain information regarding deposits with the
Bank.
($ in thousands)
For the Year Ended December 31,
1999 1998
------------------ -------------------
Average Average
Type of Deposit Amount Rate Paid Amount Rate Paid
- --------------- ------- --------- ------- ---------
Noninterest bearing demand deposits $ 1,670 0.00% $ 753 0.00%
Interest bearing checking
and money market deposits 8,001 4.50 5,632 4.85
Savings deposits 36 2.78 66 3.03
Time deposits 82,041 5.63 57,040 5.94
------- ---- ------- ----
Total deposits $91,748 5.43% $63,491 5.77%
The Bank has no foreign banking offices.
Company Selected Financial Information
The following table contains selected financial information for the Company:
<TABLE>
<CAPTION>
($ in 000s execpt per share data)
-------------------------------------------
For the years ended December 31, 1999 1998 1997 1996
-------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $ 3,403 $ 2,440 $ 896 $ 1
Net income $ 475 $ (113) $ (602) $ (68)
Net income per fully diluted
share of common stock $ 0.36 $ (0.09) $ (0.57)
Cash dividends declared per
common share of stock -- -- -- --
Dividend payout ratio -- -- -- --
Total assets at year-end $108,887 $100,267 $51,438 $ 244
Total stockholders' equity at year-end $ 11,718 $ 10,041 $10,145 $ (68)
Total average assets $102,935 $ 74,321 $26,220 $ 122
Total average stockholders' equity $ 10,566 $ 10,358 $ 8,591 $ (34)
Return on average total assets 0.46% (0.15)% (2.30)%
Return on average stockholders' equity 4.50% (1.09)% (7.01)%
Average equity to average assets 10.26% 13.94% 32.77%
</TABLE>
4
Supervision and Regulation
The Company is registered as a bank holding company and, as such, is 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, the
Company is subject to periodic examination by the Federal Reserve Board and
is required to file periodic reports of its operations and such additional
information as the Federal Reserve Board may require. The company is also
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.
In accordance with Federal Reserve Board policy, the Company acts as a source
of financial strength to the Bank and is expected to commit resources to
support the Bank in circumstances where the Company might not do so absent
such policy. In addition, in certain circumstances, a Michigan state bank
having impaired capital may be required by the Commissioner 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 the Company and the Bank establishes a comprehensive framework
for their respective operations and is intended primarily for the protection
of the FDIC deposit insurance funds, the depositors of the Bank and the
public, rather than shareholders of the Bank or the Company.
Federal law and regulations, including provisions added by the Federal
Deposit Insurance Corporation Improvement Act of 1991 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.
Employees
At December 31, 1999, the Company employed 27 people on a full-time basis
including two customer service representatives for the Bank's new Farmington
Hills branch opened in January 2000. Over the next 12 months the Bank expects
to add five full-time people: one full-time loan administrator, one full-time
credit manager, two full-time loan credit analysts, and one full-time
commercial loan officer. The bank also expects to add one part-time teller
during the year 2000.
Competition
The Company and the Bank 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
5
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 the Bank will
compete are not subject to the same degree of regulation as the Bank. Many of
the financial institutions aggressively compete for business in the Bank's
market areas. Many of these competitors have been in business for many years,
have established customer bases, have substantially higher lending limits
than the Bank, are larger and will be able to offer certain services that the
Bank does not expect to provide in the foreseeable future, including trust
services, and international banking services. In addition, most of these
entities have greater capital resources than the Bank which, among other
things, may allow them to price their services at levels more favorable to
the customer and to provide larger credit facilities than could the Bank.
Additionally, 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.
Item 2. Description of Properties
The Bank leases a 3,000 square foot building at 21211 Haggerty Road, Novi,
Michigan 48375 for use as its main banking office. The Company also used the
same building as its headquarters for the first eleven months of 1999. The
lease term extends until June 30, 2002, at an annual rent of $45,000. The
building was originally built in 1988 to be a bank branch and has one
drive-up window and three drive-up bays. The building has substantial on-site
parking. There is one entrance/exit on Haggerty Road as well as a rear exit
to Orchard Hill Place. Access to the main office is available to Oakland and
Wayne County residents by using I-275, I-96, I-696, and Grand River Avenue.
During 1999, the Bank also leased 2,700 square feet of office and inventory
storage space on a monthly basis for the accounting, human resource, and
commercial direct lending departments at Hamilton Building, 33045 Hamilton
Court, Farmington Hills, MI 48334. The annualized rent was $36,000. The
accounting, human resource, and commercial direct lending departments were
relocated to the Bank's new headquarters building in December 1999 at which
time the Hamilton Building lease was terminated.
The Bank opened its 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.
The Bank signed a 15 year lease for approximately 10,000 square feet for a
new headquarters in Farmington Hills, Michigan which was moved into during
December 1999. The lease extends until June 30, 2014. Additional costs for
furniture, equipment and leasehold improvements for the new headquarters were
approximately $400,000. The annual rent net of expected rental income is
$220,000.
The Bank opened its third branch in January 2000 with 1,200 square feet of
office space on the first floor of the new headquarters building. The lease
extends until June 30, 2014, at an annual rent of $28,000. The branch has two
teller windows, two customer service desks, a mutual funds room, and a
conference room. There were minimal leasehold improvements for the branch.
Additional equipment for the branch was approximately $24,000.
Item 3. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
6
PART II
Item 5. Market for Common Stock and Related Stockholder Matters.
The Company's 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 66 holders of record as of December 31, 1999.
Included among the 66 holders of record are investment firms with an
undetermined number of clients owning the Company's common stock. The Company
paid a 10% common stock dividend on June 15, 1998. There were no cash
dividends paid during 1999, 1998 or 1997.
The Company completed a rights offering to existing shareholders in October
1999. Up to 500,000 shares of common stock were offered for sale in order to
contribute additional capital to Michigan Heritage Bank. The shares were
offered for a limited period of time exclusively to shareholders of Michigan
Heritage Bancorp, Inc. at $6.00 per share. Shareholders were entitled to
purchase one share for each three shares they owned on July 14, 1999. The
common stock offering to existing shareholders began on July 30, 1999 and
ended on October 1, 1999. A total of 223,765 shares of common stock were sold
resulting in $1,248,000 in additional capital after payment of offering
expenses. The number of shares of common stock now outstanding after the
rights offering is 1,488,765.
The following sets forth the quarterly high and low bid price per share
during each of the four quarters in 1999, 1998 and 1997 (since the date of
the Company's public offering). These quotations reflect inter-dealer prices
without retail mark-up, mark-down or commission, and may not represent actual
transactions.
High/Low
--------
1999 4th Quarter $ 6.00 / $ 3.13
3rd Quarter $ 7.00 / $ 5.00
2nd Quarter $ 7.75 / $ 5.75
1st Quarter $ 9.88 / $ 6.75
1998 4th Quarter $10.50 / $ 8.00
3rd Quarter $12.00 / $ 9.00
2nd Quarter $13.18 / $12.00
1st Quarter $13.18 / $ 9.77
1997 4th Quarter $11.82 / $ 9.09
3rd Quarter $12.05 / $ 8.41
2nd Quarter $ 9.77 / $ 8.41
1st Quarter $ 9.77 / $ 8.86
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
The following discussion addresses material factors affecting the financial
condition and results of the Company. This discussion should be read in
conjunction with the audited financial statements, footnotes and supplemental
financial data presented elsewhere in this report.
The Company was in the development stage during 1996 and the first two months
and nine days of 1997. The Company completed an initial public offering of
common stock during February and March 1997. On March 10, 1997, Michigan
Heritage Bank opened for business. As of December 31, 1999, the Bank had been
operational almost 34 months and had completed its second full fiscal year of
operations.
7
Results of Operation
The Company earned $475,000 in net profits for 1999, a $588,000 improvement
over 1998. The $588,000 improvement resulted primarily from earning asset
growth which netted an additional $1,240,000 in net interest income after
provision for loan losses. Also, other income increased $1,523,000 mostly due
to operating lease income, gain on sale of operating lease equipment, and
gains on loans sold. These increases to income were offset partially by a
$1,622,000 increase in operating expense due mostly to growth. Provision for
federal income taxes applicable to operating income increased $653,000. Also
in 1998, there was an additional expense of $100,000 before tax due to a
change in accounting principle. Quarterly net profits for 1999 were $114,000,
$120,000, $111,000, and $130,000 for the first, second, third, and fourth
quarters, respectively.
The Company earned its first monthly profit in January 1998, which was only
its 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. 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 that filed for protection under the
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. As a result, the Company
reported a loss of only $113,000 for 1998 compared to a $602,000 loss for
1997, a $489,000 improvement over 1997.
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.
For 1999, the return on average equity was 4.50% compared to -1.09% for 1998
and -7.01% for 1997. The return for average assets for 1999 was 0.46%
compared to -0.15% for 1998 and -2.30% for 1997. While there have been no
cash dividends paid to date, the Board of Directors declared and distributed
a 10% common stock dividend during the second quarter of 1998.
