<PAGE> 1
As filed with the Securities and Exchange Commission on October 7, 1997
Registration No. 333-33081
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MERCANTILE BANK CORPORATION
(Name of small business issuer in its charter)
Michigan
(State or jurisdiction of
incorporation or organization)
6712
(Primary Standard Industrial
Classification Code Number)
216 North Division Avenue
Grand Rapids, Michigan 49503
(616) 242-9000
38-3360865
(I.R.S. Employer
Identification No.)
(Address and telephone number of principal executive
offices and principal place of business or intended principal place of business)
GERALD R. JOHNSON, JR., CHAIRMAN
42 Deer Run Drive N.E.
Ada, Michigan 49301
(616) 676-0201
(Name, address, and telephone number of agent for service)
Copies to:
JEROME M. SCHWARTZ
Dickinson, Wright, Moon, Van Dusen & Freeman
500 Woodward Avenue, Suite 4000
Detroit, Michigan 48226-3425
DONALD J. KUNZ
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226-3583
Approximate date of proposed sale to the public: As soon as practicable
after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A) OF THE
SECURITIES ACT OF 1933, MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 7, 1997
PROSPECTUS
1,300,000 SHARES
MERCANTILE BANK CORPORATION LOGO
COMMON STOCK
------------------
Mercantile Bank Corporation, a Michigan corporation (the "Company"), is
offering for sale 1,300,000 shares of its Common Stock (the "Common Stock"). The
Company is a proposed bank holding company organized to own all of the common
stock of Mercantile Bank of West Michigan, a Michigan banking corporation (in
organization), to be located in Grand Rapids, Michigan (the "Bank"). Neither the
Company nor the Bank has ever conducted any business operations other than
matters related to their initial organization and the raising of capital. See
"Business." There has been no public trading market for the Common Stock. Roney
& Co., L.L.C. (the "Underwriter") has advised the Company that it anticipates
making a market in the Common Stock following completion of the offering,
although there can be no assurance that an active trading market will develop.
See "Underwriting" for a discussion of the factors considered in determining the
initial public offering price. The Company expects that the quotations for the
Common Stock will be reported on the OTC Bulletin Board. The organizers of the
Bank are expected to purchase at least 328,500 of the shares of Common Stock at
the public offering price.
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THE COMMON STOCK OFFERED BY THIS PROSPECTUS INVOLVES A SIGNIFICANT AMOUNT OF
RISK. INVESTORS SHOULD NOT INVEST ANY FUNDS IN THE OFFERING UNLESS THEY CAN
AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" COMMENCING ON PAGE 5
FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMPANY'S COMMON
STOCK.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND THEY ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1)(2) COMPANY(2)(3)
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<S> <C> <C> <C>
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Per Share................................. $10.00 $ $
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Total(2).................................. $13,000,000 $ $
======================================================================================================================
</TABLE>
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(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting".
(2) The Company has granted the Underwriter a 30-day option to purchase up to
195,000 additional shares of its Common Stock solely to cover
over-allotments, if any. If the Underwriter exercises such option in full,
the Price to Public, Underwriting Discounts, and Proceeds to Company will be
approximately $ , $ and $ , respectively. See
"Underwriting." The Underwriter has agreed to limit the Underwriting
Discounts to 1.5% of the public offering price for up to 328,500 shares sold
by the Underwriter to organizers of the Bank or their immediate families.
See "Underwriting." Organizers of the Bank have provided nonbinding
expressions of interest to purchase a total of approximately 328,500 shares.
If 328,500 shares are so purchased, Underwriting Discounts will be reduced
by, and proceeds to the Company will be increased by, $ .
(3) Before deducting estimated offering expenses payable by the Company of
$248,000.
------------------
The shares of Common Stock are offered by the Underwriter subject to prior
sale, when, as and if delivered to and accepted by the Underwriter, and subject
to the right of the Underwriter to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares of
Common Stock will be made in Detroit, Michigan on or about ,
1997.
------------------
RONEY & CO. LOGO
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
KENT COUNTY MAP
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AVAILABLE INFORMATION
The Company is not currently a reporting company pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), but will be required to
file reports pursuant to the Exchange Act following the completion of the
offering. The Company, which will use a December 31 fiscal year end, intends to
furnish its shareholders with annual reports containing audited financial
information and, for the first three quarters of each fiscal year, quarterly
reports containing unaudited financial information.
Requests for such documents should be directed to Robert B. Kaminski,
Secretary, 216 North Division Avenue, Grand Rapids, Michigan 49503.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS. SEE "UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless the context clearly suggests otherwise, references in this Prospectus to
the Company include the Bank. Except as otherwise indicated, all information in
this Prospectus assumes no exercise of the Underwriter's over-allotment option.
THE COMPANY
The Company was incorporated on July 15, 1997 under Michigan law and will
be a bank holding company owning all of the common stock of the Bank. The Bank
is organizing as a Michigan banking corporation with depository accounts to be
insured by the Bank Insurance Fund of the Federal Deposit Insurance Corporation
(the "FDIC"). The Bank intends to provide a range of commercial and consumer
banking services primarily in Kent County, Michigan, including Grand Rapids and
its suburbs. Those services will reflect the Bank's intended strategy of serving
small to medium size businesses, and individual customers in its market area.
The Bank's retail banking strategy will initially focus on providing products
and services, including automated teller machine, computer home banking,
telephone banking and automated bill paying services to individuals in the
Bank's market area. Completion of the offering will be conditioned on the
Company and the Bank having received all bank regulatory approvals necessary for
the commencement of their business, subject to the satisfaction of certain
conditions that are customary in connection with such regulatory approvals.
These conditions will consist of matters including, but not limited to, the Bank
receiving at least $11,000,000 of capital, which will come from the proceeds of
the offering, the Bank filing its Certificate of Paid in Capital and Surplus
with the Commissioner of the Financial Institutions Bureau of the State of
Michigan (the "FIB"), and the Bank notifying the FIB of its proposed opening
date so the FIB can conduct its customary preopening investigation. Management
anticipates commencing business in the fourth quarter of 1997.
REASON FOR STARTING MERCANTILE BANK OF WEST MICHIGAN
The liberalization of Michigan's branch banking laws, together with the
expansion of interstate banking, has led to substantial consolidation of the
banking industry in Michigan including the Bank's market area. In many cases,
when these consolidations occurred, local boards of directors were dissolved and
local management relocated or in some cases terminated.
In the opinion of the Company's management, this situation has created a
favorable opportunity for a new commercial bank with local management and local
directors. Management believes that such a bank can be successful in attracting
small to medium sized businesses and individuals as customers who wish to
conduct business with a locally owned and managed institution that demonstrates
an active interest in their business and personal financial affairs. The Bank
will seek to take advantage of this opportunity by emphasizing in its marketing
plan the Bank's local management, their strong ties and active commitment to the
community.
MARKET AREA
The Bank's primary service area will be Kent County, which includes the
City of Grand Rapids, the second largest city in the State of Michigan. Kent
County is comprised of 36 cities, villages or townships and ranks fourth in
population out of Michigan's 83 counties. Kent County covers 856 square miles.
According to available statistical data, Kent County has approximately 14,000
business establishments, an unemployment rate of approximately 3%, and a median
household income that is estimated to have grown approximately 40% from 1990 to
1996.
Kent County is also a significant banking market in the State of Michigan.
According to available industry data, as of June 30, 1996, total deposits in
Kent County, including banks, thrifts and credit unions, were approximately $7.6
billion.
The Bank's main office will be located in downtown Grand Rapids, and will
serve as the Company's corporate headquarters. The Company's address is 216
North Division Avenue, Grand Rapids, Michigan 49503. The Company's telephone
number is (616) 242-9000.
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<PAGE> 5
MANAGEMENT
Gerald Johnson, Jr., Chairman and Chief Executive Officer of the Company
and the Bank, has over 27 years experience in the financial services industry,
including 24 years of banking experience, 17 of which have been in the Grand
Rapids market area. Mr. Johnson was Chairman, President and Chief Executive
Officer of FMB -- First Michigan Bank -- Grand Rapids ("FMB-Grand Rapids"), a
Michigan banking corporation, from 1988 to May of 1997, and served as that
bank's President and Chief Executive Officer in 1987. FMB-Grand Rapids had total
assets of approximately $550 million at the time of Mr. Johnson's decision to
leave and start a new bank. FMB-Grand Rapids is a subsidiary of First Michigan
Bank Corporation, a bank holding company headquartered in Zeeland, Michigan with
total assets of over $3.6 billion as of June 30, 1997. Robert Kaminski will
serve as Senior Vice President and Secretary of the Company and the Bank, and is
expected to be responsible for credit, compliance and operations for the Bank.
Mr. Kaminski worked for FMB-Grand Rapids from 1984 to 1996 in various credit and
loan review positions and worked for First Michigan Bank Corporation as chief
credit manager for three subsidiary banks from 1996 until his decision to leave
the bank in June of 1997.
During the tenure of Mr. Johnson at FMB-Grand Rapids, total average assets
grew from approximately $83 million at the beginning of 1987 to $550 million at
the time of his departure, while operating profits increased in each of those
years. From 1991 through 1996, FMB-Grand Rapids experienced a compound annual
growth in average assets of approximately 20%. Mr. Johnson has chosen to join
the Bank at a compensation level below what he earned in his previous position.
Mr. Johnson has formed a Board of Directors comprised of individuals with a
broad background in business, real estate and law. In addition to Mr. Johnson,
current directors include Peter Cordes (business), John Gill (business), David
Hecht (law), Lawrence Larsen (business), Calvin Murdock (business), Dale Visser
(real estate) and Robert Wynalda (business). Messrs. Larsen and Visser are
former directors of FMB-Grand Rapids.
Mr. Johnson, the other members of the Board of Directors, and Mr. Kaminski,
represent a significant asset to the Company and the Bank. These individuals
have many years of personal experience in the Kent County and Grand Rapids
market and in some cases, have worked together successfully at other financial
institutions. The directors and officers assembled by the Company represent a
wide range of business, banking and investment knowledge and experience. The
Company believes that these individuals and their relationships in the Kent
County area should offer the Bank a substantial opportunity to attract new
relationships.
The Company anticipates that the organizers of the Bank, alone or with
their spouses, will purchase 328,500 shares of Common Stock in the offering at
the initial offering price. See "Principal Shareholders".
THE OFFERING
Securities offered by the
Company....................... 1,300,000 shares of Common Stock. In addition,
the Company has granted the Underwriter an
option to purchase up to an additional 195,000
shares to cover over-allotments. See
"Description of Capital Stock."
Common Stock to be outstanding
after the offering(1)......... 1,300,000 shares (1,495,000 shares if the
over-allotment option is exercised in full).
Use of proceeds by the
Company....................... Capitalization of the Bank and payment of
organization and preopening expenses. See "Use
of Proceeds."
Proposed NASD Over the Counter
Bulletin Board Symbol....... MBWM
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(1) Does not include 45,000 shares issuable upon exercise of outstanding stock
options under the Company's 1997 Employee Stock Option Plan.
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<PAGE> 6
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk and
should be considered only by persons who can afford the loss of their
investment. The following constitute some of the potential risks of an
investment in the Common Stock and should be carefully considered by prospective
investors prior to purchasing shares of Common Stock. The order of the following
is not intended to be indicative of the relative importance of any described
risk nor is the following intended to be inclusive of all risks of investment in
the Common Stock.
LACK OF OPERATING HISTORY
Neither the Company nor the Bank has any operating history. The
business of the Company and the Bank is subject to the risks inherent in the
establishment of a new business enterprise. Because the Company is only recently
formed, the Bank has not commenced operations, and the Bank and the Company are
in the process of obtaining necessary regulatory approvals, prospective
investors do not have access to all of the information that, in assessing their
proposed investment, would be available to the purchasers of securities of a
financial institution with a history of operations.
SIGNIFICANT LOSSES EXPECTED
As a result of the substantial start-up expenditures that must be
incurred by a new bank and the time it will take to develop its deposit base and
loan portfolio, it is expected that the Bank, and thus the Company, will operate
at a substantial loss during the start-up of the Bank. Accordingly, they are not
expected to be profitable for at least the first two years. Cumulative losses
during the first two years of operation are expected to exceed $1.4 million.
There is no assurance that the Bank or the Company will ever operate profitably.
As a result, it is anticipated that the book value of the Common Stock will
decrease accordingly. If the Company does not reach profitability and recover
its accumulated operating losses and the non-recoverable portion of its
investment in fixed assets, investors in the offering would likely suffer a
significant decline in the value of their shares of Common Stock.
DELAY IN COMMENCING OPERATIONS
Although the Company and the Bank expect to receive all regulatory
approvals and commence business in the fourth quarter of 1997, there can be no
assurance as to when, if at all, these events will occur. Any delay in
commencing operations will increase pre-opening expenses and postpone
realization by the Bank of potential revenues. Absent the receipt of revenues
and commencement of profitable operations, the Company's accumulated deficit
will continue to increase (and book value per share decrease) as operating
expenses such as salaries and other administrative expenses continue to be
incurred.
GOVERNMENT REGULATION AND MONETARY POLICY
The Bank has received all regulatory approvals required to organize and
establish the Bank, subject to the satisfaction of certain conditions. Those
conditions include, among other things, that: (i) beginning paid-in capital of
the Bank will be not less than $11 million; (ii) the Bank will maintain a ratio
of Tier 1 leverage capital to total assets for the first three years after
commencing business of at least 8% and an adequate valuation reserve; (iii) the
Bank will have its financial statements audited by a public accountant for at
least the first five years; (iv) the Bank will file its Certificate of Paid in
Capital and Surplus with the Commissioner and notify the FIB of its opening date
so the FIB can conduct its customary preopening investigation; and (v) any
changes in executive management of the Bank be submitted to the bank regulatory
agencies in advance for their approval. Regulatory capital requirements imposed
on the Bank may have the effect of constraining future growth, absent the
infusion of additional capital.
The Company and the Bank will be subject to extensive state and federal
government supervision and regulation. Existing state and federal banking laws
will subject the Bank to substantial limitations with respect to loans, purchase
of securities, payment of dividends and many other aspects of its banking
business. There can be no assurance that future legislation or government policy
will not adversely affect the banking industry or the operations of the Bank.
Federal economic and monetary policy may affect the Bank's ability to attract
deposits, make loans and achieve satisfactory interest spreads. See "Supervision
and Regulation."
NO ASSURANCE OF DIVIDENDS
It is anticipated that no dividends will be paid on the Common Stock
for the foreseeable future. The Company will be largely dependent upon dividends
paid by the Bank for funds to pay dividends on the Common Stock, if and when
such dividends are declared. No assurance can be given that future earnings of
the Bank, and resulting dividends to the Company, will be sufficient to permit
the legal payment of dividends to Company shareholders at any time in the
future. Even if the Company may legally declare dividends, the amount and timing
of such dividends will be at the discretion of the Company's Board of Directors.
The Board may in its sole discretion decide not to declare dividends. These
shares should not be purchased by persons who need or desire dividend income
from this investment. For a more detailed discussion of other regulatory
limitations on the payment of cash dividends by the Company, see "Dividend
Policy."
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COMPETITION
The Company and the Bank will face strong competition for deposits,
loans and other financial services from numerous banks, savings 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, insurance companies, mutual funds, and other
lending sources and investment alternatives. Some of the financial institutions
and financial services organizations with which the Bank will compete are not
subject to the same degree of regulation as the Bank. Many of the financial
institutions aggressively compete for business in the Bank's proposed market
area. Most of these competitors have been in business for many years, have
established customer bases, are larger, have substantially higher lending limits
than the Bank, and will be able to offer certain services that the Bank does not
expect to provide in the foreseeable future, including multiple branches, trust
services, and international banking services. In addition, most of these
entities have greater capital resources than the Bank, which, among other
things, may allow them to price their services at levels more favorable to the
customer and to provide larger credit facilities than could the Bank. See
"Business - Market Area" and "Business - Competition." Additionally, recently
effective legislation regarding interstate branching and banking may act to
increase competition in the future from larger out-of-state banks. See
"Supervision and Regulation - Recent Regulatory Developments."
DEPENDENCE ON MANAGEMENT
The Company is, and for the foreseeable future will be, dependent
primarily upon the services of Gerald R. Johnson, Jr., the Chairman of the Board
and Chief Executive Officer of the Company. If the services of Mr. Johnson were
to become unavailable to the Company for any reason, or if the Company were
unable to hire highly qualified and experienced personnel either to replace Mr.
Johnson, or any other proposed employee, or to staff the anticipated growth, the
operating results of the Company would be adversely affected. The Company and
the Bank do not have employment agreements with, or key man life insurance for,
Mr. Johnson or any other of its officers. See "Business - Employees" and
"Management."
DISCRETION IN USE OF PROCEEDS
The offering is intended to raise funds to provide for the initial
capitalization of the Bank, purchase leasehold improvements, equipment and other
assets for the Bank's operations, fund loans, provide working capital for
general corporate purposes, and pay initial operating expenses. While management
currently has no such plans, if opportunities arise, some of the proceeds of the
offering could also be used to finance acquisitions of other financial
institutions, branches of other institutions, or expansion into other lines of
business closely related to banking. However, management will retain discretion
in employing the proceeds of the offering. See "Use of Proceeds."
LENDING RISKS AND LENDING LIMITS
The risk of nonpayment of loans is inherent in commercial banking, and
such nonpayment, if it occurs, would likely have a material adverse effect on
the Company's earnings and overall financial condition as well as the value of
the Common Stock. Because the Bank does not have an operating history, none of
the Bank's customers will have an established credit history with the Bank.
Management will attempt to minimize the Bank's credit exposure by carefully
monitoring the concentration of its loans within specific industries and through
prudent loan application and approval procedures, but there can be no assurance
that such monitoring and procedures will reduce such lending risks. Credit
losses can cause insolvency and failure of a financial institution, and in such
event, its shareholders could lose their entire investment.
The Bank's general lending limit is expected to initially be
approximately $1.65 million; subject to a higher lending limit of $2.75 million
in specific cases with approval by two-thirds of the Bank's Board of Directors.
Accordingly, the size of the loans which the Bank can offer to potential
customers is less than the size of loans which most of the Bank's competitors
with larger lending limits are able to offer. This limit initially may affect
the ability of the Bank to seek relationships with the area's larger businesses.
The Bank expects to accommodate loan volumes in excess of its lending limit
through the sale of participations in such loans to other banks. However, there
can be no assurance that the Bank will be successful in attracting or
maintaining customers seeking larger loans or that the Bank will be able to
engage in participations of such loans on terms favorable to the Bank.
IMPACT OF INTEREST RATES AND ECONOMIC CONDITIONS
The results of operations for financial institutions, including the
Bank, may be materially and adversely affected by changes in prevailing economic
conditions, including declines in real estate market values, rapid changes in
interest rates and the monetary and fiscal policies of the federal government.
See "Supervision and Regulation - General" and "- Recent Regulatory
Developments." The Bank's profitability is in part a function of the spread
between the interest rates earned on investments and loans and the interest
rates paid on deposits and other interest-bearing liabilities. In the early
1990s, many banking organizations experienced historically high interest rate
spreads. More recently, interest rate spreads have generally narrowed due to
changing market conditions and competitive pricing pressure, and there can be no
assurance that such factors will not continue to exert such pressure or that
such high interest rate spreads will return. Although economic conditions in the
Bank's market area have been generally favorable, there can be no assurance that
such conditions will continue to prevail. Substantially all the Bank's loans
will be to businesses and individuals in Western Michigan and any decline in the
economy of this area could have an adverse impact on the Bank. Like most banking
institutions, the Bank's net interest spread and margin will be affected by
general economic conditions and other factors that influence market interest
rates and the Bank's ability to respond
6
<PAGE> 8
to changes in such rates. At any given time, the Bank's assets and liabilities
will be such that they are affected differently by a given change in interest
rates. As a result, an increase or decrease in rates could have a material
adverse effect on the Bank's net income, capital and liquidity. While management
intends to take measures to guard against interest rate risk, there can be no
assurance that such measures will be effective in minimizing the exposure to
interest rate risk. See "Supervision and Regulation."
NEED FOR TECHNOLOGICAL CHANGE
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. The Company's
future success will depend in part on its ability to address the needs of its
customers by using technology to provide products and services that will satisfy
customer demands for convenience as well as to create additional efficiencies in
the Bank's operations. Many of the Bank's competitors have substantially greater
resources to invest in technological improvements. Such technology may permit
competitors to perform certain functions at a lower cost than the Bank. There
can be no assurance that the Bank will be able to effectively implement new
technology-driven products and services or be successful in marketing such
products and services to its customers. See "Business - Business Strategy."
ANTI-TAKEOVER PROVISIONS
Chapters 7A and 7B of the Michigan Business Corporation Act provide for
certain supermajority vote and other requirements on certain business
combinations with interested shareholders and limit voting rights of certain
acquirers of control shares. Federal law requires the approval of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") prior to
acquisition of "control" of a bank holding company. The Company's Articles of
Incorporation (i) provide for a Board of Directors that is divided into three
classes of directors, (ii) provide for removal of directors only for cause,
(iii) provide specific advance notice procedures for shareholders who wish to
nominate directors, (iv) prohibit shareholder action by written consent without
a meeting, and (v) require the affirmative vote of holders of at least 66 2/3 of
the voting stock of the Company to change any of such provisions of the Articles
of Incorporation. These provisions may have the effect of delaying or preventing
a change in control of the Company. As a result, these provisions could
adversely affect the price of the Common Stock by, among other things,
preventing a shareholder of the Company's Common Stock from realizing a premium
which might be paid as a result of a change in control of the Company. See
"Description of Capital Stock - Certain Anti-Takeover Provisions."