As of December 31, 1999, the Bank had reserves for possible loan losses of
2.43% of total loans outstanding. This reserve is, in management's opinion, a
conservative loan reserve position relative to the overall quality of the
loan portfolio. Specific allowances of $63,000 were allocated for impaired
loans classified by management of $113,000. In addition to reserves for loans
outstanding and specific reserves for impaired loans, there was $250,000 in
loan loss reserves allocated to loan customer Y2K issues. To date, no
customer Y2K issues have become apparent. In 1999, there were $901,000 net
loan charge-offs primarily due to a single customer situation. There were no
loan charge-offs during 1998 or 1997.
The Company's total assets at the end of 1999 amounted to $108,887,000
compared to $100,267,000 at the end of 1998, an increase of $8,620,000 or
8.6%. At year end, most of this increase in total assets was comprised of
short-term earning assets. This increase was primarily due to a $6,943,000
net increase in deposits, borrowed funds and other liabilities and a
$1,677,000 net increase in stockholders' equity resulting primarily from an
additional $1,248,000 net proceeds from the Company's rights offering of
common stock during 1999. The Company intends to deploy these proceeds in
lending activities during 2000. Proceeds from loans sold during 1999
primarily funded new loan growth during the same year. Loans outstanding at
year end 1999 and 1998 were $81,870,000 and $81,601,000, respectively.
The Bank's loan portfolio at the end of 1999 consisted of approximately 71%
discounted loans compared to 78% at the end of 1998, 10% direct commercial
loans compared to 9% for 1998, 3% commercial real estate compared to 2% for
1998, 7% lines of credit compared to 5% for 1998, 8% residential mortgages
and home equity loans compared to 5% for 1998, and 1% in direct financing
leases compared to 1% for 1998. Loans were funded primarily by deposits
consisting mostly of time deposits which represented over 85% of total
deposits at 1999 year-end compared to 88% of total deposits at 1998 year-end.
Additional loan information can be found elsewhere in this report in the
Notes to Consolidated Financial Statements.
8
<PAGE>
The largest source of the Company's 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 (1) net interest spread
and (2) 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 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.
The below table presents the Company's average balance sheets, net interest
spread and net interest margin for the three years ended December 31, 1999,
1998, and 1997. Net interest income for 1999 increased $963,000 or over 39%
to $3,403,000 as compared to $2,440,000 for 1998. The $2,404,000 net interest
income for 1998 increased $1,544,000 or over 172% compared to $896,000 for
1997.
<TABLE>
<CAPTION>
Michigan Heritage Bancorp, Inc.
Consolidated Average Balance Sheets and Analysis of Net Interest Income
For the Years Ended December 31 (Taxable Equivalent Basis)
($000s)
1999 1998
------------------------------------ ----------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
- ------------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest bearing balances
in other banks $ 3,574 $ 182 5.09% $ 2,743 $ 146 5.32%
Federal funds sold 8,156 409 5.01 4,198 224 5.34
Investment securities 5,872 322 5.48 12,231 685 5.60
Loans 82,523 7,473 9.06 53,368 5,051 9.46
--------- -------- ---- -------- ------- ----
Total earning assets 100,125 8,386 8.38 72,540 6,106 8.42
Cash and due from banks 811 558
Allowance for loan losses (1,682) (694)
Operating lease equipment, net 1,831 858
Other assets 1,850 1,059
--------- --------
Total assets $ 102,935 $ 74,321
========= ========
Liabilities and Stockholders' Equity
Interest on checking and
Money market deposit accounts $ 8,001 $ 360 4.50% $ 5,632 $ 273 4.85%
Savings deposits 36 1 2.78 66 2 3.03
Other time deposits less than $100,000 60,059 3,362 5.60 40,253 2,393 5.94
Time deposits $100,000 and greater 21,982 1,259 5.73 16,787 998 5.95
Borrowed funds 14 1 5.25 5 0 5.25
--------- -------- ---- -------- ------- ----
Total interest bearing liabilities 90,092 4,983 5.53 62,743 3,666 5.84
-------- ---- ------- ----
Other deposits, non-interest bearing 1,670 753
Other liabilities 607 467
Stockholders' equity 10,566 10,358
--------- --------
Total liabilities and
stockholders' equity $ 102,935 $ 74,321
========= ========
Net interest income $ 3,403 $ 2,440
======== =======
Net interest rate spread 2.85% 2.58%
==== ====
Cost of earning assets 4.98% 5.05%
==== ====
Net interest margin 3.40% 3.37%
==== ====
Net interest-earning assets to
interest-bearing liabilities 111% 116%
========= ========
Net income after taxes $ 475 $ (113)
========= ========
Return on equity 4.50% (1.09)%
========= ========
Return on assets 0.46% (0.15)%
========= ========
Dividend payout ratio -- % -- %
========= ========
Equity to assets ratio 10.26% 13.94%
========= ========
<CAPTION>
1997
---------------------------------
Average Average
Balance Interest Yield/ Rate
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Interest bearing balances
in other banks $ 1,734 $ 103 5.94%
Federal funds sold 3,868 211 5.46
Investment securities 8,278 474 5.73
Loans 11,206 1,132 10.10
-------- -------- -----
Total earning assets 25,086 1,920 7.65
Cash and due from banks 676
Allowance for loan losses (131)
Operating lease equipment, net --
Other assets 589
--------
Total assets $ 26,220
========
Liabilities and Stockholders' Equity
Interest on checking and
Money market deposit accounts $ 1,236 $ 61 4.94%
Savings deposits 157 9 5.73
Other time deposits less than $100,000 10,134 615 6.07
Time deposits $100,000 and greater 5,570 339 6.09
Borrowed funds -- -- --
-------- -------- -----
Total interest bearing liabilities 17,097 1,024 5.99
-------- -----
Other deposits, non-interest bearing 291
Other liabilities 241
Stockholders' equity 8,591
--------
Total liabilities and
stockholders' equity $ 26,220
========
Net interest income $ 896
========
Net interest rate spread 1.66%
=====
Cost of earning assets 4.08%
=====
Net interest margin 3.57%
=====
Net interest-earning assets to
interest-bearing liabilities 147%
========
Net income after taxes $ (602)
========
Return on equity (7.01)%
========
Return on assets (2.30)%
========
Dividend payout ratio -- %
========
Equity to assets ratio 32.77%
========
</TABLE>
9
An analysis of the Company's change in net interest income is presented in
the following table. The $963,000 net interest income increase in 1999
resulted primarily from a $1,057,000 increase due to increases in average
balances partially offset by a $94,000 decrease due to changes in both
yield/rate and mix. 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. The
$895,000 change in net interest income for 1997, the year the Bank began
operations, came primarily from a mix of both volume and yield/rate changes
as indicated. Loan fee income included in loan interest income was $276,000,
$189,000 and $82,000 for 1999, 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 1999 and 1998. There were no
nonaccrual loans for 1997.
<TABLE>
<CAPTION>
Michigan Heritage Bancorp, Inc.
Analysis of Net Interest Income Changes (Taxable Equivalent Basis)
($000s)
1999 Compared to 1998 1998 Compared to 1997
--------------------------------------- ----------------------------------------
Volume & Volume &
Yield/Rate Yield/Rate
Volume Yield/Rate Mix Total Volume Yield/Rate Mix Total
- -------------------------------------------------------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Interest Income
Interest bearing balances in
other banks $ 44 $ (6) $ (2) $ 36 $ 60 $ (11) $ (6) $ 43
Federal funds sold 211 (13) (13) 185 18 (5) -- 13
Taxable investment securities (356) (14) 7 (363) 226 (10) (5) 211
Loans 2,759 (218) (119) 2,422 4,259 (71) (269) 3,919
------- ------- ----- ------ ------- ----- ----- ------
Total interest income change 2,658 (251) (127) 2,280 4,563 (97) (280) 4,186
Increase (Decrease) in Interest Expense
Interest on checking and
Money market deposit accounts 115 (20) (8) 87 217 (1) (4) 212
Savings deposits (1) -- -- (1) (5) (4) 2 (7)
Other time deposits less than $100,000 1,177 (140) (68) 969 1,828 (13) (37) 1,778
Time deposits $100,000 and greater 309 (37) (11) 261 683 (8) (16) 659
Borrowed funds 1 -- -- 1 -- -- -- --
------- ------- ----- ------ ------- ----- ----- ------
Total interest expense change 1,601 (197) (87) 1,317 2,723 (26) (55) 2,642
------- ------- ----- ------ ------- ----- ----- ------
Net interest income change $ 1,057 $ (54) $ (40) $ 963 $ 1,840 $ (71) $(225) $1,544
======= ======= ===== ====== ======= ===== ===== ======
<CAPTION>
Michigan Heritage Bancorp, Inc.