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation and bylaws provide for the
indemnification of its officers and directors and insulate its officers and
directors from liability for certain breaches of the duty of care. It is
possible that the indemnification obligations imposed under these provisions
could result in a charge against the Company's earnings and thereby affect the
availability of funds for payment of dividends to the Company's shareholders.
See "Description of Capital Stock - Indemnification of Directors and Officers."
DETERMINATION OF OFFERING PRICE; LIMITED TRADING MARKET EXPECTED
The initial public offering price of $10.00 per share was determined by
the Company in consultation with the Underwriter. This price is not based upon
earnings or any history of operations and should not be construed as indicative
of the present or anticipated future value of the Common Stock. Prior to the
offering, there has been no public trading market for the Common Stock. The
price at which these shares are being offered to the public may be greater than
the market price for the Common Stock following the offering. The Underwriter
has advised the Company that, upon completion of the offering, it intends to use
reasonable efforts to initiate quotations of the Common Stock on the OTC
Bulletin Board and to act as a market maker in the Common Stock, subject to
applicable laws and regulatory requirements, although it is not obligated to do
so. Making a market in securities involves maintaining bid and ask quotations
and being able, as principal, to effect transactions in reasonable quantities at
those quoted prices, subject to various securities laws and other regulatory
requirements. The development of a public trading market depends, however, upon
the existence of willing buyers and sellers, the presence of which is not within
the control of the Company, the Bank or any market maker. Market makers on the
OTC Bulletin Board are not required to maintain a continuous two sided market,
are required to honor firm quotations for only a limited number of shares, and
are free to withdraw firm quotations at any time. Even with a market maker,
factors such as the limited size of the offering, the lack of earnings history
for the Company and the absence of a reasonable expectation of dividends within
the near future mean that there can be no assurance of an active and liquid
market for the Common Stock developing in the foreseeable future. Even if a
market develops, there can be no assurance that a market will continue, or that
shareholders will be able to sell their shares at or above the price at which
these shares are being offered to the public. Purchasers of Common Stock should
carefully consider the limited liquidity of their investment in the shares being
offered hereby.
REGULATORY RISK
The banking industry is heavily regulated. Many of these regulations
are intended to protect depositors, the public, and the FDIC, not shareholders.
Applicable laws, regulations, interpretations and enforcement policies have been
subject to significant, and sometimes retroactively applied, changes in recent
years, and may be subject to significant future changes. There can be no
assurance that such future changes will not adversely affect the business of the
Company. In addition, the burden imposed by federal and state regulations may
place banks in general, and the
7
<PAGE> 9
Company specifically, at a competitive disadvantage compared to less regulated
competitors. See "Supervision and Regulation."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,300,000 shares
of Common Stock offered hereby are estimated to be $___ ($___ if the
Underwriter's over-allotment option is exercised in full), after deduction of
the underwriting discounts, but before deducting estimated offering expenses of
$______. The Underwriter has agreed to limit the underwriting discounts to 1.5%
of the public offering price for the first 328,500 shares sold by the
Underwriter to organizers of the Bank or their immediate families. Such persons
have provided nonbinding expressions of interest to purchase approximately
328,500 shares. If such persons purchase 328,500 shares, underwriting discounts
will be reduced by, and proceeds to the Company will be increased by, $ .
The Company expects to contribute approximately $11,000,000 of the net
proceeds of the offering to the Bank by purchasing all of the Bank's common
stock to be issued. This purchase of the Bank's stock is intended to provide the
Bank with the capital required by regulators to commence operations. The Bank
plans to use approximately $650,000 for leasehold improvements and related
architectural and engineering services, and approximately $850,000 to purchase
furniture, fixtures and equipment and other necessary assets for the Bank's
operations. The Company expects to use approximately $46,000 of the net proceeds
to pay for organizational expenses of the Bank. These organizational expenses,
and other preopening expenses, are being financed on an interim basis from loans
of approximately $835,500 made to the Company by members of its Board of
Directors. It is anticipated that this approximately $835,500 of loans will be
repaid by the Company promptly following the completion of the offering.
Preopening income may offset some of these expenses. It is currently anticipated
that the balance of the net proceeds received by the Bank will be used to fund
investments in loans and securities and for payment of operating expenses. The
remaining net proceeds (plus any net proceeds as a result of the exercise of the
Underwriter's over-allotment option) will initially be invested by the Company
in investment grade securities and otherwise held by the Company as working
capital for general corporate purposes and to pay operating expenses, as well as
for possible future capital contributions to the Bank. The funds will also be
available to finance possible acquisitions of other branches or expansion into
other lines of business closely related to banking, although the Company
presently has no plans to do so.
DIVIDEND POLICY
The Company initially expects that Company and Bank earnings, if any,
will be retained to finance the growth of the Company and the Bank and that no
cash dividends will be paid for the foreseeable future. After the Bank achieves
profitability, recovers its operating deficit, and funds an adequate reserve for
loan and lease losses, the Company may consider payment of dividends. However,
the declaration of dividends is at the discretion of the Board of Directors, and
there is no assurance that dividends will be declared at any time. If and when
dividends are declared, the Company will be largely dependent upon dividends
paid by the Bank for funds to pay dividends on the Common Stock. It is also
possible, however, that the Company might at some time in the future pay
dividends generated from income or investments and from other activities of the
Company.
Under Michigan law, the Bank will be restricted as to the maximum
amount of dividends it may pay on its Common Stock. A Michigan state bank may
not declare dividends except out of net profits then on hand after deducting its
losses and bad debts and then only if the bank will have a surplus amounting to
at least 20% of its capital after the payment of the dividend. A Michigan state
bank may not declare or pay any cash dividend or dividend in kind until the
cumulative dividends on its preferred stock, if any, have been paid in full. If
the surplus of a Michigan state bank is at any time less than the amount of its
capital, before the declaration of a cash dividend or dividend in kind, it must
transfer to surplus not less than 10% of its net profits for the preceding
half-year (in the case of quarterly or semi-annual dividends) or the preceding
two consecutive half-year periods (in the case of annual dividends). The ability
of the Company and the Bank to pay dividends is also affected by various
regulatory requirements and policies, such as the requirement to maintain
adequate capital above regulatory guidelines. See "Supervision and Regulation."
Such requirements and policies may limit the Company's ability to obtain
dividends from the Bank for its cash needs, including funds for acquisitions,
payment of dividends by the Company, and the payment of operating expenses.
8
<PAGE> 10
CAPITALIZATION
The following table sets forth the capitalization of the Company as it
is projected to be immediately after the sale of the 1,300,000 shares of Common
Stock offered hereby and the application of the estimated net proceeds. See "Use
of Proceeds."
<TABLE>
<S> <C>
Short-term debt $ -0-
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized,
none issued $ -0-
Common Stock, no par value, 9,000,000 shares
authorized,
1,300,000 shares issued and outstanding 1,300,000
Additional Paid-in Capital 10,723,000
Retained Earnings (204,000)
Organizational Expenses (1) (46,000)
------------
Total Equity $ 11,773,000
------------
</TABLE>
(1) The organizational expenses will be amortized over a 60 month period.
BUSINESS
BACKGROUND
The liberalization of Michigan's branch banking laws, together with the
expansion of interstate banking, has led to substantial consolidation of the
banking industry in Michigan, including the West Michigan area, where the Bank
will be located. In the past, several of the financial institutions within the
primary market area of the Bank have either been acquired by or merged with
larger financial institutions or out-of-state financial institutions. In some
cases, when these consolidations occurred, local boards of directors were
dissolved and local management relocated or in some cases terminated. This has
in some cases resulted in policy and credit decisions being centralized away
from local management.
In the opinion of the Company's management, this situation has created
a favorable opportunity for a new commercial bank with local management and
directors. Management of the Company believes that such a bank can attract
those customers who wish to conduct business with a locally managed institution
that demonstrates an active interest in their business and personal
financial affairs. The Company believes that a locally managed institution, in
many cases, will be able to deliver more timely responses to customer requests,
provide customized financial products and services, and offer the personal
attention of the Bank's senior banking officers. The Bank will seek to take
advantage of this opportunity by emphasizing in its marketing plan the Bank's
local management and the Bank's ties and commitment to its market area.
After the offering, the Company will own all of the issued and
outstanding stock of the Bank. Following completion of the offering and before
commencement of operations, the Bank intends to complete the furnishing of its
main office, certain training of its staff and the purchase, lease and
installation of equipment necessary to transact a banking business.
Correspondent banking relationships and other arrangements for services will be
completed as necessary.
The Company was incorporated as a Michigan business corporation on July
15, 1997. The Company was formed to acquire all of the Bank's issued and
outstanding stock and to engage in the business of a bank holding company under
the federal Bank Holding Company Act of 1956, as amended. On August 29, 1997,
the Commissioner of the FIB issued an order approving the application to
establish the Bank. On August 19, 1997, the Bank's application for FDIC deposit
insurance was approved. The Company's application to become a bank holding
company for the Bank was approved by the Federal Reserve Board on October ,
1997. These approvals were issued subject to the satisfaction of certain
conditions that the Company believes are customary in transactions of this type,
including conditions relating to capitalization of the Bank and continuing
capital adequacy. The Company and the Bank expect to satisfy such conditions and
commence business in the fourth quarter of 1997. See "Risk Factors - Delay in
Commencing Operations" and "Risk Factors - Government Regulation and Monetary
Policy."
The Company's offices are located at 216 North Division Avenue, Grand
Rapids, Michigan 49503, telephone number (616) 242-9000.
BUSINESS STRATEGY
The Bank intends to provide a range of business and consumer financial
services to serve small to medium-sized business customers and individuals. The
foundation of this strategy will be to emphasize local management and its
commitment to the Bank's primary market area. Gerald R. Johnson, Jr., Chairman
and Chief Executive Officer of the Company, has over 17 years of banking
experience in the Bank's market area. Mr. Johnson was President and Chief
Executive Officer of FMB, a Michigan banking corporation with more than $550
million of assets, at the time of his resignation from FMB to organize the Bank.
Mr. Johnson is assembling a staff that is expected to provide prompt
9
<PAGE> 11
customer service and effective banking products. The Bank intends to compete
aggressively for its banking business through a systematic program of direct
calling on both customers and referral sources such as attorneys, accountants
and other business people.
BUSINESS FINANCIAL SERVICES. The Bank intends to offer products and
services consistent with its goal of attracting small to medium-sized business
customers as well as a variety of individuals. Commercial loans will be offered
on both a secured and unsecured basis and will be available for working capital
purposes, the purchase of equipment and machinery, financing of accounts
receivable and inventory and for the purchase of real estate, primarily owner
occupied real estate. As part of its banking business, the Bank may make loans
to all types of borrowers secured by first and junior mortgages on various types
of real estate, including without limitation, single-family residential,
multi-family residential, mixed use, commercial, developed, and undeveloped. In
making such loans, the Bank will be subject to written policies, reviewed and
approved at least annually by the Bank's Board of Directors, pursuant to federal
law and regulations. Such policies will address loan portfolio diversification
and prudent underwriting standards, loan administration procedures, and
documentation, approval and reporting requirements. In addition, federal
regulations specify minimum supervisory loan-to-value ratios applicable to each
type of loan secured by real estate.
The Bank will generally look to a borrower's business operations as the
principal source of repayment and will also seek, when appropriate, security
interests in the inventory, accounts receivable or other personal property of
the borrower, and personal guaranties. Although the Bank intends to be
aggressive in seeking new loan growth, it intends to stress high quality in its
loans. To promote such standards, the Board of Directors of the Bank intends to
establish strict lending policies, including specified lending authorities, loan
review policies and lending committees. In establishing such policies, the Board
of Directors will be required to conform to applicable bank regulatory
requirements. See "Supervision and Regulation".
The Bank intends to actively pursue business checking accounts by
offering competitive rates, computerized banking, and other convenient services
to its business customers. In some cases the Bank will require its business
borrowers to maintain minimum balances. Management of the Bank also intends to
establish relationships with one or more correspondent banks and other
independent financial institutions to provide other services requested by its
customers, including loan participations where the requested loan amount exceeds
the Bank's legal lending limit.
CONSUMER FINANCIAL SERVICES. The Bank's retail banking strategy will
initially focus on providing attractive products and services, including
automated teller machine, computer home banking, telephone banking and automated
bill paying services to individuals in the Bank's market area. The Bank believes
that by offering these technologically advanced banking products it can attract
new deposits and loans without the necessity of expensive brick and mortar
branch operations.
In addition, the Bank will originate residential real estate loans in
the form of first mortgages and home equity loans. The Bank intends to apply to
the Federal Home Loan Mortgage Corporation (Freddie Mac) for approval as a
seller-servicer of residential mortgage loans and intends to sell most of its
fixed rate mortgages into the secondary market. Most of its adjustable rate
loans and home equity loans, which will also be primarily adjustable rate, are
intended to be held in the Bank's portfolio.
The Bank intends to offer other consumer lending services including
credit cards (through third-party providers), direct auto loans, and other
personal loan products on both a secured and unsecured basis.
Management expects that the Bank's staff will have access to current
software and database systems selected to deliver high-quality products and
provide responsive service to clients. The Bank expects to enter into agreements
with third-party service providers to provide customers with convenient
electronic access to their accounts and other bank products through debit cards,
voice response and home banking. The use of third-party service providers is
intended to allow the Bank to remain at the forefront of technology while
minimizing the costs of delivery.
INVESTMENTS. The principal investment of the Company will be its
purchase of all of the common stock of the Bank. Funds retained by the Company
from time to time may be invested in various debt instruments, including but not
limited to obligations of or guaranteed by the United States, general
obligations of a state or political subdivision thereof, bankers' acceptances or
certificates of deposit of United States commercial banks, or commercial paper
of United States issuers rated in the highest category by a
nationally-recognized investment rating service. Although the Company is
permitted to make limited portfolio investments in equity securities and to make
equity investments in subsidiary corporations engaged in certain non-banking
activities which may include real estate-related activities, such as mortgage
banking, community development, real estate appraisals, arranging equity
financing for commercial real estate, and owning and operating real estate used
substantially by the Bank or acquired for its future use, the Company has no
present plans to make any such equity investment. See, "Supervision and
Regulation - The Company - Investments and Activities." The Company's Board of
Directors may alter the Company's investment policy without shareholder
approval.
The Bank may invest its funds in a wide variety of debt instruments and
may participate in the federal funds market with other depository institutions.
Subject to certain exceptions, the Bank is prohibited from investing in equity
securities. Under one such exception, in certain circumstances and with the
prior approval of the FDIC, the Bank could invest up to 10% of its total assets
in the equity securities of a subsidiary corporation engaged in certain real
estate-related activities. The Bank has no present plans to make such an
investment. Real estate acquired by the Bank in satisfaction of or foreclosure
upon loans may be held by the Bank, subject to a determination by a majority of
the
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<PAGE> 12
Bank's Board of Directors at least annually of the advisability of retaining
the property, for a period not exceeding 60 months after the date of
acquisition, or such longer period as the Commissioner may approve. The Bank is
also permitted to invest an aggregate amount not in excess of two-thirds of the
capital and surplus of the Bank in such real estate as is necessary for the
convenient transaction of its business. The Bank has no present plans to make
any such investment. The Bank's Board of Directors may alter the Bank's
investment policy without shareholder approval.
MARKET AREA
Management believes that recent changes in the local banking industry,
including mergers and acquisitions involving commercial banks and thrift
institutions, have resulted in a decrease in the level of service for small to
medium-sized business customers in the Bank's market area. Management believes
that there continues to be the perception in some areas of the local business
community that many of the larger financial institutions are not as focused on
providing personal service to small to medium-sized businesses. Accordingly,
management believes that there are increased market opportunities for the Bank
to serve these businesses.
The Bank's main office will be located at 216 North Division Avenue
between Lyon Street and Michigan Street in downtown Grand Rapids, Michigan, not
far from the Butterworth Hospital Complex and Grand Rapids Community College.
The Bank will be leasing a building that is being renovated by the Bank.
The Bank's primary service area will be Kent County which includes the
City of Grand Rapids, the second largest city in the State of Michigan. Kent
County is comprised of 36 cities, villages or townships and ranks fourth in
population out of Michigan's 83 counties. Kent County covers 856 square miles.
According to available statistical data, Kent County has approximately 14,000
business establishments, an unemployment rate of approximately 3%, and a median
household income that is estimated to have grown approximately 40% from 1990 to
1996.
Kent County is also a significant banking market in the State of
Michigan. According to available industry data, as of June 30, 1996 total
deposits in Kent County, including banks, thrifts and credit unions, were
approximately $7.6 billion.
COMPETITION
There are many thrift institution, credit union and bank offices
located within the Bank's primary market area. Most are branches of larger
financial institutions which, in management's view, are managed with a
philosophy of strong centralization. The Bank will face competition from thrift
institutions, credit unions, and other banks as well as finance companies,
insurance companies, mortgage companies, securities brokerage firms, money
market funds and other providers of financial services. Most of the Bank's
competitors have been in business a number of years, have established customer
bases, are larger and have higher lending limits than the Bank. The Bank will
compete for loans principally through its ability to communicate effectively
with its customers and understand and meet their needs. Management believes that
its personal service philosophy will enhance its ability to compete favorably in
attracting individuals and small businesses. The Bank will actively solicit
retail customers and will compete for deposits by offering customers personal
attention, professional service, computerized banking, and competitive interest
rates.
BANK PREMISES
The Bank is leasing and renovating a one story building in downtown
Grand Rapids, Michigan for use as the Bank's main office and the Company's
headquarters. This building is of masonry construction and has approximately
11,000 square feet of usable space. The Bank believes that this space will be
adequate for its present needs. As a result of the Bank's intended strategy of
providing personal customer service, the Bank does not intend to have teller
windows inside the Bank or drive through teller facilities. Instead, the Bank
intends to utilize customer services representatives who will service the Bank's
customers at desks conveniently located inside the Bank.
The lease for the Bank's office has an initial term of 10 years and the
Bank has four, five year renewal options. The monthly lease payments begin at
$12,487 per month in the first year and increase each year during the term of
the lease by the greater of the annual percentage increase in the Consumer Price
Index or 3%. In addition, the Bank will be required to make payments for taxes,
insurance, and other operating expenses. The Bank expects to expend
approximately $650,000 for tenant improvements and related architectural and
engineering services, and additional funds for furniture, fixtures and other
equipment.
The Bank's office is located at 216 North Division Avenue between Lyon
Street and Michigan Street in downtown Grand Rapids, Michigan, in a portion of
downtown Grand Rapids convenient to I-96. Access to the main office is available
to Kent County residents by utilizing I-196, US 131, Michigan Street, and Lyon
Street. The building is one of a few available locations in downtown Grand
Rapids with on-site parking. The parking consists of approximately 24 spaces,
with no parking meters. The Bank expects to commence its business in the fourth
quarter of 1997.
ACCOUNT PROCESSING SERVICES AGREEMENT
The Bank has entered into an account processing services agreement with
Fiserv Solutions, Inc. ("Fiserv"). Pursuant to this agreement, Fiserv is
expected to provide the Bank with information and account processing services
and reports. The agreement has an initial term of three years, with optional
subsequent one year renewal terms. In the event of early termination of the
agreement by the Bank, at its option, or by Fiserv, as a result of any default
by the
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<PAGE> 13
Bank, the Bank is required to pay Fiserv a termination fee and certain other
amounts. The termination fee varies depending on the circumstances under which
the termination occurs. In the case of a termination made at the option of the
Bank, the termination fee (subject to some reduction in certain cases) is an
amount approximately equal to 80% of the highest monthly amount previously
billed to the Bank by Fiserv for each specific service, times the number of
months remaining in the then current term of the agreement. In the case of a
termination made at the option of Fiserv following a default by the Bank, the
termination fee is an amount approximately equal to the present value of all
payments remaining to be made by the Bank during the then current term of the
agreement. All such amounts are required to be paid before Fiserv is
obligated to release to the Bank copies of the data that the Bank has provided
to Fiserv.
EMPLOYEES
The Bank is assembling a staff of experienced professionals and expects
to have approximately 18 full time employees, including approximately eight
officers and ten customer service and other support persons, within the first
few months of operations.
PLAN OF OPERATION
The Company's plan of operation for the twelve months following the
completion of the offering does not contemplate the need to raise additional
funds during that period. Management has concluded, based on current pre-opening
growth projections, that the Bank is likely to have adequate funds to meet its
cash requirements for at least the next several years. Management has no
specific plans for product research or development which would be performed
within the next twelve months. Management plans to expend approximately $650,000
for leasehold improvements and related architectural and engineering services,
and approximately $850,000 for furniture, fixtures, equipment and other
necessary assets, prior to commencing operation. During the first twelve months
of operation, the Company does not anticipate requiring substantial additional
equipment. No significant changes in the number of employees is anticipated in
the first twelve months of operations after the Bank commences its business and
completes the hiring of its approximately 18 initial employees.
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and senior officers of the Company as of the date hereof,
and their contemplated positions with the Bank upon completion of the offering,
are as follows:
<TABLE>
<CAPTION>
POSITION WITH
THE COMPANY POSITION(S)
NAME AGE (AND DIRECTOR CLASS) WITH THE BANK
---- --- -------------------- -------------
<S> <C> <C> <C>
Peter A. Cordes 56 Director (Class II) Director
C. John Gill 63 Director (Class I) Director
David M. Hecht 60 Director (Class II) Director
Gerald R. Johnson, Jr. 50 Chairman of the Board, Chief Chairman of the Board, Chief
Executive Officer, and Executive Officer, and Director
Director (Class I)
Lawrence W. Larsen 57 Director (Class III) Director
Calvin D. Murdock 58 Director (Class I) Director
Dale J. Visser 61 Director (Class III) Director
Robert M. Wynalda 61 Director (Class II) Director
Robert B. Kaminski 35 Senior Vice President and Senior Vice President and Secretary
Secretary
</TABLE>
Under federal law and regulations and subject to certain exceptions,
the addition or replacement of any director, or the employment, dismissal or
reassignment of a senior executive officer of the Bank or the Company at any
time that the Bank is not in compliance with applicable minimum capital
requirements, is otherwise in a troubled condition, or when the FDIC has
determined that such prior notice is appropriate, is subject to prior notice to
and disapproval by the FDIC.
The Company's Articles of Incorporation provide that the number of
directors, as determined from time to time by the Board of Directors, shall be
no less than six and no more than fifteen. The Board of Directors has presently
fixed the number of directors at eight. The Articles of Incorporation further
provide that the directors shall be divided into three classes, Class I, Class
II, and Class III, with each class serving a staggered three-year term and with
the number of directors in each class being as nearly equal as possible. The
initial terms of the Class I, Class II, and Class
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<PAGE> 14
III directors has been established at one year, two years, and three years,
respectively. The subsequent terms of each class of director will be three
years.
It is anticipated that the entire Board of Directors of the Bank will
be elected annually by its shareholder, the Company.
Officers of the Company and the Bank will be elected annually by their
respective Boards of Directors and perform such duties as are prescribed in the
bylaws or by the Board of Directors.
There are no family relationships among any of the Company's directors,
officers or key personnel. Dale Visser, one of the directors, is the brother of
Bruce Visser, who is one of the organizers of the Bank.
EXPERIENCE OF DIRECTORS AND OFFICERS
The experience and backgrounds of the directors and senior officers,
and their proposed positions with the Company, are summarized below.
PETER A. CORDES (Director) Mr. Cordes has served as President and Chief
Executive Officer of GWI Engineering Inc. ("GWI") of Grand Rapids, Michigan
since 1991. GWI is engaged in the engineering and manufacturing of custom
assembly and welding equipment for customers in a variety of industries in the
Midwest. Mr. Cordes purchased GWI in 1991 and is now sole owner. Mr. Cordes is a
1966 graduate of St. Louis University with a degree in aeronautics. He is a
native of Traverse City, Michigan and has spent the last eighteen years in West
Michigan.
C. JOHN GILL (Director) Mr. Gill is Chairman of the Board and one of
the owners of Gill Industries of Grand Rapids, Michigan. He has served in this
capacity since he started this business in 1963. Gill Industries is a
manufacturing company involved with sheet metal stampings and assemblies for the
automotive and appliance industries. Mr. Gill is a native of Lakeview, Michigan.
DAVID M. HECHT (Director) Mr. Hecht is an attorney with the law firm,
Hecht & Lentz, in Grand Rapids, Michigan. He is Chairman and one of the owners
of the law firm. Mr. Hecht established the firm in 1993. Prior to this, he was a
partner in the Grand Rapids office of the law firm of Dickinson, Wright, Moon,
Van Dusen & Freeman. Mr. Hecht is a native of Grand Rapids and a graduate of the
University of Michigan and the University of Wisconsin. He has practiced law for
36 years, including the past 25 years in Grand Rapids. Mr. Hecht is on the Board
of Trustees of the Grand Valley University Foundation and a Director of Hospice
Foundation of Greater Grand Rapids.
GERALD R. JOHNSON, JR. (Chairman of the Board, Chief Executive Officer,
and Director) has over 27 years experience in the financial service industry,
including 24 years of commercial banking experience. Mr. Johnson was appointed
President and Chief Executive Officer of FMB-Grand Rapids in 1986, and served as
Chairman, President and Chief Executive Officer from 1988 to May of 1997, when
he resigned to organize the Company. In the Grand Rapids market, prior to
joining FMB-Grand Rapids, Mr. Johnson was employed in various lending capacities
by Union Bank (now part of First Chicago NBD), Pacesetter Bank-Grand Rapids (now
part of Old Kent), and Manufacturers Bank (now part of Comerica Bank). Mr.
Johnson has been involved in charitable and community activities for many years.
He currently serves as a Vice Chairman of the Board of the Downtown YMCA,
Chairman of Residential Treatment of West Michigan, and is affiliated with Life
Guidance Services, American Heart Association of Greater Grand Rapids, Economic
Development Foundation, Grand Rapids Rotary Club, and Michigan Trails Girl Scout
Council. Mr. Johnson also has past affiliations with Hope Network, Project
Rehab, and the Grand Rapids Area Chamber of Commerce where he was a board member
for six years.
LAWRENCE W. LARSEN (Director) Mr. Larsen is President and owner of
Central Industrial Corporation of Grand Rapids, Michigan, and has served in that
capacity since he started that company in 1967. Central Industrial Corporation
is a wholesale distributor of industrial supplies. Mr. Larsen is also an owner
and director of Jet Products, Inc. of West Carrollton, Ohio. Jet Products, Inc.
designs, manufactures and sells hose reels and related products. Mr. Larsen is a
native of Wisconsin. He has spent the last 31 years in the Grand Rapids area.
Mr. Larsen is an active supporter of the Catholic secondary schools system in
Grand Rapids. Mr. Larsen served as a director of FMB-Grand Rapids from 1980
until June of 1997, and was a member of the Executive Loan Committee and the
Audit Committee.
CALVIN D. MURDOCK (Director) Mr. Murdock is President of SF
Electronics, Inc. ("SFE") of Grand Rapids, Michigan. He has held this position
since 1994. From 1992 to 1994, he served as the General Manager of SFE, and in
1991, served as SFE's Controller. SFE is a wholesale industrial electronics
components supplier. Mr. Murdock is a Michigan native and a graduate of Ferris
State University with a degree in accounting. Prior to joining SFE, Mr. Murdock
owned and operated businesses in the manufacturing and supply of automobile wash
equipment.
DALE J. VISSER (Director) Mr. Visser is Treasurer and one of the owners
of Visser Brothers Construction of Grand Rapids, Michigan. He has served as
Treasurer of this company since 1960. Mr. Visser grew up in the construction
industry as his father started Visser Brothers in 1926. As an owner of the
company with his brother, Mr. Visser has also held the position of President.
Visser Brothers is a construction general contractor specializing in commercial
buildings. Mr. Visser also has an ownership interest in several real estate
projects in the Grand Rapids area including Eastbrook Mall and Breton Village
Shopping Center. Mr. Visser served as a director of FMB-Grand Rapids from 1972
until June of 1997. He is a Grand Rapids native and a graduate of the University
of Michigan with a degree
13
<PAGE> 15
in civil engineering. Mr. Visser is active in the community having served on the
boards for the Grand Rapids YMCA, Christian Rest Home, and West Side Christian
School.
ROBERT A. WYNALDA (Director) Mr. Wynalda is Chief Executive Officer and
an owner of Wynalda Litho Inc. of Rockford, Michigan. Mr. Wynalda has held this
position since he founded the company in 1970. Wynalda Litho Inc. is a
commercial printing company serving customers from around the country. Mr.
Wynalda is a native of Grand Rapids and has spent 45 years in the printing
business. Mr. Wynalda serves on the Board of Trustees for Cornerstone College of
Grand Rapids, and formerly served as a director of a local financial
institution.
ROBERT B. KAMINSKI (Senior Vice President and Secretary) Mr. Kaminski
has over 13 years of commercial banking experience, all with First Michigan Bank
Corporation and its subsidiaries. From 1984 to 1993, Mr. Kaminski worked for
FMB-Grand Rapids in various capacities in the areas of credit administration and
bank compliance. In 1993, Mr. Kaminski was appointed Vice President in charge of
Loan Review and Compliance for FMB-Grand Rapids. From 1996 through June of 1997,
when he resigned. Mr. Kaminski served as Vice President and Manager of the
Commercial Credit Department for three of First Michigan Bank Corporation's
subsidiaries. Mr. Kaminski serves on the Leadership Committee for the National
Kidney Foundation of Michigan in Grand Rapids, the Board of Directors for HELP
Pregnancy Crisis Aid, Inc., and is a career mentor for Aquinas College of Grand
Rapids.
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
In the first year of operation, no compensation is expected to be paid
to any directors of the Company or the Bank for their services in such
capacities. Depending on the structure and operation of the Company, the
operations of the Bank and other factors, the Company's and the Bank's Boards of
Directors may thereafter determine that reasonable fees or compensation are
appropriate. In that event it is likely that directors of the Company and the
Bank would receive compensation, such as meeting fees, which would be consistent
with the compensation paid to directors of financial institution holding
companies and banks of similar size.
Mr. Johnson, the Bank's Chairman, President, and Chief Executive
Officer, has chosen to join the Bank at a compensation level below what he
earned in his previous position. His interest in doing this is to reduce
operating expenses in the start up phase of the Bank. The annual compensation
for Mr. Johnson for the first year of operations is expected to be $150,000. His
compensation in subsequent years will be determined by the Company's and the
Bank's Boards of Directors. In making their determinations, it is expected that
the Boards of Directors will receive recommendations from their Compensation
Committees, which will be comprised of outside directors. Mr. Johnson and the
other officers of the Bank may participate in the Company's 1997 Employee Stock
Option Plan. Officers of the Bank may also participate in any benefit plans
adopted for Bank employees. The Bank expects to adopt a 401(k) plan for its
employees. Neither the Company nor the Bank has an employment agreement with any
officer.
1997 EMPLOYEE STOCK OPTION PLAN
The Board of Directors has adopted, and the sole shareholder of the
Company has approved, a 1997 Employee Stock Option Plan (the "Plan"). The Plan's
adoption is intended to enable the key employees of the Company or any
subsidiary to participate in any growth and profitability of the Company and
encourage their continuation as employees of the Company or a subsidiary to the
benefit of the Company and its shareholders. Pursuant to the Plan, stock options
may be granted which qualify under the Internal Revenue Code as incentive stock
options or as stock options that do not qualify as incentive stock options. The
Board is of the judgment that the interests of the Company and its shareholders
will be advanced by implementation of this Plan. The following is a summary of
the principal provisions of the Plan.
ADMINISTRATION. The Plan will be administered by the Board of Directors
of the Company. The Board of Directors will make determinations with respect to
the officers and other key employees who will participate in the Plan and the
extent of their participation, including the type of option. In making such
determinations, the Board of Directors may consider the position and
responsibilities of the employee, the nature and value of his or her services
and accomplishments, the present and potential contribution of the employee to
the success of the Company, and such other factors as the Board of Directors may
deem relevant.
SHARES. The total number of shares of Common Stock which may be issued
under the Plan will not exceed 130,000 shares (subject to adjustment for certain
events as described below). The shares will be authorized but unissued shares
(including shares reacquired by the Company).
OPTION AGREEMENT. Each option granted under the Plan will be evidenced
by an agreement in such form as the Board of Directors shall from time to time
approve, which agreement must comply with and be subject to certain conditions
set forth in the Plan. Options granted under the Plan may be incentive stock
options or non-qualified options, as determined from time to time by the Board
of Directors for each optionee.
OPTION PRICE. The option price will not be less than the fair market
value of the shares of Common Stock at the time the option is granted except in
the case of an incentive stock option granted to a 10% shareholder where the
option price will be equal to 110% of fair market value. For purposes of the
Plan, fair market value per share means the average of the published closing bid
and asked prices of the Common Stock on the OTC Bulletin Board (the "Bulletin
Board"), or if the Common Stock has become listed on The Nasdaq Stock Market
("Nasdaq"), then on Nasdaq instead; or if the Common Stock is not quoted on
either the Bulletin Board or Nasdaq, a value determined by any fair and
reasonable means prescribed by the Board of Directors. The option price shall be
paid in cash or through the delivery
14
<PAGE> 16
of previously owned shares of the Company's Common Stock, or by a combination of
cash and Common Stock. For purposes of the grant of options under the Plan, and
not for any other purpose, the Board of Directors has determined that $10 per
share should be used as the market price for the Common Stock prior to the
completion of the offering.
DURATION OF OPTIONS. The duration of each option will be determined by
the Board of Directors, except that (1) the maximum duration may not exceed ten
years from the date of grant, and (2) for incentive stock options granted to
persons who own 10% or more of the Company's stock, the duration of such options
may not exceed five years from the date of grant. The Board of Directors will
determine at the time of grant whether the option will be exercisable in full or
in cumulative installments.
Except as hereinafter provided, an option may be exercised by an
optionee only while such optionee is in the employ of the Company or a
subsidiary. In the event that the employment of an optionee to whom an option
has been granted under the Plan terminates (except as set forth below) such
option may be exercised, to the extent that the option was exercisable on the
date of termination of employment, only until the earlier of three (3) months
after such termination or the original expiration date of the option; provided,
however, that if termination of employment results from death or total and
permanent disability, such three (3) month period will be extended to twelve
(12) months.
ADJUSTMENTS. The Board of Directors may make appropriate adjustments in
the number of shares of Common Stock for which options may be granted or which
may be issued under the Plan and the price per share of each option if there is
any change in the Common Stock as a result of a stock dividend, stock split,
recapitalization or otherwise.
CHANGE IN CONTROL. In the case of a change in control (as defined in
the Plan) of the Company, each option then outstanding shall become exercisable
in full immediately prior to the change in control.
TERMINATION OF PLAN AND AMENDMENTS. An option may not be granted
pursuant to the Plan after July 1, 2002. The Board of Directors may from time to
time amend or terminate the Plan, subject to shareholder approval to the extent
necessary to satisfy the requirements of Rule 16b-3 under the Exchange Act, or
any successor rule. No amendment or termination of the Plan will adversely
affect any option then outstanding under the Plan without the approval of the
optionee.
FEDERAL INCOME TAX CONSEQUENCES. The grant of a non-qualified option or
incentive stock option has no federal tax consequences for the optionee or the
Company. Upon the exercise of a non-qualified option, the optionee is deemed to
realize taxable income to the extent that the fair market value of the shares of
Common Stock exceeds the option price. The Company is entitled to a tax
deduction for such amounts at the date of exercise. If any stock received upon
the exercise of a non-qualified option is later sold, any excess of the sale
price over the fair market value of the stock at the date of exercise is taxable
to the optionee.
No taxable income results to the optionee upon the exercise of an
incentive stock option if the incentive stock option is exercised during the
period of the optionee's employment or within three months thereafter, except in
the case of disability or death. However, the amount by which the fair market
value of the stock acquired pursuant to an incentive stock option exceeds the
option price is a tax preference item which may result in the imposition on the
optionee of an alternative minimum tax. If no disposition of the shares is made
within two years from the date the incentive stock option was granted and one
year from the date of exercise, any profit realized upon disposition of the
shares may be treated as a long-term capital gain by the optionee. The Company
will not be entitled to a tax deduction upon such exercise of an incentive stock
option, nor upon a subsequent disposition of the shares unless such disposition
occurs prior to the expiration of the holding periods.
Under the terms of the Plan the aggregate market value (determined at
the time the option is granted) of the stock with respect to which incentive
stock options are exercisable for the first time in any year by any optionee may
not exceed $100,000.
As of September 1, 1997, the Company had outstanding two options to
purchase an aggregate of 45,000 shares of its Common Stock at an exercise price
of $10.00 per share pursuant to the Plan.
RELATED PARTY TRANSACTIONS
LOANS FROM ORGANIZERS
Over the past several months, organizers of the Bank have loaned
approximately $835,500 in aggregate amount to the Company to cover
organizational and other preopening expenses of the Bank and the Company.
Interest is payable on the loans at the rate of 5% per annum. All of these loans
will be repaid by the Company from the net proceeds of the offering. Each of the
organizers who has loaned money to the Company is a member of the Company's
Board of Directors.
RENOVATION CONTRACT WITH VISSER BROTHERS CONSTRUCTION
The Bank has entered into a contract with Visser Brothers Construction
for the renovation of the building at 216 North Division Avenue in Grand Rapids
that the Bank is leasing for its main office. Dale Visser and Bruce Visser, who
are brothers, are owners of a substantial majority of Visser Brothers
Construction. Dale Visser is a member of the Board of Directors of the Company,
and it is expected that he will become a member of the Board of Directors of the
15
<PAGE> 17
Bank. Both Dale and Bruce Visser are organizers of the Bank. The contract
provides for the payment of approximately $450,000 to Visser Brothers
Construction for renovation work that it is to perform under its base bid. In
addition, the contract covers an additional approximately $150,000 for work that
is specified in the contract as being performed by a separate supplier. The
contract provides for the renovation to be performed in accordance with
specifications provided by the Bank's architect. The contract was awarded to
Visser Brothers Construction after being submitted for bids. While the price bid
by Visser Brothers Construction was approximately $11,000 more than the bid
submitted by an unrelated contractor, in the opinion of the Board of Directors
of the Company, with Dale Visser abstaining, the bid made by Visser Brothers
Construction was more favorable because of Visser Brothers Construction's prior
experience in building and remodeling offices for financial institutions and its
willingness to commit to a completion date in 1997.
BANKING TRANSACTIONS
It is anticipated that the directors and officers of the Company and
the Bank and the companies with which they are associated will have banking and
other transactions with the Company and the Bank in the ordinary course of
business. Any loans and commitments to lend to such affiliated persons or
entities included in such transactions will be made in accordance with all
applicable laws and regulations and on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated parties of similar creditworthiness, and will not
involve more than normal risk or present other unfavorable features to the
Company and the Bank. Transactions between the Company or the Bank, and any
officer, director, principal shareholder, or other affiliate of the Company or
the Bank will be on terms no less favorable to the Company or the Bank than
could be obtained on an arms-length basis from unaffiliated independent third
parties, and will be approved by a majority of the Company's or the Bank's
independent directors who do not have an interest in the transaction and who
have had access, at the Company's or the Bank's expense, to the Company's legal
counsel or independent legal counsel.
INDEMNIFICATION
The Articles of Incorporation and bylaws of the Company provide for the
indemnification of directors and officers of the Company, including reasonable
legal fees, incurred by such directors and officers while acting for or on
behalf of the Company as a director or officer, subject to certain limitations.
See "Description of Capital Stock - Indemnification of Directors and Officers."
The scope of such indemnification otherwise permitted by Michigan law may be
limited in certain circumstances by federal law and regulations. See "Recent
Regulatory Developments." The Company may purchase directors' and officers'
liability insurance for directors and officers of the Company and the Bank.
PRINCIPAL SHAREHOLDERS
The Company has to date issued only one share of Common Stock. The
following table sets forth certain information with respect to the anticipated
beneficial ownership of the Company's Common Stock after the sale of shares
offered hereby, by (i) each person expected by the Company to beneficially own
more than 5% of the outstanding Common Stock; (ii) each of the current directors
and executive officers of the Company; and (iii) all such directors and
executive officers of the Company as a group. Pursuant to the Underwriting
Agreement between the Company and the Underwriter (the "Underwriting
Agreement"), the Company will direct the Underwriter to offer to sell the number
of shares listed below to the directors and executive officers listed below
(each being an organizer of the Bank), and 50,000 shares to Bruce Visser, also
an organizer of the Bank. All share numbers are provided based upon such
directions from the Company and non-binding expressions of interest supplied by
the persons listed below, and Bruce Visser. Depending upon their individual
circumstances at the time, each of such persons may purchase a greater or fewer
number of shares than indicated, and in fact may purchase no shares.
Number of shares Percentage of
beneficially owned outstanding shares
Name and Address after offering (1) after offering (3)
----------------- ------------------ ------------------
Peter A. Cordes
5447 Forest Bend Dr. S.E.
Ada, Michigan 49301 25,000 1.9 %
C. John Gill
4174 Winterwood Ct. N.E.
Grand Rapids, Michigan 49546 25,000 1.9 %
David M. Hecht
2020 Robinson Rd. S.E.
Grand Rapids, Michigan 49506 50,000 3.8 %
Gerald R. Johnson
42 Deer Run Drive N.E.
Ada, Michigan 49301 60,000 (2) 4.6 %
16
<PAGE> 18
<TABLE>
<CAPTION>
<S> <C> <C>
Lawrence R. Larsen
547 Kent Hills Rd., N.E.
Grand Rapids, Michigan 49505 13,500 1.0 %
Calvin D. Murdock
2778 Walker Avenue N.W.
Grand Rapids, Michigan 49544 15,000 1.2 %
Dale J. Visser
6872 Farrell Drive
Rockford, Michigan 49341 50,000 3.8 %
Robert M. Wynalda
3395 Valley View Drive N.E.
Rockford, Michigan 49341 50,000 3.8 %
Directors and executive officers
of the Company as a group (8
persons)(4) 288,500 (2) 22 %
</TABLE>
(1) Some or all of the Common Stock listed may be held jointly with, or for
the benefit of, spouses and children of, or various trusts established
by, the person indicated.