Analysis of Net Interest Income Changes (Taxable Equivalent Basis)
($000s)
1997 Compared to 1996
-----------------------------------------
Volume &
Yield/Rate
Volume Yield/Rate Mix Total
- ----------------------------------------------- -----------------------------------------
<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
------- ----- ------- -------
Net interest income change $ 68 $ -- $ 827 $ 895
======= ===== ======= =======
</TABLE>
The net interest spread for 1999 of 2.85% increased 0.27% or 27 basis points
("bps") over the 2.58% spread for 1998. The net interest spread for 1998 of
2.58% increased 92 bps over the 1.66% spread for 1997. The 1999 average yield
on earning assets of 8.38% decreased 4 bps from 1998 primarily due to the
change in mix of earning assets and lower loan yields. 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 (see table below) 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 5.53% cost of
interest-bearing liabilities for 1999 decreased 31 bps from 5.84% in 1998 due
primarily to higher costing time deposits (see table below) being repriced at
lower rates in 1999 and new time deposits being acquired at rates lower than
existing time deposits. 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 being repriced at lower rates in 1998. The cost of interest-bearing
liabilities for 1999, 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.
The following table summarizes on a consolidated basis, investments as of
December 31, 1999 and 1998. While the total amortized cost of securities
increased only $780,000 ($8,763,000 for year end 1999 compared to $7,983,000
for year end 1998), the overall yield at year end increased 104 basis points
(6.47% for 1999 compared to 5.43% for 1998). This increase was primarily due
to a majority of the portfolio being reinvested into longer term investments
during December 1999.
10
<TABLE>
<CAPTION>
Michigan Heritage Bancorp, Inc.
Consolidated Investment Maturity Analysis
As of December 31, 1999 and 1998 (Taxable Equivalent Basis)
($000s)
1999
-------------------------------------------
Available for Sale (a)
-------------------------------------------
U.S. Treasury and
other government
agencies, municipals,
corporations, and Federal Reserve
commercial paper Bank Stock (b)
---------------------- ------------------
Amortized Amortized
Cost Yield Cost Yield
---------------------- ------------------
<S> <C> <C> <C> <C>
Due in one year or less $2,491 6.19% $ 294 6.00%
Due after one year through five years 4,720 6.58 -- --
Due after five years through ten years 552 6.91 -- --
Due after ten years 1,000 6.38 -- --
------ ------ ------ ------
Total $8,763 6.47% $ 294 6.00%
====== ====== ====== ======
<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
--------------------- ------------------
<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%
====== ====== ====== ======
</TABLE>
(a) There were no securities Held to Maturity as of December 31, 1999 and
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.
11
The below table highlights consolidated time certificates of deposit
maturities as of year end 1999.
Michigan Heritage Bancorp, Inc.
Consolidated Time Certificates of Deposit Maturity Analysis
As of December 31, 1999
($000s)
Under $100,000
$100,000 and over
-------- --------
Due in three months or less $10,685 $ 1,594
Due over three months through six months 6,713 3,642
Due over six months through twelve months 19,154 6,643
Due over twelve months 23,180 10,547
------- -------
Total $59,732 $22,426
======= =======
The 3.40% net interest margin for 1999 is a 3 bps increase from the 3.37% net
interest margin for 1998. 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 down 4 bps in 1999, the cost of earning assets also went
down 7 bps, 4.98% in 1999 compared to 5.05% in 1998 primarily due to lower
costs of interest bearing liabilities in 1999 compared to 1998 and, to a
lesser extent, additional capital from the rights offering completed in
October 1999. 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 $2,110,000 for 1999 increased $1,523,000 over
1998, due primarily to three areas. There was a $721,000 increase in rental
income from an operating lease acquired during 1998. There was also a
$500,000 gain on the above operating lease disposed of in December 1999. In
addition, there was a $264,000 gain on loans sold in 1999--there were no
loans sold in 1998. The remaining $38,000 increase in non-interest income for
1999 principally consisted of loan servicing fees, service charges on deposit
accounts and float income from an outside vendor for cashiers checks sold.
Other non-interest income of $587,000 for 1998 increased $581,000 over 1997,
primarily due to $515,000 in rental income from the operating lease acquired
during 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.
Non-interest expense for 1999 was $3,678,000 which represents a $1,522,000
increase over 1998. Salaries and employee benefits increased $463,000 due to
a net of nine additional paid staff members being added during 1999, accrued
bonuses, and 401(k) match. Depreciation on property for the Bank's operating
lease acquired during 1998 increased $531,000. Occupancy and other equipment
expense increased by $159,000 due to additional office rental and equipment
depreciation expense. Professional fees increased by $134,000 mostly due to
additional legal fees. Other assets provision for 1999 was $120,000 net of
asset recoveries due to equipment repossessed and adjusted to market. There
was no repossessed equipment in 1998 or 1997. Data processing fees and
marketing expense went up $15,000 and $30,000, respectively, due to
additional volume. Remaining other expenses increased a net of $180,000
primarily due to additional Michigan single business tax, telephone expense,
FDIC assessment, office supplies and printing. 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
12
$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.
Financial Condition
The Company's current cash projections indicate adequate cash balances. The
Bank has credit facilities with national lending institutions to add funding
capacity through overnight borrowings. Management has also established a
network of banks that can be used to sell or participate a portion of its
loan portfolio. These techniques allow the Bank to service its business
relationships and generate fee and servicing revenue.
The Company's liquidity remained adequate throughout 1999. As of December 31,
1999, the Bank had $18,188,000 in cash and cash equivalents including
$12,800,000 in federal funds sold and $4,148,000 in interest-bearing balances
in other banks which are immediately available assets. In addition,
investment securities with a total book value of $8,707,000 are all available
for sale. The Bank has also proven its 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" or "well-capitalized,"
the Bank must maintain a capital leverage ratio of 4.0% or 5.0%,
respectively. The Bank's Tier 1 leverage ratios were 10.2% and 9.1% at
December 31, 1999 and 1998, respectively. The Bank plans on maintaining at
least a 9.0% Tier 1 leverage ratio throughout its 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.
Year 2000 Disclosures
The Bank, being a new business, did not have major issues concerning older
systems to update. The recently acquired new systems were already primarily
Year 2000 ("Y2K") compliant. All applicable components of both the Company
and the Bank have been identified and addressed as to being Y2K compliant.
The Company, which has not experienced any Y2K issues to date, has been
operating normally with expected deposit levels.
The cost to become fully Y2K compliant for both the Company and the Bank was
not material. In addition, prior to the year 2000, the Bank communicated at
various times with both vendors and appropriate customers concerning Y2K
compliance to help ensure their smooth transition into the next century. As
of December 31, 1999, the Bank had accrued $250,000 in loan loss reserves to
address Y2K issues. To date, no Y2K issues with either vendors or customers
have become apparent. The Bank is not aware of any future Y2K significant
contingencies involving either vendors or customers.
There were no capital expenditures postponed in preparing for Y2K.
13
Item 7. Financial Statements.
The consolidated financial statements of the Company and its subsidiary,
together with the report thereon of Plante & Moran, LLP, included in this
report under this item are listed under Item 13 of this report. No
supplementary financial statement schedules are required to be filed with
this report.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
14
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The information required by this Item is included in the Proxy Statement
under the captions "Information about Directors and Nominees as Directors"
and "Section 16(a) Beneficial Ownership Reporting Compliance" and is hereby
incorporated herein by reference.
Item 10. Executive Compensation.
The information required by this Item is included in the Proxy Statement
under the caption "Compensation of Executive Officers" and is hereby
incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is included in the Proxy Statement
under the caption "Stock Ownership of Certain Beneficial Owners and
Management" and is hereby incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions.
The information required by this Item is included in the Proxy Statement
under the caption "Related Party Transactions" and is hereby incorporated
herein by reference.
Item 13. Exhibits, List and Reports on Form 8-K
(a) The following financial statements and financial statement schedules are
filed with this report:
Page
Number
------
1. Financial Statements:
Report of Independent Auditors 17
Consolidated Balance Sheets at December 31,
1999 and 1998 18
Consolidated Statements of Changes in
Stockholders' Equity for the Years ended
December 31, 1999, 1998 and 1997 19
Consolidated Statements of Operations for
the years ended December 31, 1999, 1998 and
1997 20
Consolidated Statements of Cash Flows for
the years ended December 31, 1999, 1998 and
1997 21
Notes to Consolidated Financial Statements 22
2. Financial Statement Schedules: None
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the
quarter ended December 31, 1999.
15
(c) The Exhibits required to be filed as part of this Form
10-K are the following:
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)
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 Office Building Lease between Rontal Investment Company as
Landlord and Michigan Heritage Bancorp, Inc. as Tenant for
headquarters floor space located at 28300 Orchard Lake
Road, Suite 200, Farmington Hills, Michigan (filed
herewith)
11 Computation of Per Share Earnings (filed herewith)
27 Financial Data Schedule (EDGAR filing only) (filed herewith)
----------------
* Management contract or compensatory plan or arrangement.
16
Independent Auditor's 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, 1999 and 1998 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, 1999.
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, 1999 and
1998 and the consolidated results of their operations and their cash flows
for each year in the three-year period ended December 31, 1999, in conformity
with generally accepted accounting principles.
/s/ Plante & Moran, LLP
Bloomfield Hills, Michigan
January 19, 2000
17
Michigan Heritage Bancorp, Inc.