(2) Includes 10,000 shares that such person has the right to acquire within
60 days of September 1, 1997 pursuant to the Company's 1997 Employee
Stock Option Plan. Such person also holds an option under such plan to
purchase an additional 30,000 shares.
(3) The percentages shown are based on the 1,300,000 shares offered hereby
plus the number of shares that the named person or group has the right
to acquire within 60 days of September 1, 1997; and in each case
assumes no exercise of the Underwriter's over-allotment option.
(4) Does not include 50,000 shares (3.8% of the outstanding shares after
the offering) that Bruce Visser, who is Dale Visser's brother and one
of the Bank's organizers, has expressed an interest in purchasing.
These 50,000 shares, together with the 278,500 shares shown in the
table (calculated without taking into account shares referred to in
footnote 2 above), comprise the 328,500 shares that the organizers of
the Bank have expressed an interest in acquiring in the offering.
SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state law. Consequently, the growth and earnings
performance of the Company and the Bank can be affected not only by management
decisions and general economic conditions, but also by the statutes administered
by, and the regulations and policies of, various governmental regulatory
authorities. Those authorities include, but are not limited to, the Federal
Reserve Board, the FDIC, the Commissioner, the Internal Revenue Service, and
state taxing authorities. The effect of such statutes, regulations and policies
can be significant, and cannot be predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to
financial institutions and their holding companies regulate, among other things,
the scope of business, investments, reserves against deposits, capital levels
relative to operations, lending activities and practices, the nature and amount
of collateral for loans, the establishment of branches, mergers, consolidations
and dividends. The system of supervision and regulation applicable to the
Company and the Bank establishes a comprehensive framework for their respective
operations and is intended primarily for the protection of the FDIC's deposit
insurance funds, the depositors of the Bank, and the public, rather than
shareholders of the Bank or the Company.
Federal law and regulations, including provisions added by the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and regulations
promulgated thereunder, establish supervisory standards applicable to the
lending activities of the Bank, including internal controls, credit
underwriting, loan documentation, and loan-to-value ratios for loans secured by
real property. The Bank intends to comply with these requirements, and in some
cases may apply more restrictive standards.
The following references to statutes and regulations are intended to
summarize certain government regulation of the business of the Company and the
Bank, and are qualified by reference to the text of such statutes and
regulations. Any change in government regulation may have a material effect on
the business of the Company and the Bank.
17
<PAGE> 19
THE COMPANY
GENERAL. The Company has received the approval of the Commissioner, and
on October __, 1997, subject to the expiration of a 15 day statutory waiting
period, received the approval of the Federal Reserve Board, to acquire all of
the capital stock to be issued by the Bank in connection with its organization.
When the Company becomes the sole shareholder of the Bank, the Company will be a
bank holding company and, as such, will be required to register with, and will
be subject to regulation by, the Federal Reserve Board under the Bank Holding
Company Act, as amended (the "BHCA"). Under the BHCA, the Company will be
subject to periodic examination by the Federal Reserve Board and will be
required to file periodic reports of its operations and such additional
information as the Federal Reserve Board may require.
In accordance with Federal Reserve Board policy, the Company will be
expected to act as a source of financial strength to the Bank and to commit
resources to support the Bank in circumstances where the Company might not do so
absent such policy. In addition, in certain circumstances a Michigan state bank
having impaired capital may be required by the Commissioner either to restore
the bank's capital by a special assessment upon its shareholders, or to initiate
the liquidation of the bank.
Any capital loans by a bank holding company to a subsidiary bank are
subordinate in right of payment to deposits and to certain other indebtedness of
such subsidiary bank. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment. This priority would also apply to
guarantees of capital plans under FDICIA.
INVESTMENTS AND ACTIVITIES. Under the BHCA, bank holding companies are
prohibited, with certain limited exceptions, from engaging in activities other
than those of banking or of managing or controlling banks and from acquiring or
retaining direct or indirect ownership or control of voting shares or assets of
any company which is not a bank or bank holding company, other than subsidiary
companies furnishing services to or performing services for its subsidiaries,
and other subsidiaries engaged in activities which the Federal Reserve Board
determines to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Since September, 1995, the BHCA has
permitted the Federal Reserve Board under specified circumstances to approve the
acquisition, by a bank holding company located in one state, of a bank or bank
holding company located in another state, without regard to any prohibition
contained in state law. See "Recent Regulatory Developments."
In general, any direct or indirect acquisition by the Company of any
voting shares of any bank which would result in the Company's direct or indirect
ownership or control of more than 5% of any class of voting shares of such bank,
and any merger or consolidation of the Company with another bank holding
company, will require the prior written approval of the Federal Reserve Board
under the BHCA. In acting on such applications, the Federal Reserve Board must
consider various statutory factors, including among others, the effect of the
proposed transaction on competition in relevant geographic and product markets,
the convenience and needs of the communities to be served, and each party's
financial condition, managerial resources, and record of performance under the
Community Reinvestment Act.
The merger or consolidation of an existing bank subsidiary of the
Company with another bank, or the acquisition by such a subsidiary of assets of
another bank, or the assumption of liability by such a subsidiary to pay any
deposits in another bank, will require the prior written approval of the
responsible federal depository institution regulatory agency under the Bank
Merger Act, based upon a consideration of statutory factors similar to those
outlined above with respect to the BHCA. In addition, in certain such cases an
application to, and the prior approval of, the Federal Reserve Board under the
BHCA and/or the Commissioner under the Michigan Banking Code, may be required.
With certain limited exceptions, the BHCA prohibits bank holding
companies from acquiring direct or indirect ownership or control of voting
shares or assets of any company other than a bank, unless the company involved
is engaged solely in one or more activities which the Federal Reserve Board has
determined to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Under current Federal Reserve Board
regulations, such permissible non-bank activities include such things as
mortgage banking, equipment leasing, securities brokerage, and consumer and
commercial finance company operations. As a result of recent amendments to the
BHCA, many types of such acquisitions may be effected by those bank holding
companies which satisfy certain statutory criteria concerning management,
capitalization, and regulatory compliance, if written notice is given to the
Federal Reserve Board within 10 business days after the transaction. In other
cases, prior written notice to the Federal Reserve Board will be required.
In evaluating a written notice of such an acquisition, the Federal
Reserve Board will consider various factors, including among others the
financial and managerial resources of the notifying bank holding company, and
the relative public benefits and adverse effects which may be expected to result
from the performance of the activity by an affiliate of such company. The
Federal Reserve Board may apply different standards to activities proposed to be
commenced de novo and activities commenced by acquisition, in whole or in part,
of a going concern. The required notice period may be extended by the Federal
Reserve Board under certain circumstances, including a notice for acquisition of
a company engaged in activities not previously approved by regulation of the
Federal Reserve Board. If such a proposed acquisition is not disapproved or
subjected to conditions by the Federal Reserve Board within the applicable
notice period, it is deemed approved by the Federal Reserve Board.
18
<PAGE> 20
CAPITAL REQUIREMENTS. The Federal Reserve Board uses capital adequacy
guidelines in its examination and regulation of bank holding companies. If
capital falls below minimum guidelines, a bank holding company may, among other
things, be denied approval to acquire or establish additional banks or non-bank
businesses.
The Federal Reserve Board's capital guidelines establish the following
minimum regulatory capital requirements for bank holding companies: (i) a
leverage capital requirement expressed as a percentage of total assets, (ii) a
risk-based requirement expressed as a percentage of total risk-weighted assets,
and (iii) a Tier 1 leverage requirement expressed as a percentage of total
assets. The leverage capital requirement consists of a minimum ratio of total
capital to total assets of 6%, with an expressed expectation that banking
organizations generally should operate above such minimum level. The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted
assets of 8%, of which at least one-half must be Tier 1 capital (which consists
principally of shareholders' equity). The Tier 1 leverage requirement consists
of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly
rated companies, with minimum requirements of 4% to 5% for all others. As the
Company must meet these capital guidelines, it is possible for these
requirements to limit future growth.
The risk-based and leverage standards presently used by the Federal
Reserve Board are minimum requirements, and higher capital levels will be
required if warranted by the particular circumstances or risk profiles of
individual banking organizations. Further, any banking organization experiencing
or anticipating significant growth would be expected to maintain capital ratios,
including tangible capital positions (i.e., Tier 1 capital less all intangible
assets), well above the minimum levels.
The Federal Reserve Board's regulations provide that the foregoing
capital requirements will generally be applied on a bank-only (rather than a
consolidated) basis in the case of a bank holding company with less than $150
million in total consolidated assets. Nonetheless, on a pro forma basis,
assuming the issuance and sale by the Company of the 1,300,000 shares of Common
Stock offered hereby at $10.00 per share, the Company's leverage capital ratio,
risk-based capital ratio and Tier 1 leverage ratio, in each case as calculated
on a consolidated basis under the Federal Reserve Board's capital guidelines,
would exceed the minimum requirements.
FDICIA requires the federal bank regulatory agencies biennially to
review risk-based capital standards to ensure that they adequately address
interest rate risk, concentration of credit risk and risks from non-traditional
activities and, since adoption of the Riegle Community Development and
Regulatory Improvement Act of 1994 (the "Riegle Act"), to do so taking into
account the size and activities of depository institutions and the avoidance of
undue reporting burdens. See "Recent Regulatory Developments." In 1995, the
agencies adopted regulations requiring as part of the assessment of an
institution's capital adequacy the consideration of: (i) identified
concentrations of credit risks, (ii) the exposure of the institution to a
decline in the value of its capital due to changes in interest rates, and (iii)
the application of revised conversion factors and netting rules on the
institution's potential future exposure from derivative transactions. In
addition, the agencies in September 1996, adopted amendments to their respective
risk based capital standards to require banks and bank holding companies having
significant exposure to market risk arising from, among other things, trading of
debt instruments, (i) to measure that risk using an internal value-at-risk model
conforming to the parameters established in the agencies' standards, and (ii) to
maintain a commensurate amount of additional capital to reflect such risk. The
new rules were adopted effective January 1, 1997, with compliance mandatory from
and after January 1, 1998.
DIVIDENDS. The Company is a corporation separate and distinct from the
Bank. Most of the Company's revenues will be received by it in the form of
dividends or interest paid by the Bank. The Bank is subject to statutory
restrictions on its ability to pay dividends. See "The Bank - Dividends." The
Federal Reserve Board has issued a policy statement on the payment of cash
dividends by bank holding companies. In the policy statement, the Federal
Reserve Board expressed its view that a bank holding company should not pay cash
dividends exceeding its net income or which could only be funded in ways that
weakened the bank holding company's financial health, such as by borrowing.
Additionally, the Federal Reserve Board possesses enforcement powers over bank
holding companies and their non-bank subsidiaries to prevent or remedy actions
that represent unsafe or unsound practices or violations of applicable statutes
and regulations. Among these powers is the ability in appropriate cases to
proscribe the payment of dividends by banks and bank holding companies. Similar
enforcement powers over the Bank are possessed by the FDIC. It is also unlawful
for any insured depository institution to pay a dividend at a time when it is in
default of payment of any assessment to the FDIC. The "prompt corrective action"
provisions of FDICIA impose further restrictions on the payment of dividends by
insured banks which fail to meet specified capital levels and, in some cases,
their parent bank holding companies.
In addition to the restrictions on dividends imposed by the Federal
Reserve Board, the Michigan Business Corporation Act (the "MBCA") imposes
certain restrictions on the declaration and payment of dividends by Michigan
corporations such as the Company. See "Description of Capital Stock-Common
Stock-Dividend Rights."
THE BANK
GENERAL. Upon completion of its organization, the Bank will be a
Michigan banking corporation, and its deposit accounts will be insured by the
Bank Insurance Fund (the "BIF") of the FDIC. As a BIF-insured, Michigan
chartered bank, the Bank will be subject to the examination, supervision,
reporting and enforcement jurisdiction of the Commissioner, as the chartering
authority for Michigan banks, and the FDIC, as administrator of the BIF. 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
19
<PAGE> 21
rates on loans and on deposits, the maintenance of non-interest bearing reserves
on deposit accounts, and the safety and soundness of banking practices.
DEPOSIT INSURANCE. As an FDIC-insured institution, the Bank will be
required to pay deposit insurance premium assessments to the FDIC. Pursuant to
FDICIA, the FDIC adopted a risk-based assessment system under which all insured
depository institutions are placed into one of nine categories and assessed
insurance premiums based upon their level of capital and supervisory evaluation.
Institutions classified as well-capitalized (as defined by the FDIC) and not
exhibiting financial, operational or compliance weaknesses, pay the lowest
premium while institutions that are less than well - capitalized (as defined by
the FDIC) and exhibit such weaknesses in a moderately severe to unsatisfactory
degree pay the highest premium. Risk classification of all insured institutions
is made by the FDIC for each semi-annual assessment period.
The Federal Deposit Insurance Act ("FDIA") requires the FDIC to
establish semi-annual assessment rates so as to maintain the ratio of the
Deposit Insurance Fund to total estimated insured deposits at not less than
1.25%. Accordingly, the FDIC has established the schedule of BIF insurance
assessments for the first semi-annual assessment period of 1997, ranging from 0%
of deposits for institutions in the highest category to .27% of deposits for
institutions in the lowest category.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution or its
directors have engaged or are engaging in unsafe or unsound practices, or have
violated any applicable law, regulation, order, or any condition imposed in
writing by, or written agreement with, the FDIC, or if the institution is in an
unsafe or unsound condition to continue operations. The FDIC may also suspend
deposit insurance temporarily during the hearing process for a permanent
termination of insurance if the institution has no tangible capital.
CAPITAL REQUIREMENTS. The FDIC has established the following minimum
capital standards for state-chartered, FDIC-insured non-member banks, such as
the Bank: a leverage requirement consisting of a minimum ratio of Tier 1 capital
to total assets of 3% for the most highly-rated banks with minimum requirements
of 4% to 5% for all others, and a risk-based capital requirement consisting of a
minimum ratio of total capital to total risk-weighted assets of 8%, at least
one-half of which must be Tier 1 capital. Tier 1 capital consists principally of
shareholders' equity. In addition, the FDIC has adopted requirements for each
state-chartered, non-member bank having trading activity as shown on its most
recent Consolidated Report of Condition and Income ("Call Report") in an amount
equal to 10% or more of its total assets, (i) to measure its market risk using
an internal value-at-risk model conforming to the FDIC's capital standards, and
(ii) to maintain a commensurate amount of additional capital to reflect such
risk. This regulation was adopted effective January 1, 1997, with compliance
mandatory on and after January 1, 1998.
The capital requirements described above are minimum requirements.
Higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual institutions. As a condition to the
regulatory approvals of the Bank's formation, the Bank will be required to have
an initial capitalization sufficient to provide a ratio of Tier 1 capital to
total estimated assets of at least 8% at the end of the third year of operation.
FDIA establishes five capital categories, and the federal depository
institution regulators, as directed by FDIA, have adopted, subject to certain
exceptions, the following minimum requirements for each of such categories:
<TABLE>
<CAPTION>
Total Tier 1
Risk-Based Risk-Based Leverage
Capital Ratio Capital Ratio Ratio
------------- ------------- -----
<S> <C> <C> <C>
Well capitalized 10% or above 6% or above 5% or above
Adequately capitalized 8% or above 4% or above 4% or above
Undercapitalized Less than 8% Less than 4% Less than 4%
Significantly undercapitalized Less than 6% Less than 3% Less than 3%
Critically undercapitalized - - A ratio of tangible
equity to total assets
of 2% or less
</TABLE>
Subject to certain exceptions, these capital ratios are generally
determined on the basis of Call Reports submitted by each depository institution
and the reports of examination by each institution's appropriate federal
depository institution regulatory agency.
Among other things, FDIA requires the federal depository institution
regulators to take prompt corrective action in respect of depository
institutions that do not meet minimum capital requirements. The scope and degree
of regulatory intervention is linked to the capital category to which a
depository institution is assigned.
Depending upon the capital category to which an institution is
assigned, the regulators' corrective powers include: requiring the submission of
a capital restoration plan; placing limits on asset growth and restrictions on
activities; requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; restricting transactions
with affiliates; restricting the interest rate the institution may pay on
deposits; ordering a new election of directors of the institution; requiring
that senior executive officers or directors be dismissed; prohibiting the
institution from accepting deposits from correspondent banks; requiring the
institution to divest certain subsidiaries;
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prohibiting the payment of principal or interest on subordinated debt; and
ultimately, appointing a receiver for the institution.
In general, a depository institution may be reclassified to a lower
category than is indicated by its capital position if the appropriate federal
depository institution regulatory agency determines the institution to be
otherwise in an unsafe or unsound condition or to be engaged in an unsafe or
unsound practice. This could include a failure by the institution, following
receipt of a less-than-satisfactory rating on its most recent examination
report, to correct the deficiency.
DIVIDENDS. As a banking corporation organized under Michigan law, the
Bank will be restricted as to the maximum amount of dividends it may pay on its
Common Stock. The Bank may not pay dividends except out of net profits after
deducting its losses and bad debts. The Bank may not declare or pay a dividend
unless it will have a surplus amounting to at least 20% of its capital after the
payment of the dividend. If the Bank has a surplus less than the amount of its
capital it may not declare or pay any dividend until an amount equal to at least
10% of net profits for the preceding half year (in the case of quarterly or
semi-annual dividends) or full year (in the case of annual dividends) has been
transferred to surplus. The Bank may, with the approval of the Commissioner, by
vote of shareholders owning two-thirds of the stock eligible to vote increase
its capital stock by a declaration of a stock dividend, provided that after the
increase its surplus equals at least 20% of its capital stock, as increased. The
Bank may not declare or pay any dividend until the cumulative dividends on
preferred stock (should any such stock be issued and outstanding) have been paid
in full. The Bank has no present plans to issue preferred stock.
FDIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. The FDIC may prevent an insured bank from paying dividends if
the bank is in default of payment of any assessment due to the FDIC. In
addition, payment of dividends by a bank may be prevented by the applicable
federal regulatory authority if such payment is determined, by reason of the
financial condition of such bank, to be an unsafe and unsound banking practice.
The Federal Reserve Board has issued a policy statement providing that bank
holding companies and insured banks should generally only pay dividends out of
current operating earnings.
INSIDER TRANSACTIONS. The Bank is subject to certain restrictions
imposed by the Federal Reserve Act on any extensions of credit to the Company or
its subsidiaries, on investments in the stock or other securities of the Company
or its subsidiaries and the acceptance of the stock or other securities of the
Company or its subsidiaries as collateral for loans to any person. Certain
limitations and reporting requirements are also placed on extensions of credit
by the Bank to its directors and officers, to directors and officers of the
Company and its subsidiaries, to principal shareholders of the Company, and to
"related interests" of such directors, officers and principal shareholders. In
addition, such legislation and regulations may affect the terms upon which any
person becoming a director or officer of the Company or one of its subsidiaries
or a principal shareholder of the Company may obtain credit from banks with
which the Bank maintains a correspondent relationship.
SAFETY AND SOUNDNESS STANDARDS. On July 10, 1995, the FDIC, the Office
of Thrift Supervision, the Federal Reserve Board and the Office of the
Comptroller of the Currency published final guidelines implementing the FDICIA
requirement that the federal banking agencies establish operational and
managerial standards to promote the safety and soundness of federally insured
depository institutions. The guidelines, which took effect on August 9, 1995,
establish standards for internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, and compensation, fees and benefits. In general, the guidelines
prescribe the goals to be achieved in each area, and each institution will be
responsible for establishing its own procedures to achieve those goals. If an
institution fails to comply with any of the standards set forth in the
guidelines, the institution's primary federal regulator may require the
institution to submit a plan for achieving and maintaining compliance. The
preamble to the guidelines states that the agencies expect to require a
compliance plan from an institution whose failure to meet one or more of the
standards is of such severity that it could threaten the safe and sound
operation of the institution. Failure to submit an acceptable compliance plan,
or failure to adhere to a compliance plan that has been accepted by the
appropriate regulator, would constitute grounds for further enforcement action.
Effective October 1, 1996, the agencies expanded the guidelines to establish
asset quality and earnings standards. As before, the new guidelines make each
depository institution responsible for establishing its own procedures to meet
such goals.
STATE BANK ACTIVITIES. Under FDICIA, as implemented by final
regulations adopted by the FDIC, FDIC-insured state banks are prohibited,
subject to certain exceptions, from making or retaining equity investments of a
type, or in an amount, that are not permissible for a national bank. FDICIA, as
implemented by FDIC regulations, also prohibits FDIC-insured state banks and
their subsidiaries, subject to certain exceptions, from engaging as principal in
any activity that is not permitted for a national bank or its subsidiary,
respectively, unless the bank meets, and continues to meet, its minimum
regulatory capital requirements and the FDIC determines the activity would not
pose a significant risk to the deposit insurance fund of which the bank is a
member. Impermissible investments and activities must be divested or
discontinued within certain time frames set by the FDIC in accordance with
FDICIA. These restrictions are not currently expected to have a material impact
on the operations of the Bank.
CONSUMER BANKING. The Bank's business will include making a variety of
types of loans to individuals. In making these loans, the Bank will be subject
to state usury and regulatory laws and to various federal statutes, such as the
Equal Credit Opportunity Act, Fair Credit Reporting Act, Truth in Lending Act,
Real Estate Settlement Procedures Act, and Home Mortgage Disclosure Act, and the
regulations promulgated thereunder, which prohibit discrimination, specify
disclosures to be made to borrowers regarding credit and settlement costs, and
regulate the mortgage loan servicing activities of the Bank, including the
maintenance and operation of escrow accounts and the transfer of
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mortgage loan servicing. The Riegle Act imposed new escrow requirements on
depository and non-depository mortgage lenders and servicers under the National
Flood Insurance Program. See "Recent Regulatory Developments." In receiving
deposits, the Bank will be subject to extensive regulation under state and
federal law and regulations, including the Truth in Savings Act, the Expedited
Funds Availability Act, the Bank Secrecy Act, the Electronic Funds Transfer Act,
and the FDIA. Violation of these laws could result in the imposition of
significant damages and fines upon the Bank, its directors and officers.
RECENT REGULATORY DEVELOPMENTS
In 1994, the Congress enacted two major pieces of banking legislation,
the Riegle Act and the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act"). The Riegle Act addressed such varied issues
as the promotion of economic revitalization of defined urban and rural
"qualified distressed communities" through special purpose "Community
Development Financial Institutions," the expansion of consumer protection with
respect to certain loans secured by a consumer's home and reverse mortgages, and
reductions in compliance burdens regarding Currency Transaction Reports, in
addition to reform of the National Flood Insurance Program, the promotion of a
secondary market for small business loans and leases, and mandating specific
changes to reduce regulatory impositions on depository institutions and holding
companies.
The Riegle-Neal Act substantially changed the geographic constraints
applicable to the banking industry. Effective September 29, 1995, the
Riegle-Neal Act allows bank holding companies to acquire banks located in any
state in the United States without regard to geographic restrictions or
reciprocity requirements imposed by state law, but subject to certain
conditions, including limitations on the aggregate amount of deposits that may
be held by the acquiring holding company and all of its insured depository
institution affiliates. Effective June 1, 1997 (or earlier if expressly
authorized by applicable state law), the Riegle-Neal Act allows banks to
establish interstate branch networks through acquisitions of other banks,
subject to certain conditions, including certain limitations on the aggregate
amount of deposits that may be held by the surviving bank and all of its insured
depository institution affiliates. The establishment of de novo interstate
branches or the acquisition of individual branches of a bank in another state
(rather than the acquisition of an out-of-state bank in its entirety) is allowed
by the Riegle-Neal Act only if specifically authorized by state law. The
legislation allows individual states to "opt-out" of certain provisions of the
Riegle-Neal Act by enacting appropriate legislation prior to June 1, 1997.
In November, 1995, Michigan exercised its right to opt-in early to the
Riegle-Neal Act, and permitted non-U.S. banks to establish branch offices in
Michigan. As further amended, effective October 21, 1996, and June 30, 1997, the
Michigan Banking Code now permits, in appropriate circumstances, (a) with the
approval of the Commissioner, (i) the acquisition of all or substantially all of
the assets of a Michigan-chartered bank by an FDIC-insured bank, savings bank,
or savings and loan association located in another state, (ii) the acquisition
by a Michigan-chartered bank of all or substantially all of the assets of an
FDIC-insured bank, savings bank or savings and loan association located in
another state, (iii) the consolidation of one or more Michigan-chartered banks
and FDIC-insured banks, savings banks or savings and loan associations located
in other states having laws permitting such consolidation, with the resulting
organization chartered by Michigan, (iv) the establishment by a foreign bank,
which has not previously designated any other state as its home state under the
International Banking Act of 1978, of branches located in Michigan, and (v) the
organization of a branch in Michigan by FDIC-insured banks located in other
states, the District of Columbia or U.S. territories or protectorates having
laws permitting a Michigan-chartered bank to establish a branch in such
jurisdiction, and (b) upon written notice to the Commissioner, (i) the
acquisition by a Michigan-chartered bank of one or more branches (not comprising
all or substantially all of the assets) of an FDIC-insured bank, savings bank or
savings and loan association located in another state, the District of Columbia,
or a U.S. territory or protectorate, (ii) the establishment by
Michigan-chartered banks of branches located in other states, the District of
Columbia, or U.S. territories or protectorates, and (iii) the consolidation of
one or more Michigan-chartered banks and FDIC-insured banks, savings banks or
savings and loan associations located in other states, with the resulting
organization chartered by one of such other states, and (c) the sale by a
Michigan-chartered bank of one or more of its branches (not comprising all or
substantially all of its assets) to an FDIC-insured bank, savings bank or
savings and loan association located in a state in which a Michigan-chartered
bank could purchase one or more branches of the purchasing entity. The amending
legislation also expanded the regulatory authority of the Commissioner and made
certain other changes.
The Michigan Legislature has adopted, with effect from March 28, 1996,
the Credit Reform Act. This statute, together with amendments to other related
laws, permits regulated lenders, indirectly including Michigan-chartered banks,
to charge and collect higher rates of interest and increased fees on certain
types of loans to individuals and businesses. The laws prohibit "excessive fees
and charges", and authorize governmental authorities and borrowers to bring
actions for injunctive relief and statutory and actual damages for violations by
lenders. The statutes specifically authorize class actions, and also civil money
penalties for knowing and willful, or persistent violations.
FDIC regulations which became effective April 1, 1996, impose
limitations (and in certain cases, prohibitions) on (i) certain "golden
parachute" severance payments by troubled depository institutions and their
affiliated holding companies to institution-affiliated parties (primarily
directors, officers, employees, or principal shareholders of the institution),
and (ii) certain indemnification payments by a depository institution or its
affiliated holding company, regardless of financial condition, to
institution-affiliated parties. The FDIC regulations impose limitations on
indemnification payments which could restrict, in certain circumstances,
payments by the Company or the Bank to their respective directors or officers
otherwise permitted under the MBCA or the Michigan Banking Code, respectively.
See "Description of Capital Stock - Indemnification of Directors and Officers."
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The Omnibus Consolidated Appropriations Act, 1997 ("OCCA"), was enacted
September 30, 1996. It amended many of the principal federal laws regulating
banks and bank holding companies. As part of the projected conversion or closure
of all thrift institutions in the U.S., OCCA modified existing laws (a) to
impose a special, one-time assessment on all deposits insured by the Savings
Association Insurance Fund ("SAIF") of the FDIC to bring the SAIF reserves to
the statutory minimum ratio of 1.25% of all SAIF-insured deposits, (b) to permit
the Financing Corporation to impose (in the same manner as regular FDIC
insurance assessments) assessments upon commercial banks to fund repayment of
its bonds which had been issued to pay for losses resulting from widespread
failures of thrift institutions during the 1980's, (c) to prohibit shifting
deposits from SAIF insurance to BIF insurance, and (d) to merge, prospectively,
the BIF and SAIF into a single Deposit Insurance Fund ("DIF"). The merger of the
funds will occur on January 1, 1999, if no insured depository institution
remains a savings association on that date. There can be no assurance whether or
when the merger of the BIF and SAIF will in fact occur.
OCCA also amended the BHCA (a) to eliminate the requirement of prior
written notice to the Federal Reserve Board by well-capitalized and well-managed
bank holding companies meeting certain statutory criteria wishing to engage de
novo (or in certain cases through acquisition) in a non-banking activity already
permitted by order or regulation of the Federal Reserve Board, (b) to shorten to
12 business days the prior written notice to the Federal Reserve Board required
from well-managed and well-capitalized bank holding companies meeting such
criteria for other acquisitions of non-banking companies engaged in non-banking
activities so permitted, and (c) to eliminate the opportunity for a hearing on
applications to the Federal Reserve Board for permission to engage in
non-banking activities (other than the acquisition of a savings association).
Among the other changes made by OCCA, the statute (a) increased the
number of banks exempted from compliance with the record-keeping and reporting
requirements of the Home Mortgage Disclosure Act and eligible for an 18-month
cycle of regulatory examinations by increasing the total assets cut-off in each
case, (b) simplified the disclosure requirements for residential mortgage loans
by harmonizing the requirements of the Truth-in-Lending Act and Real Estate
Settlement Procedures Act, (c) substantially re-wrote the Fair Credit Reporting
Act, and (d) expanded the authority of the Federal Reserve Board under the
Consumer Leasing Act and directed the Board to issue model disclosure forms for
use in leasing personal property.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 9,000,000 shares of
Common Stock and 1,000,000 shares of Preferred Stock. As of the date of this
Prospectus, there is one share of Common Stock issued and outstanding. No shares
of Preferred Stock have been issued by the Company.
Michigan law allows the Company's Board of Directors to issue
additional shares of stock up to the total amount of Common Stock and Preferred
Stock authorized without obtaining the prior approval of the shareholders.
Issuances of Preferred Stock, if any, will not be offered to members of the
Board of Directors except on the same terms as are offered to the public, unless
approved by a majority of the Company's independent directors who do not have an
interest in the transaction and who have had access, at the Company's expense,
to the Company's legal counsel or independent legal counsel.
PREFERRED STOCK
The Board of Directors of the Company is authorized to issue Preferred
Stock, in one or more series, from time to time, with such voting powers, full
or limited but not to exceed one vote per share, or without voting powers, and
with such designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions thereof,
as may be provided in the resolution or resolutions adopted by the Board of
Directors. The authority of the Board of Directors includes, but is not limited
to, the determination or fixing of the following with respect to shares of such
class or any series thereof: (i) the number of shares and designation of such
series; (ii) the dividend rate and whether dividends are to be cumulative; (iii)
whether shares are to be redeemable, and, if so, whether redeemable for cash,
property or rights; (iv) the rights to which the holders of shares shall be
entitled, and the preferences, if any, over any other series; (v) whether the
shares shall be subject to the operation of a purchase, retirement or sinking
fund, and, if so, upon what conditions; (vi) whether the shares shall be
convertible into or exchangeable for shares of any other class or of any other
series of any class of capital stock and the terms and conditions of such
conversion or exchange; (vii) the voting powers, full or limited, if any, of the
shares; (viii) whether the issuance of any additional shares, or of any shares
of any other series, shall be subject to restrictions as to issuance, or as to
the powers, preferences or rights of any such other series; and (ix) any other
preferences, privileges and powers and relative, participating, optional or
other special rights and qualifications, limitations or restrictions.
COMMON STOCK
Dividend Rights
Subject to any prior rights of any holders of Preferred Stock then
outstanding, the holders of the Common Stock will be entitled to dividends when,
as and if declared by the Company's Board of Directors out of funds legally
available therefor. Under Michigan law, dividends may be legally declared or
paid only if after the distribution the corporation can pay its debts as they
come due in the usual course of business and the corporation's total assets
equal or exceed the sum of its liabilities plus the amount that would be needed
to satisfy the preferential rights upon dissolution
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of any holders of preferred stock then outstanding whose preferential rights are
superior to those receiving the distribution.
Funds for the payment of dividends by the Company are expected to be
obtained primarily from dividends of the Bank. There can be no assurance that
the Company will have funds available for dividends, or that if funds are
available, that dividends will be declared by the Company's Board of Directors.
As the Bank is not expected to be profitable during its start up period, the
Company does not expect to be in a position to declare dividends at any time in
the foreseeable future.
Voting Rights
Subject to the rights, if any, of holders of shares of Preferred Stock
then outstanding, all voting rights are vested in the holders of shares of
Common Stock. Each share of Common Stock entitles the holder thereof to one vote
on all matters, including the election of directors. Shareholders of the Company
do not have cumulative voting rights.
Preemptive Rights
Holders of Common Stock do not have preemptive rights.
Liquidation Rights
Subject to any rights of any Preferred Stock then outstanding, holders
of Common Stock are entitled to share on a pro rata basis in the net assets of
the Company which remain after satisfaction of all liabilities.
Transfer Agent
State Street Bank & Trust Company of Boston, Massachusetts, serves as
the transfer agent of the Company's Common Stock.
DESCRIPTION OF CERTAIN CHARTER PROVISIONS
The following provisions of the Company's Articles of Incorporation may
delay, defer, prevent, or make it more difficult for a person to acquire the
Company or to change control of the Company's Board of Directors, thereby
reducing the Company's vulnerability to an unsolicited takeover attempt.
Classification of the Board of Directors
The Company's Articles of Incorporation provide for the Board of
Directors to be divided into three classes of directors, each class to be as
nearly equal in number as possible, and also provides that the number of
directors shall be fixed by majority of the Board at no fewer than six nor more
than fifteen. Pursuant to the Articles of Incorporation, the Company's directors
have been divided into three classes. Three Class I directors have been elected
for a term expiring at the 1998 annual meeting of shareholders, three Class II
directors have been elected for a term expiring at the 1999 annual meeting of
shareholders, and two Class III directors have been elected for a term expiring
at the 2000 annual meeting of shareholders (in each case, until their respective
successors are elected and qualified).
Removal of Directors
The MBCA provides that, unless the articles of incorporation otherwise
provide, shareholders may remove a director or the entire Board of Directors
with or without cause. The Company's Articles of Incorporation provide that a
director may be removed only for cause and only by the affirmative vote of the
holders of a majority of the voting power of all the shares of the Company
entitled to vote generally in the election of directors.
Filling Vacancies on the Board of Directors
The Company's Articles of Incorporation provide that a new director
chosen to fill a vacancy on the Board of Directors will serve for the remainder
of the full term of the class in which the vacancy occurred.
Nominations of Director Candidates
The Company's Articles of Incorporation include a provision governing
nominations of director candidates. Nominations for the election of directors
may be made by the Board of Directors, a nominating committee appointed by the
Board of Directors, or any shareholder entitled to vote for directors. In the
case of a shareholder nomination, the Articles of Incorporation provide certain
procedures that must be followed. A shareholder intending to nominate candidates
for election must deliver written notice containing certain specified
information to the Secretary of the Company at least sixty (60) days but not
more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of shareholders.
Certain Shareholder Action
The Company's Articles of Incorporation require that any shareholder
action must be taken at an annual or special meeting of shareholders, that any
meeting of shareholders must be called by the Board of Directors or the
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<PAGE> 26
Chairman of the Board, and, unless otherwise provided by law, prohibit
shareholder action by written consent. Shareholders of the Company are not
permitted to call a special meeting of shareholders or require that the Board
call such a special meeting. The MBCA permits shareholders holding 10% or more
of all of the shares entitled to vote at a meeting to request the Circuit Court
of the County in which the Company's principal place of business or registered
office is located to order a special meeting of shareholders for good cause
shown.
Increased Shareholders' Vote for Alteration, Amendment or Repeal of
Article Provisions
The Company's Articles of Incorporation require the affirmative vote of
the holders of at least 66 2/3 percent of the voting stock of the Company
entitled to vote generally in the election of directors for the alteration,
amendment or repeal of, or the adoption of any provision inconsistent with the
foregoing provisions of the Company's Articles of Incorporation.
CERTAIN ANTI-TAKEOVER PROVISIONS
Michigan Fair Price Act. Certain provisions of the MBCA establish a
statutory scheme similar to the supermajority and fair price provisions found in
many corporate charters (the "Fair Price Act"). The Fair Price Act provides that
a supermajority vote of 90 percent of the shareholders and no less than
two-thirds of the votes of noninterested shareholders must approve a "business
combination." The Fair Price Act defines a "business combination" to encompass
any merger, consolidation, share exchange, sale of assets, stock issue,
liquidation, or reclassification of securities involving an "interested
shareholder" or certain "affiliates." An "interested shareholder" is generally
any person who owns 10 percent or more of the outstanding voting shares of the
corporation. An "affiliate" is a person who directly or indirectly controls, is
controlled by, or is under common control with a specified person.
The supermajority vote required by the Fair Price Act does not apply to
business combinations that satisfy certain conditions. These conditions include,
among others: (i) the purchase price to be paid for the shares of the
corporation in the business combination must be at least equal to the highest of
either (a) the market value of the shares or (b) the highest per share price
paid by the interested shareholder within the preceding two-year period or in
the transaction in which the shareholder became an interested shareholder,
whichever is higher; and (ii) once becoming an interested shareholder, the
person may not become the beneficial owner of any additional shares of the
corporation except as part of the transaction which resulted in the interested
shareholder becoming an interested shareholder or by virtue of proportionate
stock splits or stock dividends.
The requirements of the Fair Price Act do not apply to business
combinations with an interested shareholder that the Board of Directors has
approved or exempted from the requirements of the Fair Price Act by resolution
prior to the time that the interested shareholder first became an interested
shareholder.
Control Share Act. The MBCA regulates the acquisition of "control
shares" of large public Michigan corporations (the "Control Share Act").
Following completion of the offering, the Control Share Act is expected to apply
to the Company and its shareholders.
The Control Share Act establishes procedures governing "control share
acquisitions." A control share acquisition is defined as an acquisition of
shares by an acquiror which, when combined with other shares held by that person
or entity, would give the acquiror voting power, alone or as part of a group, at
or above any of the following thresholds: 20 percent, 33-1/3 percent or 50
percent. Under the Control Share Act, an acquiror may not vote "control shares"
unless the corporation's disinterested shareholders (defined to exclude the
acquiring person, officers of the target corporation, and directors of the
target corporation who are also employees of the corporation) vote to confer
voting rights on the control shares. The Control Share Act does not affect the
voting rights of shares owned by an acquiring person prior to the control share
acquisition.
The Control Share Act entitles corporations to redeem control shares
from the acquiring person under certain circumstances. In other cases, the
Control Share Act confers dissenters' right upon all of the corporation's
shareholders except the acquiring person.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provide that the Company shall
indemnify its present and past directors, officers, and such other persons as
the Board of Directors may authorize, to the fullest extent permitted by law.
The Company's Bylaws contain indemnification provisions concerning
third party actions as well as actions in the right of the Company. The Bylaws
provide that the Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company) by reason of the fact
that he or she is or was a director or officer of the Company, or while serving
as such a director or officer, is or was serving at the request of the Company
as a director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise,
whether for profit or not, against expenses (including attorney's fees),
judgments, penalties, fees and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Company or its
shareholders, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
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<PAGE> 27
FDIC regulations impose limitations on indemnification payments which
could restrict, in certain circumstances, payments by the Company or the Bank to
their respective directors or officers otherwise permitted under the MBCA or the
Michigan Banking Code, respectively.
With respect to derivative actions, the Bylaws provide that the Company
shall indemnify any person who was or is a party to or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Company to procure a judgment in its favor by reason of the fact
that he or she is or was a director or officer of the Company, or, while serving
as such a director or officer, is or was serving at the request of the Company
as a director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise,
whether for profit or not, against expenses (including attorney's fees) and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with the action or suit if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Company or its shareholders. No indemnification is provided in
the Bylaws in respect of any claim, issue or matter in which such person has
been found liable to the Company except to the extent that a court of competent
jurisdiction determines upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions discussed above or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission (the
"SEC") such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
LIMITATION OF DIRECTOR LIABILITY
The MBCA permits corporations to limit the personal liability of their
directors in certain circumstances. The Company's Articles of Incorporation
provide that a director of the Company shall not be personally liable to the
Company or its shareholders for monetary damages for breach of the director's
fiduciary duty. However, they do not eliminate or limit the liability of a
director for any breach of a duty, act or omission for which the elimination or
limitation of liability is not permitted by the MBCA, currently including,
without limitation, the following: (1) breach of the director's duty of loyalty
to the Company or its shareholders; (2) acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law; (3) illegal
loans, distributions of dividends or assets, or stock purchases as described in
Section 551(1) of the MBCA; and (4) transactions from which the director derived
an improper personal benefit.
SHARES ELIGIBLE FOR FUTURE SALE
As of September 1, 1997, the Company had one share of Common Stock
outstanding that was held by a member of the Board of Directors. Upon completion
of the offering, the Company expects to have 1,300,000 shares of its Common
Stock outstanding. The 1,300,000 shares of the Company's Common Stock sold in
the offering (plus any additional shares sold upon the Underwriter's exercise of
its over-allotment option) have been registered with the SEC under the
Securities Act and may generally be resold without registration under the
Securities Act unless they were acquired by directors, executive officers, or
other affiliates of the Company (collectively, "Affiliates"). Affiliates of the
Company may generally only sell shares of the Common Stock pursuant to Rule 144
under the Securities Act.
In general, under Rule 144 as currently in effect, an affiliate (as
defined in Rule 144) of the Company may sell shares of Common Stock within any
three-month period in an amount limited to the greater of 1% of the outstanding
shares of the Company's Common Stock or the average weekly trading volume in the
Company's Common Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain manner-of-sale provisions, holding
periods for restricted shares, notice requirements, and the availability of
current public information about the Company.
The Company, and the directors and officers of the Company, and Bruce
Visser, one of the organizers of the Bank (who are expected to hold an aggregate
of approximately 328,500 shares after the offering, excluding the shares that
Mr. Johnson and Mr. Kaminski have the right to acquire pursuant to options
granted to them under the Company's 1997 Employee Stock Option Plan), have
agreed, or will agree, that (a) they will not issue, offer for sale, sell,
transfer, grant options to purchase or otherwise dispose of any shares of Common
Stock without the prior written consent of the Underwriter, for a period of 150
days from the date of this Prospectus, except that (i) the Company may issue
shares upon the exercise of options under the Company's 1997 Employee Stock
Option Plan and (ii) the directors, officers and Mr. Visser may give Common
Stock owned by them to others who have agreed in writing to be bound by the same
agreement, and (b) they will not sell, transfer, assign, pledge, or hypothecate
any shares of Common Stock for a period of three months from the date of the
Prospectus acquired in connection with directions from the Company for issuer
directed securities.