- -----------------------------------------------------------------------------
Consolidated Balance Sheet
(000s omitted, except per share data)
<TABLE>
<CAPTION>
December 31
----------------------
1999 1998
---- ----
<S> <C> <C>
Assets
Cash and Cash Equivalents
Cash and due from banks $ 1,240 $ 277
Interest-bearing deposits with other banks 4,148 3,781
Federal funds sold 12,800 4,200
--------- ---------
Total cash and cash equivalents 18,188 8,258
Securities Available for Sale (Note 2) 8,707 7,997
Federal Reserve Bank Stock - At cost 294 236
Loans (Note 3)
Commercial 74,005 75,968
Direct financing leases (Note 5) 948 1,042
Real estate 5,094 3,444
Installment 166 137
Home equity 1,657 1,010
--------- ---------
Total loans 81,870 81,601
Less allowance for loan losses (Note 4) (1,987) (1,816)
--------- ---------
Net loans 79,883 79,785
Bank Premises and Equipment (Note 6) 763 453
Property on Operating Lease (Note 7) -- 2,332
Deferred Income Taxes (Note 9) 464 590
Interest Receivable and Other Assets 588 616
--------- ---------
Total assets $ 108,887 $ 100,267
========= =========
Liabilities and Stockholders' Equity
Liabilities
Deposits (Note 8):
Interest-bearing $ 92,863 $ 86,612
Noninterest-bearing 3,091 1,042
--------- ---------
Total deposits 95,954 87,654
Short-term borrowings -- 1,750
Interest payable and other liabilities 1,215 822
--------- ---------
Total liabilities 97,169 90,226
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 - 1,488,765 shares in 1999
and 1,265,000 shares in 1998 13,730 12,482
Accumulated deficit (1,975) (2,450)
Accumulated other comprehensive income (loss) (37) 9
--------- ---------
Total stockholders' equity 11,718 10,041
--------- ---------
Total liabilities and stockholders' equity $ 108,887 $ 100,267
========= =========
<FN>
See Notes to Consolidated
Financial Statements.
</TABLE>
18
Michigan Heritage Bancorp, Inc.
- -----------------------------------------------------------------------------
Consolidated Statement of Changes in Stockholders' Equity
(000s omitted, except per share data)
<TABLE>
<CAPTION>
Accumulated
Common Other Total
Shares Capital Accumulated Comprehensive Stockholders'
Outstanding Stock Deficit Income(Loss) Equity
----------- ------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1997 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 -- -- -- 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
Comprehensive income:
Net income -- -- 475 -- 475
Change in net unrealized loss
on securities available for
sale, net of tax effect of $24 -- -- -- (46) (46)
----------
Total comprehensive income 429
Issuance of common stock 223,765 1,248 -- -- 1,248
---------- ---------- ---------- ---------- ----------
Balance - December 31, 1999 1,488,765 $ 13,730 $ (1,975) $ (37) $ 11,718
========== ========== ========== ========== ==========
<FN>
See Notes to Consolidated
Financial Statements.
</TABLE>
19
Michigan Heritage Bancorp, Inc.
- -----------------------------------------------------------------------------
Consolidated Statement of Operations
(000s omitted, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest Income
Interest and fees on loans $ 7,403 $ 5,051 $ 1,132
Interest and dividends on investments - Taxable 321 685 474
Interest on tax-exempt securities 1 -- --
Interest on federal funds sold 409 224 211
Interest on deposits with other banks 180 146 103
Interest on direct financing leases 72 -- --
------- ------- -------
Total interest income 8,386 6,106 1,920
Interest Expense - Interest on deposits 4,983 3,666 1,024
------- ------- -------
Interest Income - Before provision for loan losses 3,403 2,440 896
Provision for Loan Losses (Note 4) 1,072 1,349 467
------- ------- -------
Net Interest Income 2,331 1,091 429
Other Income
Service charges on deposit accounts 110 72 6
Operating lease rental income (Note 7) 1,236 515 --
Gain on sale of loans 264 -- --
Gain on sale of property on operating lease (Note 7) 500 -- --
------- ------- -------
Total other income 2,110 587 6
Other Expenses
Salaries and employee benefits 1,373 910 512
Occupancy of bank premises (Note 10) 182 82 73
Processing 60 45 26
Marketing 145 115 112
Equipment expense 177 118 86
Depreciation of property on operating lease 974 443 --
Professional fees 289 155 72
Amortization -- 4 78
Other assets provision 120 -- --
Other expenses 358 184 78
------- ------- -------
Total other expenses 3,678 2,056 1,037
------- ------- -------
Income (Loss) - Before income taxes and cumulative effect
of change in accounting principle 763 (378) (602)
Income Tax Expense (Benefit) (Note 9) 288 (331) --
------- ------- -------
Net Income (Loss) - Before cumulative effect of
change in accounting principle 475 (47) (602)
Cumulative Effect of Expensing Organizational Costs -
Net of tax benefit of $34 -- (66) --
------- ------- -------
Net Income (Loss) $ 475 $ (113) $ (602)
======= ======= =======
Basic Earnings (Loss) per Share (Note 18) $ 0.36 $ (0.09) $ (0.57)
======= ======= =======
Diluted Earnings (Loss) per Share (Note 18) $ 0.36 $ (0.09) $ (0.57)
======= ======= =======
<FN>
See Notes to Consolidated
Financial Statements.
</TABLE>
20
Michigan Heritage Bancorp, Inc.
- -----------------------------------------------------------------------------
Consolidated Statement of Cash Flows
(000s omitted, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 475 $ (113) $ (602)
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization 1,139 545 73
Provision for loan losses 1,072 1,349 467
Gain on sale of operating lease equipment (500) -- --
Deferred income taxes 150 (580) --
Cumulative effect of change in accounting principle -- 66 --
Amortization and accretion of securities (139) (83) (253)
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable
and other assets 28 (229) (324)
Increase in accrued interest payable and other liabilities 393 257 508
-------- -------- --------
Net cash provided by (used in) operating activities 2,618 1,212 (131)
Cash Flows from Investing Activities
Proceeds from maturities of available-for-sale securities 23,000 16,000 --
Purchase of available-for-sale securities (23,641) (18,935) (5,236)
Proceeds from maturities of held-to-maturity securities -- 8,600 7,600
Purchase of held-to-maturity securities -- -- (15,912)
Purchase of federal reserve stock (58) -- --
Increase in loans (1,170) (48,996) (32,605)
Purchase of operating lease equipment -- (2,775) --
Proceeds from sales of operating lease equipment 1,858 -- --
Premises and equipment expenditures (475) (171) (424)
-------- -------- --------
Net cash used in investing activities (486) (46,277) (46,577)
Cash Flows from Financing Activities
Net increase in interest-bearing and noninterest-bearing demand accounts 3,953 7,448 2,395
Net increase in time certificates 4,347 39,478 38,333
Proceeds from short-term borrowings -- 1,750 --
Payments on short-term borrowings (1,750) -- --
Proceeds from related party notes payable -- -- 10
Payments on related party notes payable -- -- (265)
Proceeds from public stock offering 1,248 -- 10,815
-------- -------- --------
Net cash provided by financing activities 7,798 48,676 51,288
-------- -------- --------
Net Increase in Cash and Cash Equivalents 9,930 3,611 4,580
Cash and Cash Equivalents - Beginning of year 8,258 4,647 67
-------- -------- --------
Cash and Cash Equivalents - End of year $ 18,188 $ 8,258 $ 4,647
======== ======== ========
Supplemental Cash Flow and Noncash Information
Cash paid for:
Interest $ 4,874 $ 3,656 $ 642
Income taxes 90 230 --
Stock dividend (Note 13) -- 1,667 --
<FN>
See Notes to Consolidated
Financial Statements.
</TABLE>
21
Michigan Heritage Bancorp, Inc.
- -----------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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 15 percent and 18
percent of total loans at December 31, 1999 and 1998,
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 other comprehensive
income 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.
22
Note 1 - Summary of Significant Accounting Policies (Continued)
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 - 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.
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 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
1999, 1998 and 1997 are not dilutive and have not been
considered.
23
Note 1 - Summary of Significant Accounting Policies (Continued)
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 (Loss) - 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 reported as a direct adjustment to the equity
section of the balance sheet. Such items, along with net
income, are components of comprehensive income. Accumulated
other comprehensive income (loss) at December 31, 1999 and
1998 is comprised solely of unrealized gains (losses) on
available-for-sale securities, net of tax expense (benefit)
of ($24,000) and $5,000, respectively.
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.
Recent Accounting Pronouncements - In June 1998, Statement
of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"),
was issued. SFAS 133 requires all derivative instruments to
be recorded on the balance sheet at estimated fair value.
Changes in the fair value of derivative instruments are to
be recorded each period either in current earnings or other
comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, on
the type of hedge transaction. SFAS 133 is effective for the
year 2000. The Corporation is currently evaluating the
impact of SFAS 133; at present, the Corporation does not
believe it will have a material effect on the consolidated
financial position or results of operations.
24
Note 2 - Securities
The amortized cost and estimated market value of investment
securities are as follows:
<TABLE>
<CAPTION>
1999
-------------------------------------------------
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 $6,229 $ -- $ 52 $6,177
Municipal notes 1,032 -- 3 1,029
Corporate bonds 1,502 -- 1 1,501
------ ---------- ------ ------
Total $8,763 $ -- $ 56 $8,707
====== ========== ====== ======
<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 $7,983 $ 22 $ 8 $7,997
====== ========== ====== ======
</TABLE>
25
Note 2 - Securities (Continued)
The amortized cost and estimated market value of securities
at December 31, 1999, 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.
Available-for-Sale
-----------------------
Amortized Estimated
Cost Market Value
--------- ------------
Due in one year or less $2,491 $2,489
Due after one year through five years 4,720 4,714
Due after five years through ten years 552 549
Due after ten years 1,000 955
------ ------
Total $8,763 $8,707
====== ======
Securities having a carrying and market value of $2,937,000
and $2,937,000, respectively, were pledged at December 31,
1999 for purposes required by law.
Note 3 - Loans
No directors or executive officers of the Corporation were
loan customers of the subsidiary bank during 1999 and 1998.
Final loan maturities and rate sensitivity of the loan
portfolio at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Within One One to Five After Five
Year Years Years Total
---------- ----------- ---------- -----
<S> <C> <C> <C> <C>
Commercial $32,389 $41,616 $ -- $74,005
Direct financing lease 102 846 -- 948
Real estate 2,476 2,618 -- 5,094
Installment 77 89 -- 166
Home equity 1,117 540 -- 1,657
------- ------- ------ -------
Total $36,161 $45,709 $ -- $81,870
======= ======= ====== =======
Loans at fixed interest rates $26,221 $44,469 $ -- $70,690
Loans at variable interest rates 9,940 1,240 -- 11,180
------- ------- ------ -------
Total $36,161 $45,709 $ -- $81,870
======= ======= ====== =======
</TABLE>
26
Note 4 - Allowance for Possible Loan Losses
A summary of the activity in the allowance for possible loan
losses (ALL) is as follows:
1999 1998
------- -------
Balance - Beginning of year $ 1,816 $ 467
Provision charged to operations 1,072 1,349
Loan losses (969) --
Loan loss recoveries 68 --
------- -------
Balance - End of year $ 1,987 $ 1,816
======= =======
As a percent of total loans 2.43% 2.23%
======= =======
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 $113,000 and
$2,096,000 at December 31, 1999 and 1998, respectively. The
average recorded investment in impaired loans during 1999
was $810,000. The average recorded investment in impaired
loans during 1998 was insignificant. Included in the
impaired loan total were $100,000 ($2,096,000 in 1998) of
impaired loans for which the specific allowance for possible
loan losses was $50,000 and $820,000 at December 31, 1999
and 1998, respectively.
Note 5 - Direct Financing Leases
The following lists the components of the net investment in
direct financing leases:
1999 1998
------- -------
Minimum lease payments receivable $ 998 $ 1,164
Estimated residual values of leased
property (unguaranteed) 211 211
Less unearned income (261) (333)
------- -------
Net investment in direct
financing leases $ 948 $ 1,042
======= =======
27
Note 5 - Direct Financing Leases (Continued)
The following is a schedule by years of minimum future
rentals on direct financing leases as of December 31, 1999:
2000 $ 166
2001 166
2002 166
2003 166
2004 166
Thereafter 168
-----
Total $ 998
=====
Note 6 - Bank Premises and Equipment
Bank premises and equipment at December 31, 1999 and 1998
consisted of the following:
1999 1998
------ ------
Buildings and improvements $ 174 $ 42
Furniture and equipment 929 586
------ ------
Total 1,103 628
Less accumulated depreciation 340 175
------ ------
Net carrying amount $ 763 $ 453
====== ======
Note 7 - Property on Operating Lease
The Bank leased equipment to a customer under an operating
lease in 1998. The lease was terminated in December 1999 and
the equipment was sold to the customer.
28
Note 8 - Deposits
The following is a summary of the distribution of deposits
at December 31, 1999 and 1998:
1999 1998
------- -------
Noninterest-bearing - Demand $ 3,091 $ 1,042
======= =======
Interest-bearing:
NOW accounts $ 4,884 $ 6,022
Savings 12 10
Money market demand 5,809 2,769
Time:
$100,000 and over 22,426 23,769
Under $100,000 59,732 54,042
------- -------
Total interest-bearing $92,863 $86,612
======= =======
The remaining maturities of time deposits at December 31,
1999 are as follows:
Under $100,000
$100,000 and Over
-------- --------
2000 $36,552 $11,879
2001 18,747 6,894
2002 3,184 1,274
2003 -- 2,180
2004 1,249 199
------- -------
Total $59,732 $22,426
======= =======
29
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:
1999 1998 1997
----- ----- ----
Current $ 138 $ 230 $ --
Deferred (credit) 150 (595) --
----- ----- ----
Total income tax expense (benefit) 288 (365) --
Less amount allocated to cumulative effect -- 34 --
----- ----- ----
Net income tax expense (benefit) $ 288 $(331) $ --
===== ===== ====
The following is a reconciliation of the statutory federal
income tax expense (benefit) to the effective tax expense
(benefit) for the years ended December 31:
1999 1998 1997
----- ----- -----
Income tax at statutory rate $ 259 $(129) $(204)
Change in the valuation allowance -- (225) 204
Other 29 23 --
----- ----- -----
Net income tax expense (benefit) $ 288 $(331) $ --
===== ===== =====
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 (benefit) are as follows:
1999 1998 1997
----- ----- -----
Net operating loss carryforward $ -- $ 62 $ (62)
Provision for loan loss 19 (444) (145)
Start-up costs 8 8 (13)
Organization costs 8 (27) --
Accretion 6 (3) 14
Lease financing 34 50 --
Depreciation 40 -- --
Other 35 (16) 2
Increase (decrease) in valuation allowance -- (225) 204
----- ----- -----
Total deferred tax expense (benefit) $ 150 $(595) $ --
===== ===== =====
30
Note 9 - Income Taxes (Continued)
The temporary differences that comprise deferred tax assets
and liabilities at December 31, 1999 and 1998 are as
follows:
1999 1998
------- -------
Deferred tax assets:
Provision for loan loss $ 570 $ 589
Start-up costs 18 26
Organizational costs 19 27
Unrealized loss on securities 19 --
Other -- 18
------- -------
Total deferred tax assets 626 660
Valuation allowance for deferred tax assets -- --
Deferred tax liabilities:
Accretion (17) (11)
Lease financing (84) (50)
Unrealized gain on securities -- (5)
Depreciation (40) --
Other (21) (4)
------- -------
Total deferred tax liabilities (162) (70)
------- -------
Net deferred tax asset $ 464 $ 590
======= =======
Note 10 - Operating Lease
The Corporation has entered into lease commitments for
office buildings. Rental expense charged to operations was
$89,000 and $45,000 for the years ended December 31, 1999
and 1998, respectively. The future minimum lease payments
are as follows:
2000 $ 326
2001 326
2002 304
2003 281
2004 281
-------
Total $ 1,518
=======
31
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, 1999, 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 three years.
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
of Shares Price of Shares Price of Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 96,700 $ 9.14 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 96,700 9.14 93,500 9.10
Exercisable at end of year 83,775 9.11 69,025 9.10 55,075 9.10
Weighted average estimated
fair value of options
granted during the year N/A $ 4.35 $ 4.29
</TABLE>
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:
1999 1998 1997
---- ------ ------
Dividend yield N/A -- --
Expected average life (years) N/A 10.0 7.9
Volatility N/A 30% 28%
Risk-free interest rate N/A 5.8% 6.0%
32
Note 11 - Stock Option Plans (Continued)
At December 31, 1999, options outstanding have exercise
prices between $9.09 and $10.35 per share and a weighted
average remaining contractual life of 5.4 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>
1999 1998
-------------------------------- --------------------------------
Net Basic Diluted Net Basic Diluted
Loss EPS EPS Loss EPS EPS
---- ----- ------- ---- ----- -------
<S> <C> <C> <C> <C> <C> <C>
As reported $ 475 $0.36 $0.36 $(113) $(0.09) $(0.09)
Pro forma 432 0.33 0.33 (153) (0.12) (0.12)
</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 $14,000 and $12,000
for the years ended December 31, 1999 and 1998,
respectively.
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.
33
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 values to be estimated by
management. 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.
1999 1998
---------------------- ----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Assets:
Cash and equivalents $18,188 $18,188 $ 8,258 $ 8,258
Securities 9,001 9,001 8,233 8,233
Loans 79,883 78,179 79,785 80,302
Other 502 502 476 476
Liabilities:
Deposits 95,954 95,674 87,654 87,994
Short-term borrowings -- -- 1,750 1,750
Other 360 360 393 393
The terms and short-term nature of certain assets and
liabilities result in their carrying amounts approximating
fair values. 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.
34
Note 14 - Financial Instruments (Continued)
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 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 $17,300,000 and $49,200,000
at December 31, 1999 and 1998, respectively, on which
$10,300,000 and $22,700,000, respectively, were outstanding
at year end and were included in the consolidated balance
sheet.