As of September 1, 1997, the Company had outstanding two options to
purchase an aggregate of 45,000 shares of its Common Stock at an exercise price
of $10 per share pursuant to the Company's 1997 Employee Stock Option Plan. Mr.
Johnson holds an option for 40,000 of these shares and Mr. Kaminski holds an
option for 5,000 of these shares.
Prior to the offering, there has been no public trading market for the
Common Stock, and no predictions can be made as to the effect, if any, that
sales of shares or the availability of shares for sale will have on the
prevailing
26
<PAGE> 28
market price of the Common Stock after completion of the offering.
Nevertheless, sales of substantial amounts of Common Stock in the public market
could have an adverse effect on prevailing market prices.
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
underwriting agreement dated ________, 1997 (the "Underwriting Agreement")
between the Company and the Underwriter that it will purchase from the Company,
on a firm commitment basis, 1,300,000 shares of Common Stock. The Underwriting
Agreement provides that the obligations of the Underwriter thereunder are
subject to certain conditions and provides for the Company's payment of certain
expenses incurred in connection with the review of the underwriting arrangements
for the offering by the National Association of Securities Dealers, Inc. (the
"NASD"). The Underwriter is obligated to purchase all 1,300,000 of the shares of
Common Stock offered hereby, excluding shares covered by the over-allotment
option granted to the Underwriter, if any are purchased.
If the Underwriting Agreement is terminated, except in certain limited
cases, the Underwriting Agreement provides that the Company will reimburse the
Underwriter for all accountable out-of-pocket expenses incurred by it in
connection with the proposed purchase and sale of the Common Stock, up to a
maximum of $40,000. The Company has advanced $20,000 to the Underwriter in
connection with such expense reimbursement. The Underwriting Agreement provides
that in the event the accountable out-of-pocket expenses to be reimbursed upon
such termination total an amount less than $20,000, the Underwriter shall pay
such difference to the Company.
The Company and the Underwriter have agreed that the Underwriter will
purchase the 1,300,000 shares of Common Stock offered hereunder at a price to
the public of $10.00 per share less underwriting discounts of $__ per share.
However, the Underwriter has agreed to limit the underwriting discounts to 1.5%
of the public offering price ($0.15 per share) with respect to the first 328,500
shares sold to organizers of the Bank or their immediate families. The
Underwriter proposes to offer the Common Stock to selected dealers who are
members of the NASD at a price of $10.00 per share less a concession not in
excess of $___ per share. The Underwriter may allow, and such dealers may
re-allow, concessions not in excess of $___ per share to certain other brokers
and dealers. After the Common Stock is released for sale to the public, the
offering price and other selling terms may from time to time be varied by the
Underwriter.
The Company, the directors and officers of the Company, and Bruce
Visser, an organizer of the Bank, have agreed to be subject to certain lock-up
restrictions as described above in "Shares Eligible for Future Sale."
The Underwriter has informed the Company that the Underwriter does not
intend to make sales to any accounts over which the Underwriter exercises
discretionary authority.
The Company has granted the Underwriter an option, exercisable within
30 days after the date of the offering, to purchase up to an additional 195,000
shares of Common Stock from the Company to cover over-allotments, if any, at the
same price per share as is to be paid by the Underwriter for the other shares
offered hereby. The Underwriter may purchase such shares only to cover
over-allotments, if any, in connection with the offering.
The Underwriting Agreement contains indemnity provisions between the
Underwriter and the Company and the controlling persons thereof against certain
liabilities, including liabilities arising under the Securities Act. The Company
is generally obligated to indemnify the Underwriter and its controlling persons
in connection with losses or claims arising out of any untrue statement of a
material fact contained in this Prospectus or in related documents filed with
the Commission or with any state securities administrator, or any omission of
certain material facts from such documents.
There has been no public trading market for the Common Stock. The price
at which the shares are being offered to the public was determined by
negotiations between the Company and the Underwriter. This price is not based
upon earnings or any history of operations and should not be construed as
indicative of the present or anticipated future value of the Common Stock.
Several factors were considered in determining the initial offering price of the
Common Stock, among them the size of the offering, the desire that the security
being offered be attractive to individuals and the Underwriter's experience in
dealing with initial public offerings for financial institutions.
LEGAL PROCEEDINGS
Neither the Bank nor the Company is a party to any pending legal
proceedings or aware of any threatened legal proceedings where the Company or
the Bank may be exposed to any material loss.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for
the Company by Dickinson, Wright, Moon, Van Dusen & Freeman, Detroit, Michigan.
Honigman Miller Schwartz and Cohn, Detroit, Michigan, is acting as counsel for
the Underwriter in connection with certain legal matters relating to the shares
of Common Stock offered hereby.
27
<PAGE> 29
EXPERTS
The financial statements of the Company included in this Prospectus
have been audited by Crowe, Chizek and Company LLP, independent public
accountants, as indicated in their report with respect thereto. Such financial
statements and their report have been included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Form SB-2 Registration Statement
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the Rules
and Regulations of the SEC. For further information pertaining to the shares of
Common Stock offered hereby and to the Company, reference is made to the
Registration Statement, including the Exhibits filed as a part thereof, copies
of which can be inspected at and copied at the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New York
New York 10048. Copies of such materials can also be obtained on the SEC's Web
site at http://www.sec.gov and at prescribed rates by writing to the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.
28
<PAGE> 30
MERCANTILE BANK CORPORATION
FINANCIAL STATEMENTS
(A COMPANY IN THE DEVELOPMENT STAGE)
INDEX
PAGE NO.
REPORT OF INDEPENDENT AUDITORS F-2
FINANCIAL STATEMENTS
Balance Sheet F-3
Statement of Shareholder's Equity F-4
Statement of Operations F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7
F-1
<PAGE> 31
MERCANTILE BANK CORPORATION
FINANCIAL STATEMENTS
(A COMPANY IN THE DEVELOPMENT STAGE)
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Mercantile Bank Corporation
Grand Rapids, Michigan
We have audited the accompanying balance sheet of Mercantile Bank Corporation
(a Company in the development stage) as of July 21, 1997, and the related
statements of shareholder's equity, operations and cash flows for the period
from July 15, 1997 (inception) through July 21, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mercantile Bank Corporation (a
Company in the development stage) as of July 21, 1997, and the results of its
operations and cash flows for the period from July 15, 1997 (inception) through
July 21, 1997 in conformity with generally accepted accounting principles.
/S/ CROWE, CHIZEK & COMPANY LLP
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
July 22, 1997
F-2
<PAGE> 32
MERCANTILE BANK CORPORATION
(A Company in the Development Stage)
BALANCE SHEET
July 21, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $232,940
Organization costs 25,560
Deferred offering costs 20,000
--------
$278,500
========
LIABILITIES AND RETAINED EARNINGS
Accounts payable $27,732
Related party notes payable (Note 2) 278,500
--------
306,232
Shareholder's equity
Preferred stock, no par value; 1,000,000 shares
authorized, none issued
Common stock, no par value; 9,000,000 shares
authorized, none issued
Additional paid-in capital
Deficit accumulated during the development stage (27,732)
--------
Total shareholder's equity (27,732)
--------
Total liabilities and shareholder's equity $278,500
========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 33
MERCANTILE BANK CORPORATION
(A Company in the Development Stage)
STATEMENT OF SHAREHOLDER'S EQUITY
Period from July 15, 1997 (inception) to July 21, 1997
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Preferred Common Paid-In Development
Stock Stock Capital Stage Total
----- ----- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT JULY 15, 1997
Net loss $(27,732) $(27,732)
-------- ---------
BALANCE AT JULY 21, 1997 $ 0 $ 0 $ 0 $(27,732) $(27,732)
======= ===== ====== ======== =========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 34
MERCANTILE BANK CORPORATION
(A Company in the Development Stage)
STATEMENT OF OPERATIONS
Period from July 15, 1997 (inception) to July 21, 1997
<TABLE>
<S> <C>
Total operating income $ 0
Operating expenses
Salaries and employee benefit 24,817
Other 2,915
---------
27,732
---------
NET LOSS $(27,732)
========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 35
MERCANTILE BANK CORPORATION
(A Company in the Development Stage)
STATEMENT OF CASH FLOWS
Period from July 15, 1997 (inception) to July 21, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES FROM DEVELOPMENT
STAGE OPERATIONS
Net loss $(27,732)
Adjustments to reconcile net income from development
stage operations to net cash provided by operating activities
Increase in accounts payable 27,732
---------
Net cash from operating activities 0
CASH FLOWS FROM INVESTING ACTIVITIES
Organizational costs (25,560)
---------
Net cash from investing activities (25,560)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party loans payable 278,500
Deferred offering costs (20,000)
---------
Net cash from financing activities 258,500
---------
Net increase in cash 232,940
Cash, beginning balance 0
---------
CASH, ENDING BALANCE $232,940
=========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 36
MERCANTILE BANK CORPORATION
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
July 21, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Mercantile Bank Corporation (the "Company") was incorporated on
July 15, 1997 as a bank holding company to establish and operate a new bank,
Mercantile Bank of West Michigan (the "Bank") in Grand Rapids, Michigan. The
Company intends to raise a minimum of $12,023,000 in equity capital through the
sale of 1,300,000 shares of the Company's Common Stock at $10 per share, net of
underwriting discounts and offering costs. Proceeds from the offering will be
used to capitalize the Bank, lease facilities and provide working capital.
Basis of Presentation: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Organization Costs: Organization costs represent incorporation costs,
salaries, legal and accounting costs and other costs relating to the
organization. Management anticipates that organization costs will approximate
$46,000 through commencement of operations.
Income Taxes: The Company records income tax expense based on the amount of
taxes due on its tax return plus the change in deferred taxes computed based on
the future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities, using enacted tax rates.
Deferred Offering Costs: Deferred offering costs include legal, consulting and
accounting costs incurred in connection with the registration of the Company's
Common Stock. These costs will be charged against the stock proceeds or, if
the offering is not successful, charged to expense at that time.
NOTE 2 - NOTES PAYABLE RELATED PARTIES
Loans payable in the amount of $278,500 at 5% interest are outstanding to
members of the Board of Directors of the Company. Management intends to repay
the loans from the proceeds of the Common Stock offering and is required to
repay the loans on or before May 31, 1998.
(Continued)
F-7
<PAGE> 37
MERCANTILE BANK CORPORATION
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
July 21, 1997
NOTE 3 - LEASE COMMITMENT
The Company is currently in the process of negotiating a lease commitment for a
building located in downtown Grand Rapids for use as the Company's main office.
The terms of the lease are not yet finalized but management anticipates that
the initial term will be for 10 years at $150,000 per year with options to
extend for four successive five year periods. The lease also has an escalation
clause allowing for annual increases of the greater of 3% or the percentage
increase in the Consumer Price Index. The Company plans to make leasehold
improvements of approximately $650,000. The Company will be responsible for
all necessary utilities, etc.
NOTE 4 - DATA PROCESSING AGREEMENT
The Company is negotiating a contract with a data processing company to
outsource the Company's data processing. The terms of the contract are
anticipated to be for five years with continuing two year renewal periods. Data
processing services for the Company are expected to include Customer
Information Systems, Loan and Deposit processing, ACH processing, ATM
processing, Asset Liability Management software, Smart reports, etc.
NOTE 5 - INCOME TAXES
At July 21, 1997, the Company had approximately $28,000 of net operating loss
carryforwards. The tax benefit of these carryforwards ($9,500) has been offset
by a valuation allowance.
NOTE 6 - SUBSEQUENT EVENTS
On July 22, 1997, the Board of Directors of the Company adopted a 1997 Employee
Stock Option Plan (the "Plan"). The Board has authorized 130,000 shares for
use by the Plan. The option price will not be less than the fair market value
of the shares at the time of grant, except as granted to a 10% shareholder
where the option price will be equal to 110% of fair market price. The Board
has determined the option price to be $10 for those options granted prior to
the completion of the public offering of the Company. The duration of each
option may not exceed ten years from the date of grant, for 10% shareholders
the duration is five years. The Plan will terminate on July 1, 2002.
At the July 22, 1997 meeting, the Board granted a total of 45,000 options to
executive officers of the Company. These options have not yet been exercised.
F-8
<PAGE> 38
=======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. 2
Prospectus Summary..................... 3
Risk Factors........................... 5
Use of Proceeds........................ 8
Dividend Policy........................ 8
Capitalization......................... 9
Business............................... 9
Management............................. 12
Related Party Transactions............. 15
Principal Shareholders................. 16
Supervision and Regulation............. 17
Description of Capital Stock........... 23
Shares Eligible for Future Sale........ 26
Underwriting........................... 27
Legal Proceedings...................... 27
Legal Matters.......................... 27
Experts................................ 28
Additional Information................. 28
Index to Financial Statements.......... F-1
</TABLE>
------------------------
UNTIL , 1997 (90 DAYS AFTER THE EFFECTIVE DATE OF THE
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
=======================================================
=======================================================
1,300,000 SHARES
MERCANTILE BANK CORPORATION LOGO
COMMON STOCK
--------------------------
PROSPECTUS
--------------------------
RONEY & CO. LOGO
, 1997
=======================================================
<PAGE> 39
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The registrant's Articles of Incorporation provide that the registrant
shall indemnify its present and past directors, officers, and such other persons
as the Board of Directors may authorize, to the full extent permitted by law.
The registrant's Bylaws contain indemnification provisions concerning
third party actions as well as actions in the right of the registrant. The
Bylaws provide that the registrant shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the registrant) by
reason of the fact that he or she is or was a director or officer of the
registrant or is, or while serving as such a director or officer was, serving at
the request of the registrant as a director, officer, partner, trustee, employee
or agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, whether for profit or not, against expenses
(including attorney's fees), judgments, penalties, fees and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the registrant or its shareholders, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
With respect to derivative actions, the Bylaws provide that the
registrant shall indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the registrant to procure a judgment in its favor by reason of
the fact that he or she is or was a director or officer of the registrant, or is
or was serving at the request of the registrant as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorney's fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such judgment or suit if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the registrant or its shareholders and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person has been found liable to the registrant unless
and only to the extent that the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
The registrant's Articles of Incorporation provide that a director of
the registrant shall not be personally liable to the registrant or its
shareholders for monetary damages for breach of the director's fiduciary duty.
However, it does not eliminate or limit the liability of a director for any
breach of a duty, act or omission for which the elimination or limitation of
liability is not permitted by the MBCA, currently including, without limitation,
the following: (1) breach of the director's duty of loyalty to the registrant or
its shareholders; (2) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (3) illegal loans,
distributions of dividends or assets, or stock purchases as described in Section
551(1) of MBCA; and (4) transactions from which the director derived an improper
personal benefit.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses in connection with
the sale and distribution of the Common Stock being registered, other than
underwriting discounts and commissions. All amounts shown are estimates, except
the SEC registration fee and the NASD filing fee, and assume sale of 1,300,000
shares in the offering.
<TABLE>
<S> <C>
SEC registration fee...........................................$ 4,530.31
NASD filing fee................................................ 1,995.00
Printing and mailing expenses.................................. 43,000.00
Fees and expenses of counsel................................... 130,000.00
Accounting and related expenses................................ 40,000.00
Blue Sky fees and expenses (including counsel fees)............ 20,000.00
Registrar and Transfer Agent fees.............................. 3,500.00
Miscellaneous.................................................. 4,974.69
-----------
Total $248,000.00
===========
</TABLE>
II-1
<PAGE> 40
Item 26. Recent Sales of Unregistered Securities.
During the past several months, the registrant has borrowed
approximately $835,500 from members of the registrant's Board of Directors to
pay organizational and related expenses. To the extent that such transactions
would be deemed to involve the offer or sale of a security, the registrant would
claim an exemption under Rule 504 of Regulation D or Section 4(2) of the
Securities Act of 1933 for such transactions. In addition, the registrant sold
one share of its Common Stock to Gerald R. Johnson, Jr., the Chairman of the
Board and Chief Executive Officer of the registrant, for $10. The registrant
also claims an exemption for such sale pursuant to Rule 504 of Regulation D or
Section 4(2).
Item 27. Exhibits.
Exhibit No. Description
1 Form of Underwriting Agreement
3.1 Articles of Incorporation of Mercantile Bank Corporation (1)
3.2 Bylaws of Mercantile Bank Corporation (1)
4.1 Specimen Stock Certificate of Mercantile Bank Corporation
5 Opinion of Dickinson, Wright, Moon, Van Dusen & Freeman (1)
10.1 1997 Employee Stock Option Plan (1)
10.2 Lease Agreement (1)
10.3 Agreement between Fiserv Solutions, Inc. and Mercantile Bank
of West Michigan dated September 10, 1997
10.4 Standard Form of Agreement Between Mercantile Bank of West
Michigan and Visser Brothers Construction dated September 17,
1997
21 Subsidiaries of Mercantile Bank Corporation (1)
23.1 Consent of Dickinson, Wright, Moon, Van Dusen & Freeman
(included in opinion filed as Exhibit 5) (1)
23.2 Consent of Crowe, Chizek and Company LLP (1)
27 Financial Data Schedule (1)
- ------------------
(1) Previously filed
II-2
<PAGE> 41
Item 28. Undertakings.
The undersigned registrant hereby undertakes as follows:
(1) The registrant will provide to the underwriter at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against liabilities
arising under the Securities Act (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(3) The registrant will:
(i) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this Registration Statement as of the time the SEC
declared it effective; and
(ii) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-3
<PAGE> 42
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunder
duly authorized, in the City of Grand Rapids, State of Michigan, on September
30, 1997.
MERCANTILE BANK CORPORATION
By: /s/GERALD R. JOHNSON, JR.
-----------------------------------
Gerald R. Johnson, Jr., Chairman
of the Board and Chief Executive
Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment to Registration Statement was signed by the following persons in the
capacities indicated on September 30, 1997.
Signatures Title
---------- -----
/s/ PETER A. CORDES Director
------------------------------
Peter A. Cordes
/s/ C. JOHN GILL Director
------------------------------
C. John Gill
/s/ DAVID M. HECHT Director
------------------------------
David M. Hecht
/s/ GERALD R. JOHNSON, JR. Chairman of the Board, Chief Executive
------------------------------ Officer and Director (principal executive
Gerald R. Johnson, Jr. officer, principal financial officer and
principal accounting officer)
/s/ LAWRENCE W. LARSEN Director
------------------------------
Lawrence W. Larsen
/s/ CALVIN D. MURDOCK Director
------------------------------
Calvin D. Murdock
/s/ DALE J. VISSER Director
------------------------------
Dale J. Visser
/s/ ROBERT M. WYNALDA Director
------------------------------
Robert M. Wynalda
II-4
<PAGE> 43
MERCANTILE BANK CORPORATION
Amendment No. 1 to Registration Statement on Form SB-2
Exhibit Index
Exhibit No. Description
1 Form of Underwriting Agreement
3.1 Articles of Incorporation of Mercantile Bank Corporation (1)
3.2 Bylaws of Mercantile Bank Corporation (1)
4.1 Specimen Stock Certificate of Mercantile Bank Corporation
5 Opinion of Dickinson, Wright, Moon, Van Dusen & Freeman (1)
10.1 1997 Employee Stock Option Plan (1)
10.2 Lease Agreement (1)
10.3 Agreement between Fiserv Solutions, Inc. and Mercantile Bank of
West Michigan dated September 10, 1997
10.4 Standard Form of Agreement Between Mercantile Bank of West
Michigan and Visser Brothers Construction dated September 17,
1997
21 Subsidiaries of Mercantile Bank Corporation (1)
23.1 Consent of Dickinson, Wright, Moon, Van Dusen & Freeman
(included in opinion filed as Exhibit 5) (1)
23.2 Consent of Crowe, Chizek and Company LLP (1)
27 Financial Data Schedule (1)
- --------------
(1) Previously filed
<PAGE> 1
EXHIBIT 1
1,300,000 SHARES
MERCANTILE BANK CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
____________, 1997
Roney & Co., L.L.C.
One Griswold
Detroit, Michigan 48226
Dear Sirs:
Mercantile Bank Corporation, a Michigan corporation (the "Company"),
proposes to issue and sell 1,300,000 shares (the "Firm Shares") of its
authorized but unissued Common Stock (the "Common Stock") to Roney & Co.,
L.L.C., a Delaware limited liability company ("Roney & Co." or the
"Underwriter"). In addition, the Company proposes to grant to the Underwriter
an option to purchase up to an additional 195,000 shares (the "Optional
Shares") to cover over-allotments. The Firm Shares and the Optional Shares are
called, collectively, the "Shares."
1. SALE AND PURCHASE OF THE SHARES.
(a) On the basis of the representations, warranties and
agreements of the Company contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to issue and sell to
the Underwriter, and the Underwriter agrees to purchase, the Firm
Shares at a purchase price of $9.30 per Share, except as set forth in
Section 1(b) below.
(b) On the basis of the representations, warranties and
agreements of the Company contained in, and subject to the terms and
conditions of, this Agreement, the policies of the National
Association of Securities Dealers, Inc. (the "NASD"), and pursuant to
directions from the Company, the Underwriter will offer to sell to
each of the persons listed on Exhibit A (who may purchase alone or
with family members to the extent permitted by the Free-Riding and
Withholding Interpretation (the "Interpretation") under the Rules of
Fair Practice of the NASD) the number of Shares set forth opposite
their respective names on Exhibit A. To the extent such persons (alone
or with such family members) offer to buy such Shares, the Underwriter
agrees to purchase up to 328,500 of such Shares at a purchase price of
$9.85 per Share. The parties agree that the securities
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purchased and sold under this subparagraph shall constitute "issuer
directed securities" sold to the issuer's employees or directors or
other persons under the Interpretation.