35
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 1999, 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 total capital ratio of
4.0 percent. As of December 31, 1999, 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.
Capital and risk-based capital and leverage ratios for the
Bank are shown below:
Amount Ratio
------ -----
December 31, 1999:
Total capital (to risk-weighted assets) $11,670 13.4%
Tier 1 capital (to risk-weighted assets) 10,576 12.2%
Tier 1 capital (to average assets) 10,576 10.2%
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%
36
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 income (loss) of
the Bank since it was formed. The Parent recognizes
undistributed earnings (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:
1999 1998
------- -------
Assets
Cash and Cash Equivalents
Cash and deposits at subsidiary bank $ 13 $ 1
Interest-bearing deposits with other banks 1,040 1,073
------- -------
Total cash and cash equivalents 1,053 1,074
Investment in Subsidiary 10,625 8,701
Interest Receivable and Other Assets 40 266
------- -------
Total assets $11,718 $10,041
======= =======
Liabilities and Stockholders' Equity
Liabilities $ -- $ --
Stockholders' Equity 11,718 10,041
------- -------
Total liabilities and stockholders' equity $11,718 $10,041
======= =======
37
Note 17 - Parent-only Financial Statements (Continued)
The condensed statement of operations for the years ended
December 31, 1999 and 1998 is as follows:
1999 1998
----- -----
Operating Income
Interest and dividends on investments - Taxable $ -- $ 106
Interest on deposits with other banks 35 25
----- -----
Total operating income 35 131
Operating Expense 33 39
----- -----
Income - Before income taxes, equity in income (loss)
of subsidiary and cumulative effect of change
in accounting principle 2 92
Income Tax Expense 1 14
----- -----
Income - Before equity in income (loss) of subsidiary and
cumulative effect of change in accounting principle 1 78
Equity in Income (Loss) of Subsidiary 474 (125)
----- -----
Income (Loss) - Before cumulative effect of change in
accounting principle 475 (47)
Cumulative Effect of Expensing Organization Costs -
Net of tax effect of $34 -- (66)
----- -----
Net Income (Loss) $ 475 $(113)
===== =====
38
Note 17 - Parent-only Financial Statements (Continued)
The condensed statement of cash flows for the years ended
December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 475 $ (113)
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Equity in (income) loss of subsidiary (474) 125
Change in accounting principle -- 66
Amortization and accretion of securities -- (21)
Amortization of organizational costs -- 20
Net change in other assets 226 (243)
------- -------
Net cash provided by (used in)
operating activities 227 (166)
Cash Flows from Investing Activities
Investment in bank subsidiary (1,496) (1,650)
Proceeds from maturities of held-to-maturity
securities -- 2,600
------- -------
Net cash provided by (used in)
investing activities (1,496) 950
Cash Flows from Financing Activities - Proceeds
from public stock offering 1,248 --
------- -------
Net Increase (Decrease) in Cash and Cash
Equivalents (21) 784
Cash and Cash Equivalents - Beginning of year 1,074 290
------- -------
Cash and Cash Equivalents - End of year $ 1,053 $ 1,074
======= =======
</TABLE>
39
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 1999 and 1998, outstanding stock
options have not been included in the calculation of diluted
weighted average shares outstanding because they would be
antidilutive.
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net income (loss) before cumulative effect
of change in accounting principle $ 475 $ (47) $ (602)
Cumulative effect of expensing
organizational costs - Net of tax
benefit of $34 -- (66) --
------------- ------------- -------------
Net income (loss) $ 475 $ (113) $ (602)
============= ============= =============
Average common shares outstanding 1,309,966 1,265,000 1,051,329
Income (loss) per share before cumulative
effect of change in accounting
principle:
Basic $ 0.36 $ (0.04) $ (0.57)
Diluted 0.36 (0.04) (0.57)
Cumulative effect per share of expensing
organizational costs - Net of tax
benefit of $34:
Basic -- (0.05) --
Diluted -- (0.05) --
Income (loss) per share:
Basic 0.36 (0.09) (0.57)
Diluted 0.36 (0.09) (0.57)
</TABLE>
40
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 1, 2000.
MICHIGAN HERITAGE BANCORP, INC.
By: /s/ Anthony S. Albanese
------------------------------
Anthony S. Albanese, President
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the
capacities indicated on March 1, 2000.
<TABLE>
<CAPTION>
Signature Capacity
- --------- --------
<S> <C>
/s/ Richard Zamojski Chairman and Director (principal executive officer)
- ----------------------------------
Richard Zamojski
/s/ Anthony S. Albanese President and Director (principal operating officer)
- ----------------------------------
Anthony S. Albanese
/s/ Darryle J. Parker Treasurer and Secretary (principal financial officer)
- ----------------------------------
Darryle J. Parker
/s/ H. Perry Driggs Vice-Chairman and Director
- ----------------------------------
H. Perry Driggs
/s/ Lewis N. George Director
- ----------------------------------
Lewis N. George
/s/ Phillip R. Harrison Director
- ----------------------------------
Phillip R. Harrison
/s/ Franck A. Scerbo Director
- ----------------------------------
Frank A. Scerbo
/s/ Philip Sotiroff Director
- ----------------------------------
Philip Sotiroff
</TABLE>
41
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.3 Office Building Lease between Rontal Investment Company as
Landlord and Michigan Heritage Bancorp, Inc. as Tenant for
headquarters floor space located at 28300 Orchard Lake Road,
Suite 200, Farmington Hills, Michigan
11 Computation of Earnings Per Share
27 Financial Data Schedule (EDGAR filing only)
42
Exhibit 10.3 - Office Building Lease Between Rontal Investment Company
and Michigan Heritage Bancorp, Inc.
OFFICE BUILDING LEASE
*28270 Orchard Lake Road
Farmington Hills, Michigan
RONTAL INVESTMENT COMPANY,
AS LANDLORD,
AND
MICHIGAN HERITAGE BANCORP,
AS TENANT
DATED: August 31, 1998
*Street number for above building lease was later changed from 28270 to 28300
TABLE OF CONTENTS
Section Page
- ------- ----
1. Basic Lease Terms and Provisions...............1
2. Premises.......................................1
3. Term...........................................2
4. Rent...........................................4
5. Rent Adjustment................................5
6. Character of Occupancy.........................9
7. Services and Utilities........................10
8. Quiet Enjoyment...............................11
9. Maintenance and Repairs.......................11
10. Alterations and Additions.....................12
11. Entry by Landlord.............................13
12. Construction Liens............................13
13. Damage to Property, Injury to Persons.........14
14. Insurance.....................................14
15. Damage or Destruction to Building.............15
16. Condemnation..................................16
17. Assignment and Subletting.....................17
18. Estoppel Certificate..........................17
19. Default.......................................18
20. Completion of Premises........................21
21. Removal of Tenant's Property..................22
22. Holding Over..................................22
23. Parking Areas.................................22
24. Surrender and Notice..........................22
25. Acceptance of Premises by Tenant..............23
26. Subordination and Attornment..................23
27. Payments after Termination....................24
28. Authorities for Action and Notice.............24
29. Security Deposit..............................24
30. Liability of Landlord.........................24
31. Brokerage.....................................24
32. Signage.......................................25
33. Name of Building Project......................25
34. Measurement of Premises.......................25
35. Miscellaneous.................................25
36. Governmental Approvals/Landlord ..............27
37. Governmental Approvals/Tenant.................27
38. Landlord's Warranty ..........................27
(i)
28270 Orchard Lake Road
Farmington Hills, Michigan
OFFICE BUILDING LEASE
THIS LEASE is made this 25 th day of August , 1998, between RONTAL
INVESTMENT COMPANY, a Michigan co-partnership, ("Landlord"), whose address is
13675 Plymouth Road, Detroit, Michigan 48227-3097 and MICHIGAN HERITAGE
BANCORP, a Michigan 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. 200 located on the
second (2nd) floor of the Building and
containing approximately 11,344 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 $20,797.33 $249,658.00
Years 6 - 10 $23,633.33 $283,600.00
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 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
Landlord: ______
Tenant: ______
1
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.
Notwithstanding anything to the contrary
hereinabove contained, in the event that
Landlord shall fail to deliver the possession
of the Premises Ready for Occupancy on or
before July 1, 1999, then Tenant shall be
entitled to a credit against the first full
installment(s) of Base Rent due to Landlord
hereunder an amount equal to the actual excess
holdover charge incurred by Tenant in Tenant's
existing premises. Further, in the event
Landlord fails to deliver possession of the
Premises to Tenant pursuant to the provisions
of this Lease on or before September 30, 1999,
then Tenant shall have the right, upon written
notice to Landlord delivered by Tenant on or
before October 15, 1999, to terminate this
Lease. In the event Tenant exercises the
foregoing election to terminate this Lease,
then, upon receipt of said notice, this Lease
shall cease and terminate and the parties
shall be released of any and all further
obligations hereunder.