(c) On the basis of the representations, warranties and
agreements of the Company contained in, and subject to the terms and
conditions of, this Agreement, the Company grants to the Underwriter
an option to purchase all or any part of the Optional Shares at a
price per Share of $9.30. The over-allotment option may be exercised
only to cover over-allotments in the sale of the Firm Shares by the
Underwriter and may be exercised in whole or in part at any time or
times on or before 12:00 noon, Detroit time, on the day before the
Firm Shares Closing Date (as defined in Section 2 below), and only
once at any time after that date and within 30 days after the
Effective Date (as defined in Section 4 below), in each case upon
written or transmitted facsimile notice, or verbal notice confirmed by
transmitted facsimile, written or telegraphic notice, by Roney & Co.
to the Company no later than 12:00 noon, Detroit time, on the day
before the Firm Shares Closing Date or at least three but not more
than five full business days before the Optional Shares Closing Date
(as defined in Section 2 below), as the case may be, setting forth the
number of Optional Shares to be purchased and the time and date (if
other than the Firm Shares Closing Date) of such purchase.
2. DELIVERY AND PAYMENT. Delivery by the Company of the Firm
Shares to Roney & Co. and payment of the purchase price by certified or
official bank check payable in Detroit Clearing House (next day) funds to the
Company, shall take place at the offices of Roney & Co., One Griswold, Detroit,
Michigan 48226, at 10:00 a.m., Detroit time, at such time and date, not later
than the third (or, if the Firm Shares are priced, as contemplated by Rule
15c6-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), after 4:30 p.m., Washington, D.C. time, the fourth) full business day
following the first date that any of the Shares are released by the Underwriter
for sale to the public, as Roney & Co. shall designate by at least 48 hours
prior notice to the Company (the "Firm Shares Closing Date"); provided,
however, that if the Prospectus (as defined in Section 4 below) is at any time
prior to the Firm Shares Closing Date recirculated to the public, the Firm
Shares Closing Date shall occur upon the later of the third or fourth, as the
case the may be, full business day following the first date that any of the
Shares are released by the Underwriter for sale to the public or the date that
is 48 hours after the date that the Prospectus has been so recirculated.
To the extent the option with respect to the Optional Shares
is exercised, delivery by the Company of the Optional Shares, and payment of
the purchase price by certified or official bank check payable in Detroit
Clearing House (next day) funds to the Company, shall take place at the offices
of Roney & Co. specified above at the time and on the date (which may be the
Firm Shares Closing Date) specified in the notice referred to in Section 1(c)
(such time and date of delivery and payment are called the "Optional Shares
Closing Date"). The Firm Shares Closing Date and the Optional Shares Closing
Date are called, individually, a "Closing Date" and, collectively, the "Closing
Dates."
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Certificates representing the Firm Shares shall be registered
in such names and shall be in such denominations as Roney & Co. shall request
at least two full business days before the Firm Shares Closing Date or, in the
case of the Optional Shares, on the day of notice of exercise of the option as
described in Section 1(c), and shall be made available to Roney & Co. for
checking and packaging, at such place as is designated by Roney & Co., at least
one full business day before the Closing Date.
3. PUBLIC OFFERING. The Company understands that the Underwriter
proposes to make a public offering of the Shares, as set forth in and pursuant
to the Prospectus, as soon after the Effective Date as Roney & Co. deems
advisable. The Company hereby confirms that the Underwriter and dealers have
been authorized to distribute each preliminary prospectus and are authorized to
distribute the Prospectus (as from time to time amended or supplemented).
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Underwriter and
agrees with the Underwriter as follows:
(a) The Company has carefully prepared in conformity with
the requirements of the Securities Act of 1933, as amended (the
"Securities Act") and the rules and regulations adopted by the
Securities and Exchange Commission (the "Commission") thereunder (the
"Rules"), a registration statement on Form SB-2 (No. 333-33081),
including a preliminary prospectus, and has filed with the Commission
the registration statement and such amendments thereof as may have
been required to the date of this Agreement. Copies of such
registration statement (including all amendments thereof) and of the
related preliminary prospectus have heretofore been delivered by the
Company to you. The term "preliminary prospectus" means any
preliminary prospectus (as defined in Rule 430 of the Rules) included
at any time as a part of the registration statement. The registration
statement as amended (including any supplemental registration
statement under Rule 462(b) or any amendment under Rule 462(c) of the
Rules) at the time and on the date it becomes effective (the
"Effective Date"), including the prospectus, financial statements,
schedules, exhibits, and all other documents incorporated by reference
therein or filed as a part thereof, is called the "Registration
Statement;" provided, however, that "Registration Statement" shall
also include all Rule 430A Information (as defined below) deemed to be
included in such Registration Statement at the time such Registration
Statement becomes effective as provided by Rule 430A of the Rules.
The term "Prospectus" means the Prospectus as filed with the
Commission pursuant to Rule 424(b) of the Rules or, if no filing
pursuant to Rule 424(b) of the Rules is required, means the form of
final prospectus included in the Registration Statement at the time
such Registration Statement becomes effective. The term "Rule 430A
Information" means information with respect to the Shares and the
offering thereof permitted to be omitted from the Registration
Statement when it becomes effective pursuant
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to Rule 430A of the Rules. Reference made herein to any preliminary
prospectus or to the Prospectus shall be deemed to refer to and
include any document attached as an exhibit thereto or incorporated by
reference therein, as of the date of such preliminary prospectus or
the Prospectus, as the case may be. The Company will not file any
amendment of the Registration Statement or supplement to the
Prospectus to which Roney & Co. shall reasonably object in writing
after being furnished with a copy thereof.
(b) Each preliminary prospectus, at the time of filing
thereof, contained all material statements which were required to be
stated therein in accordance with the Securities Act and the Rules,
and conformed in all material respects with the requirements of the
Securities Act and the Rules, and did not include any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
Commission has not issued any order suspending or preventing the use
of any preliminary prospectus. When the Registration Statement shall
become effective, when the Prospectus is first filed pursuant to Rule
424(b) of the Rules, when any post-effective amendment of the
Registration Statement shall become effective, when any supplement to
or pre-effective amendment of the Prospectus is filed with the
Commission and at each Closing Date, the Registration Statement and
the Prospectus (and any amendment thereof or supplement thereto) will
comply with the applicable provisions of the Securities Act and the
Exchange Act and the respective rules and regulations of the
Commission thereunder, and neither the Registration Statement nor the
Prospectus, nor any amendment thereof or supplement thereto, will
contain any untrue statement of a material fact or will omit to state
any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the
Company makes no representation or warranty as to the information
contained in the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto in reliance upon and in
conformity with information furnished in writing to the Company by the
Underwriter, specifically for use in connection with the preparation
thereof.
(c) All contracts and other documents required to be
filed as exhibits to the Registration Statement have been filed with
the Commission as exhibits to the Registration Statement.
(d) Crowe, Chizek & Company, LLP, whose report is filed
with the Commission as part of the Registration Statement, are, and
during the periods covered by their report were, independent public
accountants as required by the Securities Act and the Rules.
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(e) The Company and its subsidiary, Mercantile Bank of
West Michigan, a Michigan banking corporation (the "Bank"), have been
duly organized and are validly existing as a corporation or banking
corporation, as applicable, in good standing under the laws of the
State of Michigan. Neither the Company nor the Bank have any
properties or conduct any business outside of the State of Michigan
which would require either of them to be qualified as a foreign
corporation or bank, as the case may be, in any jurisdiction outside
of Michigan. Neither the Company nor the Bank has any directly or
indirectly held subsidiary other than the Bank. The Company has all
power, authority, authorizations, approvals, consents, orders,
licenses, certificates and permits needed to enter into, deliver and
perform this Agreement and to issue and sell the Shares.
(f) The application for permission to organize the Bank
(the "FIB Application") was approved by the Commissioner of the
Financial Institutions Bureau for the State of Michigan (the
"Commissioner") on August 29, 1997, pursuant to Order No.
BT-0612-97-05, subject to certain conditions specified in the Order
and supplemental correspondence from the Commissioner dated the same
date. The Order and supplemental correspondence from the Commissioner
are collectively referred to in this Agreement as the "FIB Order." All
conditions contained in the FIB Order have been satisfied, except
those conditions relating to paid-in capital of the Bank, maintenance
of capital ratios and valuation reserves, the Certificate of Paid-In
Capital and Surplus, and completion of the Commissioner's preopening
investigation. The application to the Federal Deposit Insurance
Corporation (the "FDIC") to become an insured depository institution
under the provisions of the Federal Deposit Insurance Act (the "FDIC
Application") was approved by order of the FDIC dated August 19, 1997
(the "FDIC Order"), subject to certain conditions specified in the
Order. All conditions contained in the FDIC Order required to be
satisfied before the date of this Agreement have been satisfied. The
Company's application to become a bank holding company and acquire all
issued capital stock of the Bank (the "Bank Holding Company
Application") under the Bank Holding Company Act of 1956, as amended,
was approved on ____________, 1997 (the "Federal Reserve Board
Approval"), subject to certain conditions specified in the Federal
Reserve Board Approval. All conditions in the Federal Reserve Board
Approval required to be satisfied before the date of this Agreement
have been satisfied. Each of the FIB Application, FDIC Application,
and Bank Holding Company Application, at the time of their respective
filings, contained all required information and such information was
complete and accurate in all material respects. Other than the
remaining conditions to be fulfilled under the FIB Order, FDIC Order
and the Federal Reserve Board Approval specified above, no
authorization, approval, consent, order, license, certificate or
permit of and from any federal, state, or local governmental or
regulatory official, body, or tribunal, is required for the Company or
the Bank to commence and conduct their respective businesses and own
their respective properties as described in the Prospectus, except
such authorizations,
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approvals, consents, orders, licenses, certificates, or permits as are
not material to the commencement or conduct of their respective
businesses or to the ownership of their respective properties.
(g) The financial statements of the Company and any
related notes thereto, included in the Registration Statement and the
Prospectus, present fairly the financial position of the Company as of
the date of such financial statements and for the period covered
thereby. Such statements and any related notes have been prepared in
accordance with generally accepted accounting principals applied on a
consistent basis and certified by the independent accountants named in
subsection 4(d) above. No other financial statements are required to
be included in the Prospectus or the Registration Statement.
(h) The Company owns adequate and enforceable rights to
use any patents, patent applications, trademarks, trademark
applications, service marks, copyrights, copyright applications and
other similar rights (collectively, "Intangibles") necessary for the
conduct of the material aspects of its business as described in the
Prospectus and the Company has not infringed, is infringing, or has
received any notice of infringement of, any Intangible of any other
person.
(i) The Company has a valid and enforceable leasehold
interest in the real property located at 216 North Division Avenue,
Grand Rapids, Michigan, which is as described in the Prospectus, and
is free and clear of all liens, encumbrances, claims, security
interests and defects.
(j) There are no litigation or governmental or other
proceedings or investigations pending before any court or before or by
any public body or board or threatened against the Company or the Bank
and to the best of the Company's knowledge, there is no reasonable
basis for any such litigation, proceedings or investigations, which
would have a material adverse effect on commencement or conduct of the
respective businesses of the Company or the Bank or the ownership of
their respective properties.
(k) The Company and Bank have filed all federal, state,
and local tax returns required to be filed by them and paid all taxes
shown due on such returns as well as all other material taxes,
assessments and governmental charges which have become due; no
material deficiency with respect to any such return has been assessed
or proposed.
(l) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
there has not been any material adverse change in the condition
(financial or other), business, properties or prospects of the
Company.
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(m) No default exists, and no event has occurred which
with notice or lapse of time, or both, would constitute a default, in
the due performance and observance of any material term, covenant or
condition, by the Company, the Bank or, to the best of the Company's
knowledge, any other party, of any lease, indenture, mortgage, note or
any other agreement or instrument to which the Company or the Bank is
a party or by which either of them or either of their businesses may
be bound or affected, except such defaults or events as are not
material to the commencement or conduct of their respective businesses
or ownership of their respective properties.
(n) Neither the Company nor the Bank is in violation of
any term or provision of the articles of incorporation or bylaws of
the Company or the Bank. Neither the Company nor the Bank is in
violation of, nor is either of them required to take any action to
avoid any material violation of, any franchise, license, permit,
judgment, decree, order, statute, rule or regulation.
(o) Neither the execution, delivery or performance of
this Agreement by the Company nor the consummation of the transactions
contemplated hereby (including, without limitation, the issuance and
sale by the Company of the Shares) will give rise to a right to
terminate or accelerate the due date of any payment due under, or
conflict with or result in the breach of any term or provision of, or
constitute a default (or an event which with notice or lapse of time,
or both, would constitute a default) under, or require any consent
under, or result in the execution or imposition of any lien, charge or
encumbrance upon any properties or assets of the Company or the Bank
pursuant to the terms of, any lease, indenture, mortgage, note or
other agreement or instrument to which the Company or the Bank is a
party or by which either of them or either of their businesses may be
bound or affected, or any franchise, license, permit, judgment,
decree, order, statute, rule or regulation or violate any provision of
the articles of incorporation or bylaws of the Company or the Bank,
except those which are immaterial in amount or effect.
(p) The Company has authorized capital stock as set forth
in the Prospectus. One share of Common Stock of the Company is issued
and outstanding, which will be redeemed at or promptly following the
Closing if permitted by applicable law. No shares of preferred stock
are issued and outstanding. The issuance, sale and delivery of the
Shares have been duly authorized by all necessary corporate action by
the Company and, when issued, sold and delivered against payment
therefor pursuant to this Agreement, will be duly and validly issued,
fully paid and nonassessable and none of them will have been issued in
violation of any preemptive or other right. Upon issuance, sale, and
delivery thereof against payment therefor pursuant to the subscription
agreement, all of the capital stock of the Bank will be duly
authorized and validly issued, fully paid and nonassessable and will
be owned by the Company, free and
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clear of all liens, encumbrances and security interests (subject to
the provisions of the Michigan Banking Code of 1969 (the "Banking
Code"), including, without limitation, Sections 77 and 201 of the
Banking Code). There is no outstanding option, warrant or other right
calling for the issuance of, and no commitment, plan or arrangement to
issue, any share of stock of the Company or the Bank or any security
convertible into or exchangeable for stock of the Company or the Bank,
except for stock options described in the Registration Statement (the
"Stock Options") under the 1997 Employee Stock Option Plan (the "Stock
Option Plan"). The Common Stock, the Shares and the Stock Options
conform to all statements in relation thereto contained in the
Registration Statement and the Prospectus.
(q) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
neither the Company nor the Bank has (1) issued any securities or
incurred any material liability or obligation, direct or contingent,
(2) entered into any material transaction, or (3) declared or paid any
dividend or made any distribution on any of their stock, except
liabilities, obligations, and transactions reasonably expected based
on the disclosures in the Prospectus, and redemption of one share of
Common Stock for $10 at or promptly following the Closing if permitted
by applicable law.
(r) This Agreement has been duly and validly authorized,
executed and delivered by the Company and is the legal, valid and
binding agreement and obligation of the Company.
(s) The Commission has not issued any order preventing or
suspending the use of any preliminary prospectus.
(t) Neither the Company, nor the Bank, nor, to the
Company's knowledge any director, officer, agent, employee or other
person associated with the Company or the Bank, acting on behalf of
the Company or the Bank, has used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating
to political activity; made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate
funds; violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(u) Neither the Company nor the Bank nor any affiliate of
either of them has taken, and they will not take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of the Common
Stock in order to facilitate the sale or resale of any of the Shares.
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(v) No transaction has occurred between or among the
Company or the Bank and any of their officers, directors, organizers
or the Company's shareholder or any affiliate or affiliates of any
such officer, director, organizer, or shareholder, that is required to
be described in and is not described in the Prospectus.
(w) The Company is not and will not after the offering be
an "investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as
amended.
(x) The Company has obtained from all of its executive
officers and directors their written agreement that (i) for a period
of 150 days from the date of the Effective Date, they will not offer
to sell, sell, transfer, contract to sell, or grant any option for the
sale of or otherwise dispose of, directly or indirectly, any shares of
Common Stock of the Company (or any securities convertible into or
exercisable for such shares of Common Stock), except for (1) the
exercise of Stock Options under the Stock Option Plan or (2) gifts of
Common Stock (or other securities) to a donee or donees who agree in
writing to be bound by this clause, and (ii) for a period of three
months from the date of the Effective Date, they will not sell,
transfer, assign, pledge, or hypothecate any shares of Common Stock
acquired under Paragraph l(b), above, except with respect to Gerald R.
Johnson, Jr. who may resell one share of Common Stock to the Company.
5. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligation
of the Underwriter to purchase the Shares shall be subject to the accuracy of
the representations and warranties of the Company in this Agreement as of the
date of this Agreement and as of the Firm Shares Closing Date or Optional
Shares Closing Date, as the case may be, to the accuracy of the statements of
Company officers made pursuant to the provisions of this Agreement, to the
performance by the Company of its obligations under this Agreement, and to the
following additional terms and conditions:
(a) The Registration Statement shall have become
effective not later than 5:00 P.M., Detroit time, on the date of this
Agreement or on such later date and time as shall be consented to in
writing by Roney & Co.; if the filing of the Prospectus, or any
supplement thereto, is required pursuant to Rule 424(b) of the Rules,
the Prospectus shall have been filed in the manner and within the time
period required by Rule 424(b) of the Rules; at each Closing Date, if
any, no stop order shall have been issued or proceedings therefor
initiated or threatened by the Commission; and any request of the
Commission for inclusion of additional information in the Registration
Statement, or otherwise, shall have been complied with to the
reasonable satisfaction of Roney & Co.
(b) At each Closing Date, Roney & Co. shall have received
the favorable opinion of Dickinson, Wright, Moon, Van Dusen & Freeman,
counsel for the Company, dated the Firm Shares Closing Date or the
Optional Shares
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Closing Date, as the case may be, addressed to the Underwriter and in
form and scope reasonably satisfactory to counsel for Roney & Co. to
the effect that:
(i) Each of the Company and the Bank (A) is a
corporation or banking corporation, as applicable, existing
and in good standing under the laws of the State of Michigan
and (B) is not required to be qualified to do business in any
jurisdiction outside Michigan.