For the purposes of this subparagraph, Tenant
existing premises shall be deemed to be those
premises currently occupied by Tenant and
located at:
(i) __________________________
__________________________
__________________________
and
(ii) __________________________
Tenant: ______
2
__________________________
__________________________
Tenant agrees to deliver to Landlord evidence
of the excess holdover costs actually incurred
by Tenant in its existing premises at the time
Tenant requests reimbursement of same from
Landlord pursuant to the foregoing. In
connection therewith, it is hereby agreed
that: (i) the existing premises shall be
deemed to contain, in the aggregate, not more
than 2,500 square feet; and (ii) Landlord
shall not be responsible for any portion of
excess holdover costs exceeding two hundred
(200%) percent of the rental cost prior to the
holdover period.
(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, not more than Twenty-Seven
Dollars ($27.00) per rentable square foot.
(d) Provided Tenant is not in default under the
terms of this Lease at the time that the
expansion options hereinafter provided are to
be effectuated, Landlord agrees to use its
best efforts to make available to Tenant
expansion premises, each of which contain
approximately 2,500 rentable square feet of
floor space, at or about the commencement date
of the sixth (6th) lease year (the "First
Expansion Option") and at or about the
commencement date of the eleventh (11th) lease
year (the "Second Expansion Option"). In the
event Landlord has vacant space in the
Building available at or about said times to
enable Tenant to utilize the Expansion
Options, Landlord shall notify Tenant in
writing at least six (6) months prior to the
expected delivery date of such space and
Tenant shall have the right within thirty (30)
days after receipt of notice of such
availability to advise Landlord of its
intention to lease the space defined in
Landlord's notice. In the event Tenant
exercises either the First Expansion Option or
the Second Expansion Option, the parties shall
negotiate, in good faith, the terms and
conditions of Tenant's occupancy of such space
and execute an amendment incorporating the
same under the terms and conditions of this
Lease not later than sixty (60) days after the
date of Tenant's notice evidencing its
intention to lease such space. Possession of
any such expansion space shall be delivered in
an "as is" condition, unless otherwise agreed
by the parties, except, in any event, Landlord
shall be responsible for any demolition work
necessary to accommodate the installation of
Tenant's improvements therein.
In the event Tenant fails to exercise its
right to occupy the space covered by the First
Expansion Option or the Second Expansion
Option or, having exercised same, the parties
are unable to agree upon the terms and
conditions of Tenant's occupancy of same, then
the rights granted herein to Tenant, with
respect to the applicable
Tenant: ______
3
space, shall cease and terminate and Landlord
shall be authorized to lease said space to a
third (3rd) party without any further right of
Tenant therein.
(e) In the event that any portion of the second
(2nd) 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.
(f) 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 Rent 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
Tenant: ______
4
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.
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:
Tenant: ______
5
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 Workmen's 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
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
Tenant: ______
6
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 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 Landlord's
independent certified public
accountant) 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 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: ______
7
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
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
Tenant: ______
8
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
therefor, 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 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
Tenant: ______
9
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 provide 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. 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
Tenant: ______
10
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 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
heating, 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
Tenant: ______
11
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 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 a part
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
Tenant: ______
12
<PAGE>
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
Workmen's 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 not 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.
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
Tenant: ______
13
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 indemnifies 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.
(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 from
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 under 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:
Tenant: ______
14
(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 therefor.
(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), 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
Tenant: ______
15
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 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 under 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 under 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
Tenant: ______
16
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 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.
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 counselling 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
(i) to assign or sublet to any entity which is a subsidiary or affiliate of
Tenant or which Tenant merges with or into; or (ii) to sublet approximately
four thousand (4,000) rentable square feet to users approved by Tenant,
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
Tenant: ______
17
(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 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 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 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 on the
date
Tenant: ______
18
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, 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
detainer 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 19(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.
Tenant: ______
19
(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
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 hereof 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,
thereafter 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 Bank,
a Michigan financial corporation, has entered
into a lease with Landlord covering other
Premises in the Building (the "Subsidiary
Lease"). The parties agree that any default by
the tenant under the Subsidiary Lease, shall
constitute an event of default under this
Lease entitling Landlord to exercise all
remedies
Tenant: ______
20
available to Landlord in the event of default
hereunder as if Tenant had committed an event
of default hereunder.
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; (iii) interior doors; (iv) ceiling
treatment; (v) wall treatment; (vi) window
covering treatment; (vii) floor treatment;
(viii) light fixtures; (ix) light switches;
(x) 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 therefor, 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
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
Tenant: ______
21
work to be performed in the Premises for
Tenant, then the cost of such work shall be
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, four (4) covered parking spaces at the
Building for the exclusive use of Tenant's employees. 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 and
such alterations, additions and improvements as Landlord shall require Tenant
to remove pursuant to Paragraph 10. 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 result of such failure,
including, but not limited to, any amounts required to be paid to third
parties who were to have occupied the Premises.
Tenant: ______
22
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 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.
Tenant: ______
23
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 term 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 duly 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.
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
Tenant: ______
24
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 Trerice Tosto, with respect to the execution of this Lease.
32. Signage:
Tenant shall have the right to be the only tenant
identified on the exterior of the Building in an area not more than thirty
(30) square feet. The design, wording, location and manner of attachment of
Tenant's exterior building sign shall be subject to Landlord's prior written
approval and Tenant shall be responsible for obtaining, at Tenant's sole cost
and expense, all municipal approvals required therefor. In addition, in the
event Landlord installs a monument sign at the Building Complex and allows
more than one tenant of the Building to be identified thereon, then Tenant
also shall be entitled to be identified thereon on the same terms and
conditions as are applicable to the other tenants. Except as provided above,
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 time 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 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.
Tenant: ______
25
(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
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
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.
Tenant: ______
26
(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. Governmental Approvals/Tenant:
The parties acknowledge and agree that this Lease is
contingent upon Tenant obtaining all federal and state approvals for the
relocation of its headquarters to the Building on or before the sixtieth
(60th) day after the date of execution hereof. In the event Tenant is unable
to obtain such approvals before the aforesaid date, Tenant shall have the
right to terminate this Lease by notifying Landlord in writing of such
election. In the event of any such election by Tenant, this Lease shall cease
and terminate and the parties shall thereafter have no further right or
responsibility hereunder.
38. Landlord's Warranty:
Landlord warrants to Tenant that the Building Complex
and all equipment utilized in its operation, including, but not limited to,
heating, 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 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 therefor.
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,
Tenant: ______
27
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
/s/ Eugene Rontal
/s/ Laurence E. Winokur By: /s/ Michael Rontal
- ------------------------ ----------------------
___________________ Its: Partner
LANDLORD
MICHIGAN HERITAGE BANCORP,
a Michigan corporation
/s/ Debra A. Steadman By: /s/ Anthony S. Albanese
- ------------------------ -----------------------
___________________ Its: President
-------------------
Tenant: ______
28
EXHIBIT "B"
RULES AND REGULATIONS
ATTACHED TO AND MADE A PART OF LEASE, DATED AUGUST 31 , 1998, BY AND BETWEEN
RONTAL INVESTMENT COMPANY, A MICHIGAN CO-PARTNERSHIP, AS LANDLORD, AND
MICHIGAN HERITAGE BANCORP, A MICHIGAN CORPORATION, AS TENANT. TENANT AGREES
TO ITSELF, ITS EMPLOYEES AND AGENTS TO COMPLY FULLY WITH THE FOLLOWING RULES
AND REGULATIONS AND WITH SUCH REASONABLE MODIFICATIONS THEREOF AND ADDITIONS
THERETO AS LANDLORD MAY MAKE FOR THE BUILDING:
- -----------------------------------------------------------------------------
1. No sign, picture, lettering, notice or advertisement of any
kind shall be painted or displayed on or from the windows, doors, roof, or
outside walls of the Building. All of Tenant's interior signs, sign painting
or lettering shall be done in a manner approved by Landlord, and the cost
thereof shall be paid by Tenant. In the event of the violation of the
foregoing by Tenant, Landlord may remove same without any liability and may
charge the expense incurred for such removal to Tenant.
2. Tenant shall not use the name of the Building for any purpose
other than that of the business address of Tenant. Tenant agrees that
Landlord may assign a name to the Building and/or change the name of the
Building at Landlord's option.
3. The sidewalks, entrances, passages, courts, elevators,
vestibules, stairways, corridors, or halls shall not be obstructed or
encumbered by any tenant or used for any purpose other than ingress and
egress to and from the Leased Premises.
4. No curtains, blinds, shades, screens, awnings, or other
projections shall be attached to or hung in, or used in connection with, any
window or door of the Leased Premises or outside wall of the Building without
the prior written consent of the Landlord, nor shall Tenant place objects
against glass partitions, doors or windows which would be unsightly from the
Building's corridors, or from the exterior of the Building.
5. Any carpeting cemented down shall be installed with a
releasable adhesive.
6. No animals or pets or bicycles or other vehicles shall be
brought or permitted to be in the Building or the Leased Premises.
7. The water and wash closets and other plumbing fixtures shall
not be used for any purpose other than those for which they were constructed,
and no sweepings, rubbish, rags, or other substances shall be thrown therein.
All damage resulting from any misuse of the fixtures shall be borne by the
Tenant who, or whose servants, employees, agents, visitors or licensees,
shall have caused the same. Tenant shall not waste electricity, water or air
conditioning, and shall cooperate fully with Landlord to assure the most
effective operation of the Building's heating and air conditioning. Tenant
shall not adjust any controls other than room thermostats installed for
Tenant's use. Tenant shall not tie, wedge or otherwise fasten open any water
faucet or outlet. Tenant shall keep all corridor doors closed.
8. No tenant shall mark, paint, drill into, or in any way deface
any part of the Building not within the Premises.
9. Tenant shall not cause or permit unusual or objectionable odor
to be produced upon or permeate from the Premises, including duplicating or
printing equipment emitting noxious fumes. Tenant shall not allow any cooking
on the Leased Premises, except for microwave ovens in the employee areas.
Tenant shall not disturb any occupants of this or neighboring buildings or
premises by the use of any musical instruments, loudspeakers, or by any
unseemingly or disturbing noise.
10. No tenant shall throw anything out of the door, windows, or
down any
EXHIBIT "B" Page 1 of 3
passageways or elevator shafts.
11. Vending machines will not be permitted to be installed except
for exclusive use of employees by anyone but the Landlord.
12. Canvassing, soliciting, and peddling in the Building is
prohibited and each tenant shall cooperate to prevent the same.
13. No additional locks or bolts of any kind shall be placed upon
any of the doors and windows by any tenant, nor shall any change be made in
existing locks or the mechanism thereof, except with respect to interior
areas of the Premises necessary for Tenant's security. Each tenant must, upon
the termination of his tenancy, return to the Landlord all keys of stores,
offices, and toilet rooms, either furnished to or otherwise procured by
Tenant and in the event of the loss of any keys, so furnished, such tenant
shall pay to the Landlord the cost thereof.
14. Tenant assumes full responsibility for protecting the Leased
Premises from theft, robbery and pilferage. Except during Tenant's normal
business hours, Tenant shall keep all doors to the Leased Premises locked and
other means of entry of the Leased Premises closed and secured.
15. Tenant is not permitted to use any part of the Building or the
common areas for any manufacturing, storage, or sale of merchandise, or
property of any kind; or for lodging or sleeping, or for any immoral or
illegal purpose. Tenant shall not install or operate any machinery or
mechanical devices of a nature not directly related to Tenant's ordinary use
of the Leased Premises for general office purposes.
16. All loading, unloading, receiving or delivery of goods,
supplies or disposal of garbage or refuse shall be made only through
entryways provided for such purposes by Landlord.
17. All safes, freight, furniture, or other bulky matter of any
description shall be carried in or out of the Leased Premises only at such
times and in such manner as shall be prescribed in writing by Landlord, and
Landlord shall in all cases have the right to specify the proper position of
any such safe, furniture, or other bulky article, which shall only be used by
Tenant in a manner which will not interfere with or cause damage to the
Leased Premises or the Building in which they are located, or to the other
tenants or occupants of the Building. Tenant shall be responsible for any
damage to the Building or the property of its tenants or others and injuries
sustained by any person whomsoever resulting from the use or moving of such
articles in or out of the Leased Premises, and shall make all repairs and
improvements required by Landlord or governmental authorities in connection
with the use or moving of such articles.
18. Tenant shall not bring in or allow to be kept upon the Leased
Premises any inflammable, combustible or explosive fluid, chemical or
substance or any article deemed extra hazardous on account of fire or other
dangerous properties.
19. Tenant shall not employ any person to perform any cleaning,
repairing, janitorial, decorating, painting, or other services or work in or
about the Leased Premises, except with the approval of Landlord.
20. Tenant shall not overload any floor and shall not install any
heavy objects, safes, business machines, files or other equipment without
having received Landlord's prior written consent as to size, maximum weight,
routing and location thereof. Tenant shall have the right to install
fireproof cabinets and a proof machine within the Premises. Safes, furniture,
equipment, machines and other large or bulky articles shall be brought
through the Building and in and out of the Leased Premises at such times and
in such manner as the Landlord shall direct (including the designation of
elevator) and at Tenant's sole risk and responsibility. Prior to Tenant's
removal of any such articles from the Leased Premises, Tenant shall obtain
written authorization therefor at the Office of the Building and shall
present such writing to a designated employee of Landlord.
21. Landlord shall not be responsible for any lost or stolen
property, equipment, money or jewelry from the Leased Premises or the public
area of the Building regardless of whether such loss occurs when the Leased
Premises are locked or not.
EXHIBIT "B" Page 2 of 3
22. The Landlord reserves the right to exclude from the Building
between the hours of 6:00 o'clock p.m. and 8:00 o'clock a.m. and at all hours
on Sundays and legal holidays all persons who do not present a pass to the
Building signed by the Landlord. The Landlord will furnish passes to persons
for whom any tenant requests same in writing. Each tenant shall be
responsible for all persons for whom he requests such pass and shall be
liable to the Landlord for all acts of such persons.
23. The work of the janitor or cleaning personnel shall not be
hindered by Tenant after 5:30 o'clock p.m., and the windows may be cleaned at
any time. Tenant shall provide adequate waste and rubbish receptacles to
prevent unreasonable hardship to Landlord in discharging its obligation
regarding cleaning services.
24. Tenant will refer to the Building Manager all contractors and
installation technicians rendering any service for Tenant for supervision and
approval before performance of any contractual services. Tenant will not
permit any mechanic's liens to be placed against the Leased Premises.
25. Landlord shall have the right to prohibit any advertising by
any tenant which, in Landlord's opinion, tends to impair the reputation of
the Building or its desirability for offices, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.
26. Tenant may request heating and/or air conditioning for
non-business hours by submitting a written request therefor to the Building
Manager's Office no later than 2:00 o'clock p.m. the preceding workday
(Monday through Friday). The request must clearly state the start and stop of
the non-business hour service. Each Tenant representative designated in the
Lease will submit to the Building Manager a list of personnel who are
authorized to make such requests.
Charges, to be determined when the Building is in operation,
will be fair and reasonable and reflect the additional operating costs
involved and the necessity of having maintenance personnel on duty for a full
shift, regardless of the actual time the equipment is in use. If two or more
tenants originate similar requests, charges shall be prorated by hours of
operation.
27. Tenants may park only in strict compliance with all signs
posted and regulations issued by Landlord, within spaces designated for
parking, and not in such a manner as to block other parking spaces, drives,
loading areas or fire lanes. All tenants hereby authorize Landlord to remove
from the parking lot any improperly parked vehicle, at the Tenant's sole risk
and expense. Tenants understand that they are fully responsible for assuring
that their employees, agents, licensees and visitors comply with these
parking rules, will reimburse Landlord for all costs and expenses incurred in
enforcing the rules and will indemnify and hold harmless Landlord from any
liability to such employees and other third parties for measures taken by
Landlord to enforce the rules. To facilitate security arrangements and
parking controls, a list of the names of each tenant's employees working in
the Building and of their vehicle license numbers will be furnished to
Landlord upon request.
28. Wherever the word "Tenant" occurs, it is understood and agreed
that it shall mean Tenant's associates, agents, clerks, servants and
visitors. Wherever the word "Landlord" occurs, it is understood and agreed
that it shall mean Landlord's assigns, agents, clerks, servants and visitors.
EXHIBIT "B" Page 1 of 3
<TABLE>
<CAPTION>
Exhibit 11 -- Computation of Earnings Per Share
Fiscal Year Ended December 31,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
BASIC & FULLY DILUTED
Net loss $ 475,000 $ (113,000) $ (602,000)
Average shares outstanding 1,309,966 1,265,000 1,051,329
Net income (loss) per share:
Basic $ 0.36 $ (0.09) $ (0.57)
Diluted $ 0.36 $ (0.09) $ (0.57)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,240
<INT-BEARING-DEPOSITS> 4,148
<FED-FUNDS-SOLD> 12,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,001
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 81,870
<ALLOWANCE> 1,987
<TOTAL-ASSETS> 108,887
<DEPOSITS> 95,954
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,215
<LONG-TERM> 0
0
0
<COMMON> 13,730
<OTHER-SE> (2,012)
<TOTAL-LIABILITIES-AND-EQUITY> 108,887
<INTEREST-LOAN> 7,475
<INTEREST-INVEST> 911
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,386
<INTEREST-DEPOSIT> 4,983
<INTEREST-EXPENSE> 4,983
<INTEREST-INCOME-NET> 3,403
<LOAN-LOSSES> 1,072
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,678
<INCOME-PRETAX> 763
<INCOME-PRE-EXTRAORDINARY> 763
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 475
<EPS-BASIC> 0.36
<EPS-DILUTED> 0.36
<YIELD-ACTUAL> 3.40
<LOANS-NON> 113
<LOANS-PAST> 159
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,816
<CHARGE-OFFS> 969
<RECOVERIES> 68
<ALLOWANCE-CLOSE> 1,987
<ALLOWANCE-DOMESTIC> 649
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,338
</TABLE>