(ii) Each of the Company and the Bank has full
corporate power and authority and all material authorizations,
approvals, orders, licenses, certificates and permits of and
from all governmental bank regulatory officials and bodies
necessary to own its properties and to commence and conduct
its business as described in the Registration Statement and
Prospectus, including, without limitation, the FIB Order, the
FDIC Order and the Federal Reserve Board Approval, subject to
the fulfillment of the conditions with respect to the FIB
Order, the FDIC Order and the Federal Reserve Board Approval
all as described in Section 4(f) above, except for such
authorizations, approvals, orders, licenses, certificates and
permits as are not material to the ownership of their
properties or commencement or conduct of their businesses;
(iii) The Company has authorized capital stock as
set forth in the Prospectus and, prior to the Closing, had one
share of Common Stock issued and outstanding; the Shares have
been duly and validly authorized and issued and upon receipt
by the Company of payment therefor in accordance with the
terms of this Agreement will be fully paid and nonassessable
and are not and will not be subject to, preemptive rights; the
Shares and the other capital stock and Stock Options of the
Company conform in all material respects to the descriptions
thereof contained in the Registration Statement and the
Prospectus;
(iv) To such counsel's knowledge, after due
inquiry, the Company has no directly or indirectly held
subsidiary other than the Bank;
(v) When issued, sold, and delivered against
payment therefor in accordance with the terms of the
subscription agreement, the Company will be the registered
holder of all of the outstanding capital stock of the Bank,
and all such shares of stock so held will be validly issued
and outstanding, fully paid and nonassessable and will be
owned free and clear of any liens, encumbrances or other
claims or restrictions whatsoever, subject to the provisions
of the Banking Code, including, without limitation, Sections
77 and 201 of the Banking Code;
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(vi) the certificates evidencing the Shares are in
the form approved by the Board of Directors of the Company,
comply with the bylaws and the articles of incorporation of
the Company, comply as to form and in all other material
respects with applicable legal requirements;
(vii) this Agreement has been duly and validly
authorized, executed and delivered by the Company, and is the
legal, valid and binding agreement and obligation of the
Company enforceable in accordance with its terms, except (a)
as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating
to or affecting enforcement of creditors' rights or by general
equity principles (including requirements of reasonableness
and good faith in the exercise of rights and remedies),
whether applied by a court of equity or a court of law in an
action at law or in equity, or by the discretionary nature of
specific performance, injunctive relief, and other equitable
remedies, including the appointment of a receiver, and (b),
with respect to provisions relating to indemnification and
contribution, to the extent they are held by a court of
competent jurisdiction to be void or unenforceable as against
public policy or limited by applicable laws or the policies
embodied in them;
(viii) the Company is conveying to the Underwriter
good and valid title to the Shares that are issued in its
name, free and clear of any adverse claims, except to the
extent the Underwriter has notice of any adverse claim;
(ix) to the best of such counsel's knowledge,
after due inquiry, there are (A) no contracts or other
documents which are required to be filed as exhibits to the
Registration Statement other than those filed as exhibits
thereto, (B) no legal or governmental proceedings pending or
threatened against the Company or the Bank, and (C) no
statutes or regulations applicable to the Company or the Bank,
or certificates, permits, grants or other consents, approvals,
orders, licenses or authorizations from regulatory officials
or bodies, which are required to be obtained or maintained by
the Company or the Bank and which are of a character required
to be disclosed in the Registration Statement and Prospectus
which have not been so disclosed;
(x) the statements in the Registration Statement
and the Prospectus, insofar as they are descriptions of
corporate documents, stock option plans, contracts, or
agreements or descriptions of laws, regulations, or regulatory
requirements, or refer to compliance with law or to statements
of law or legal conclusions, are correct in all material
respects;
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(xi) to the best of such counsel's knowledge,
after due inquiry, the execution, delivery and performance of
this Agreement, the consummation of the transactions herein
contemplated and the compliance with the terms and provisions
hereof by the Company will not give rise to a right to
terminate or accelerate the due date of any payment due under,
or conflict with or result in a breach of any of the terms or
provisions of, or constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a
default) under, or require any consent under, or result in the
execution or imposition of any lien, charge or encumbrance
upon any properties or assets of the Company or the Bank
pursuant to the terms of, any lease, indenture, mortgage, note
or other agreement or instrument to which the Company or the
Bank is a party or by which either of them or either of their
properties or businesses is or may be bound or affected, nor
will such action result in any violation of the provisions of
the articles of incorporation or bylaws of the Company or the
Bank or any statute or any order, rule, or regulation
applicable to the Company or the Bank of any court or any
federal, state, local or other regulatory authority or other
governmental body, the effect of which, in any such case,
would be expected to be materially adverse to the Company or
the Bank;
(xii) to the best of such counsel's knowledge,
after due inquiry, no consent, approval, authorization or
order of any court or governmental agency or body, domestic or
foreign, is required to be obtained by the Company in
connection with the execution and delivery of this Agreement
or the sale of the Shares to the Underwriter as contemplated
by this Agreement, except those which have been obtained;
(xiii) to the best of such counsel's knowledge,
after due inquiry, (A) neither the Company nor the Bank is in
breach of, or in default (and no event has occurred which,
with notice or lapse of time, or both, would constitute a
default) under, any lease, indenture, mortgage, note, or other
agreement or instrument to which the Company or the Bank, as
the case may be, is a party; or (B) neither the Company nor
the Bank is in violation of any term or provision of either of
their articles of incorporation or bylaws, or of any
franchise, license, grant, permit, judgment, decree, order,
statute, rule or regulation; and (C) neither the Company nor
the Bank has received any notice of conflict with the asserted
rights of others in respect of Intangibles necessary for the
commencement or conduct of its business, the effect of which,
in any such case, would be expected to be materially adverse
to the Company or the Bank;
(xiv) the Registration Statement and the Prospectus
and any amendments or supplements thereto (other than the
financial statements as to which no opinion need be rendered)
comply as to form with the
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requirements of the Securities Act and the Rules in all
material respects; and
(xv) the Registration Statement is effective under
the Securities Act, and, to the best of such counsel's
knowledge, after due inquiry, no proceedings for a stop order
are pending or threatened under the Securities Act.
In rendering the foregoing opinion, such counsel may rely upon
certificates of public officials (as to matters of fact and law) and
officers of the Company (as to matters of fact), and include
qualifications in its opinion as are reasonably acceptable to Roney &
Co. Copies of all such certificates shall be furnished to counsel to
Roney & Co. on the Closing Date.
In addition, such counsel shall state that they have
participated in conferences with officers of the Company and a
representative of the Underwriter at which the contents of the
Registration Statement and Prospectus and related matters were
discussed and although such counsel did not independently verify the
accuracy or completeness of the statements made in the Registration
Statement and Prospectus and does not assume any responsibility for
the accuracy or completeness of the statements in the Registration
Statement and Prospectus, on the basis of the foregoing, nothing has
come to the attention of such counsel that would lead them to believe
that the Registration Statement or Prospectus, as amended or
supplemented, if amended or supplemented, contains any untrue
statement of a material fact or omits a material fact required to be
stated therein or necessary to make the statements therein not
misleading; except that such statement may exclude financial
statements, financial data, and statistical information included in
the Registration Statement and Prospectus.
(c) On or prior to each Closing Date, Roney & Co. shall
have been furnished such documents, certificates and opinions as they
may reasonably require for the purpose of enabling them to review the
matters referred to in subsection (b) of this Section 5, and in order
to evidence the accuracy, completeness or satisfaction of the
representations, warranties or conditions herein contained.
(d) Prior to each Closing Date, (i) there shall have been
no material adverse change in the condition or prospects, financial or
otherwise, of the Company or the Bank; (ii) there shall have been no
material transaction, not in the ordinary course of business, entered
into by the Company or the Bank except as set forth in the
Registration Statement and Prospectus, other than transactions
referred to or contemplated therein or to which Roney & Co. has given
its written consent; (iii) neither the Company nor the Bank shall be
in default (nor shall an event have occurred which, with notice or
lapse of time, or both, would constitute a default) under any
provision of any material agreement, understanding or
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<PAGE> 14
instrument relating to any outstanding indebtedness that is material
in amount; (iv) no action, suit or proceeding, at law or in equity,
shall be pending or threatened against the Company or the Bank before
or by any court or Federal, state or other commission, board or other
administrative agency having jurisdiction over the Company or the
Bank, as the case may be, which is expected to have a material adverse
effect on the Company or the Bank; and (v) no stop order shall have
been issued under the Securities Act and no proceedings therefor shall
have been initiated or be threatened by the Commission.
(e) At each Closing Date, Roney & Co. shall have received
a certificate signed by the Chairman of the Board, and the President
or Secretary of the Company dated the Firm Shares Closing Date or
Optional Shares Closing Date, as the case may be, to the effect that
the conditions set forth in subsection (d) above have been satisfied
and as to the accuracy, as of the Firm Shares Closing Date or the
Optional Shares Closing Date, as the case may be, of the
representations and warranties of the Company set forth in Section 4
hereof.
(f) At or prior to each Closing Date, Roney & Co. shall
have received a "blue sky" memorandum of Dickinson, Wright, Moon, Van
Dusen & Freeman, counsel for the Company, addressed to Roney & Co. and
in form and scope reasonably satisfactory to Roney & Co., concerning
compliance with the blue sky or securities laws of the states listed
in Exhibit B attached to this Agreement.
(g) All proceedings taken in connection with the sale of
the Shares as herein contemplated shall be reasonably satisfactory in
form and substance to Roney & Co. and to counsel for Roney & Co., and
Roney & Co. shall have received from counsel for Roney & Co. a
favorable opinion, dated as of each Closing Date, with respect to such
of the matters set forth under subsections (b) (i), (iii), (vi),
(vii), and (xv) of this Section 5, and with respect to such other
related matters as Roney & Co. may reasonably require, if the failure
to receive a favorable opinion with respect to such other related
matters would cause Roney & Co. to deem it inadvisable to proceed with
the sale of the Shares.
(h) There shall have been duly tendered to Roney & Co.
certificates representing all the Shares agreed to be sold by the
Company on the Firm Shares Closing Date or the Optional Shares Closing
Date, as the case may be.
(i) No order suspending the sale of the Shares prior to
each Closing Date, in any jurisdiction listed in Exhibit B, shall have
been issued on the Firm Shares Closing Date or the Optional Shares
Closing Date, as the case may be, and no proceedings for that purpose
shall have been instituted or, to Roney & Co.'s knowledge or that of
the Company, shall be contemplated.
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<PAGE> 15
(j) The NASD, upon review of the terms of the public
offering of the Shares, shall not have objected to the Underwriter's
participation in the same.
If any condition to the Underwriter's obligations hereunder to
be fulfilled prior to or at the Firm Shares Closing Date or the Optional Shares
Closing Date, as the case may be, is not so fulfilled, Roney & Co. may
terminate this Agreement pursuant to Section 9(c) hereof or, if Roney & Co. so
elects, waive any such conditions which have not been fulfilled or extend the
time of their fulfillment.
6. COVENANTS.
The Company covenants and agrees that it will:
(a) Use its best efforts to cause the Registration
Statement to become effective and will notify Roney & Co.
immediately, and confirm the notice in writing, (i) when the
Registration Statement and any post-effective amendment thereto
becomes effective, (ii) of the issuance by the Commission of any stop
order or of the initiation, or the threatening, of any proceedings for
that purpose and (iii) of the receipt of any comments from the
Commission. The Company will make every reasonable effort to prevent
the issuance of a stop order, and, if the Commission shall enter a
stop order at any time, the Company will make every reasonable effort
to obtain the lifting of such order at the earliest possible moment.
(b) During the time when a prospectus is required to be
delivered under the Securities Act, comply so far as it is able with
all requirements imposed upon it by the Securities Act, as now and
hereafter amended, and by the Rules, as from time to time in force, so
far as necessary to permit the continuance of sales of or dealings in
the Shares. If at any time when a prospectus relating to the Shares
is required to be delivered under the Securities Act any event shall
have occurred as a result of which, in the reasonable opinion of
counsel for the Company or counsel for Roney & Co., the Registration
Statement or Prospectus as then amended or supplemented includes an
untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if it is necessary at any time to amend or
supplement the Registration Statement or Prospectus to comply with the
Securities Act, the Company will notify Roney & Co. promptly and
prepare and file with the Commission an appropriate amendment or
supplement in form satisfactory to Roney & Co. The cost of preparing,
filing and delivering copies of such amendment or supplement shall be
paid by the Company.
(c) Deliver to the Underwriter such number of copies of
each preliminary prospectus as may reasonably be requested by Roney &
Co. and, as
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<PAGE> 16
soon as the Registration Statement, or any amendment or supplement
thereto, becomes effective, deliver to the Underwriter three signed
copies of the Registration Statement, including exhibits, and all
post-effective amendments thereto and deliver to the Underwriter such
number of copies of the Prospectus, the Registration Statement and
supplements and amendments thereto, if any, without exhibits, as Roney
& Co. may reasonably request.
(d) Endeavor in good faith, in cooperation with Roney &
Co. and its counsel, at or prior to the time the Registration
Statement becomes effective, to qualify the Shares for offering and
sale under the securities laws relating to the offering or sale of the
Shares of the states listed in Exhibit B. In each jurisdiction where
such qualification shall be effected, the Company will, unless Roney &
Co. agrees that such action is not at the time necessary or advisable,
file and make such statements or reports at such times as are or may
reasonably be required by the laws of such jurisdiction. The Company
will advise Roney & Co. promptly of the suspension of the
qualification of the Shares for offering, sale or trading in any
jurisdiction, or any initiation or threat of any proceeding for such
purpose, and in the event of the issuance of any order suspending such
qualification, the Company, with the cooperation of Roney & Co., will
use all reasonable efforts to obtain the withdrawal thereof.
(e) Furnish its security holders as soon as practicable
an earnings statement (which need not be certified by independent
certified public accountants unless required by the Securities Act or
the Rules) covering a period of at least twelve months beginning after
the effective date of the Registration Statement, which shall satisfy
the provisions of Section 11(a) of the Securities Act and the Rules
thereunder.
(f) For a period of five years from the Effective Date,
furnish to its shareholders annual audited and quarterly unaudited
consolidated financial statements with respect to the Company
including balance sheets and income statements.
(g) For a period of five years from the Effective Date,
furnish to Roney & Co. the following:
(i) at the time they have been sent to
shareholders of the Company or filed with the Commission three
copies of each annual, quarterly, interim, or current
financial and other report or communication sent by the
Company to its shareholders or filed with the Commission;
(ii) as soon as practicable, three copies of every
press release and every material news item and article in
respect of the Company or the affairs of the Company which was
released by the Company;
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<PAGE> 17
(iii) all other information reasonably requested by
Roney & Co. with respect to the Company to comply with Rule
15c2-11 of the Rules and Section 4 of Schedule H of the NASD
By-Laws; and
(iv) such additional documents and information
with respect to the Company and its affairs as Roney & Co.
may from time to time reasonably request.
(h) Acquire all of the Bank's outstanding capital stock,
free and clear of all liens, encumbrances, or other claims or
restrictions whatsoever, for not less than $___________ from the
proceeds of the offering and, in all other material respects, apply
the net proceeds from the offering in the manner set forth under "Use
of Proceeds" in the Prospectus.
(i) Not file any amendment or supplement to the
Registration Statement or Prospectus after the effective date of the
Registration Statement to which Roney & Co. shall reasonably object in
writing after being furnished a copy thereof.
(j) Timely file with the Commission reports on Form SR
(if applicable) containing the information required by that Form in
accordance with the provisions of Rule 463 of the Regulation under the
Act.
(k) Comply with all registration, filing and reporting
requirements of the Securities Act or the Exchange Act, which may from
time to time be applicable to the Company.
(l) Cause the proper submission of the Certificate of
Paid-In Capital and Surplus, give advance written notice to the
Commissioner of the Bank's projected opening date, and in all other
respects use reasonable efforts to comply with the requirements of,
and satisfy the conditions of, the FIB Order, the FDIC Order and the
Federal Reserve Board Approval, which are required to be complied with
prior to the Bank commencing the business of banking; provided,
however, that it shall not be a breach of this Section 6(l) for the
Company or the Bank to fail to maintain any specified level of
capital, surplus, capital ratio, valuation reserve or financial or
operating performance after the Bank has commenced the business of
banking or to fail to satisfy any such requirement or condition if
such failure is waived or performance of such requirement or condition
is accepted as sufficient by the FIB, the FDIC, and/or the Federal
Reserve Board, as applicable.
(m) Pay, or reimburse if paid by the Underwriter, whether
or not the transactions contemplated hereby are consummated or this
Agreement is terminated, all costs and expenses incident to the
performance of the obligations of the Company under this Agreement,
including those relating to (1) the preparation, printing, filing and
delivery of the Registration Statement, including
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<PAGE> 18
all exhibits thereto, each preliminary prospectus, the
Prospectus, all amendments of and supplements to the Registration
Statement and the Prospectus, and the photocopying of the Underwriting
Agreement and related agreements including, without limitation, the
Dealer Agreement; (2) the issuance of the Shares and the preparation
and delivery of certificates for the Shares to the Underwriter; (3)
the registration or qualification of the Shares for offer and sale
under the securities or "blue sky" laws of the various jurisdictions
referred to in Exhibit B, including the fees and disbursements of
counsel in connection with such registration and qualification and the
preparation and printing of preliminary, supplemental, and final blue
sky memoranda; (4) the furnishing (including costs of shipping and
mailing) to the Underwriter of copies of each preliminary prospectus,
the Prospectus and all amendments of or supplements to the Prospectus,
and of the several documents required by this Section to be so
furnished; (5) the filing requirements and fees of the NASD in
connection with its review of the terms of the public offering and the
underwriting; (6) the furnishing (including costs of shipping and
mailing) of copies of all reports and information required by Section
6(g); (7) all transfer taxes, if any, with respect to the sale and
delivery of the Shares by the Company to the Underwriter; (8) the
inclusion of the Shares on the OTC Bulletin Board; and (9) the
Underwriter's out-of-pocket expenses, including without limitation,
road show expenses and legal fees of counsel to Roney & Co. (such
out-of-pocket expenses and legal fees payable by the Company shall not
exceed $20,000). Upon a successful completion of the offering, the
Underwriter will credit the out-of-pocket and legal fee reimbursement
described in Section 6(m)(9) against the underwriting discount.
(n) Not, without the prior written consent of Roney &
Co., sell, contract to sell or grant any option for the sale of or
otherwise dispose of, directly or indirectly, or register with the
Commission, any shares of Common Stock of the Company (or any
securities convertible into or exercisable for such shares of Common
Stock) within 150 days after the date of the Prospectus, except as
provided in this Agreement and except for grants and exercises of
Stock Options under the Stock Option Plan as described in the
Prospectus.
(o) For not less than 3 fiscal years after the Effective
Date, unless Roney & Co. shall otherwise consent in writing, (i)
timely file with the Commission all reports required by Section 15(d)
of the Exchange Act and not seek suspension of the duty to file such
reports, and (ii) not less frequently than annually prepare a proxy
statement and annual report which conform substantially to the
requirements of Commission Regulation 14A and distribute such proxy
statement and annual report to record and beneficial owners
substantially in the manner which would be required by Commission
Regulation 14A if applicable.
(p) Use its best efforts to cause itself and the Bank to
commence their businesses as described in the Prospectus not later
than December 31, 1997.
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7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter
within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act against any and all losses, claims, damages and
liabilities, joint or several (including any reasonable investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they may become subject under the Securities Act,
the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement or
the Prospectus or any amendment thereof or supplement thereto, or
arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that such indemnity shall not inure to the benefit of the
Underwriter (or any person controlling the Underwriter) on account of
any losses, claims, damages or liabilities arising from the sale of
the Shares in the public offering to any person by the Underwriter if
such untrue statement or omission or alleged untrue statement or
omission was made in such preliminary prospectus, the Registration
Statement or the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with information furnished in writing
to the Company by or on behalf of the Underwriter specifically for use
therein. The Company shall not be liable hereunder to the Underwriter
(or any controlling person thereof) to the extent that any loss,
claim, damage or other liability incurred by the Underwriter arises
from the Underwriter's fraudulent act or omission.
(b) The Underwriter agrees to indemnify and hold harmless
the Company, each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, each director of the Company and each officer of the
Company who signs the Registration Statement, to the same extent as
the foregoing indemnity from the Company to the Underwriter, but only
insofar as such losses, claims, damages or liabilities arise out of or
are based upon any untrue statement or omission or alleged untrue
statement or omission which was made in any preliminary prospectus,
the Registration Statement or the Prospectus, or any amendment thereof
or supplement thereto, in reliance upon and in conformity with
information furnished in writing to the Company by the Underwriter
specifically for use therein; provided, however, that the obligation
of the Underwriter to indemnify the Company (including any controlling
person, director or officer thereof) hereunder shall be limited to the
total price at which the Shares purchased by the Underwriter hereunder
were offered to the public. The Underwriter shall not be liable
19
<PAGE> 20
hereunder to the Company (including any controlling person, director
or officer thereof) to the extent that any loss, claim, damage or
other liability incurred by the Company arises from a fraudulent act
or omission by the Company.
(c) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party
in respect of which a claim is to be made against an indemnifying
party or parties under this Section, notify each such indemnifying
party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served, but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall
not relieve it from any liability that it may have to any indemnified
party otherwise than under this Section. In case any such action,
suit or proceeding shall be brought against any indemnified party and
it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in, and, to
the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election
so to assume the defense thereof and the approval by the indemnified
party of such counsel, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses, except as
provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the
defense thereof. The indemnified party shall have the right to employ
its counsel in any such action, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (1)
the employment of counsel by such indemnified party has been
authorized in writing by the indemnifying parties, (2) the indemnified
party shall have reasonably concluded that, because of the existence
of different or additional defenses available to the indemnified party
or of other reasons, there may be a conflict of interest between the
indemnifying parties and the indemnified party in the conduct of the
defense of such action (in which case the indemnifying parties shall
not have the right to direct the defense of such action on behalf of
the indemnified party) or that, under the circumstances, it is
otherwise appropriate, or (3) the indemnifying parties shall not have
employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of
which cases the fees and expenses of counsel shall be at the expense
of the indemnifying parties. An indemnifying party shall not be
liable for any settlement of any action, suit, proceeding or claims
effected without its written consent.
8. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 7(a) or 7(b) is due in accordance with its terms but for any reason is
held to be unavailable, the Company and the Underwriter shall contribute to the
aggregate losses, claims, damages and liabilities (including any
20
<PAGE> 21
investigation, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claims asserted, but after deducting any contribution received from other
persons), to which the Company and the Underwriter may be subject, in such
proportion so that the Underwriter is responsible for that portion represented
by the percentage that the underwriting discount appearing on the front cover
page of the Prospectus bears to the public offering price appearing thereon and
the Company is responsible for the balance; provided, however, that (a) in no
case shall the Underwriter be responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by the Underwriter
hereunder and (b) no person found guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section, each person, if any, who
controls the Underwriter within the meaning of the Securities Act or the
Exchange Act shall have the same rights to contribution as the Underwriter, and
each person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act, each officer and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to clauses (a) and (b) of this Section. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section,
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties from whom contribution may be
sought shall not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have hereunder or otherwise
than under this Section. No party shall be liable for contribution with
respect to any action, suit, proceeding or claim settled without its written
consent.
In any proceeding relating to the Registration Statement, any
preliminary prospectus, the Prospectus or any supplement thereto or amendment
thereof, each party against whom contribution may be sought under this Section
8 hereby consents to the jurisdiction of any court in Michigan, agrees that
process issuing from such court may be served upon him or it by any other
contributing party and consents to the service of such process and agrees that
any other contributing party may join him or it as an additional defendant in
any such proceeding in which such other contributing party is a party.
9. TERMINATION. This Agreement may be terminated by Roney & Co.
by notifying the Company at any time:
(a) before the earliest of (1) 11:00 a.m., Detroit time,
on the business day following the Effective Date, (2) the time of
release by Roney & Co. for publication of the first newspaper
advertisement with respect to the Shares and (3) the time when the
Shares are first generally offered by the Underwriter to dealers by
letter or telegram;
(b) at or before any Closing Date if, in the judgment of
Roney & Co., payment for and delivery of the Shares is rendered
impracticable or inadvisable
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<PAGE> 22
because (1) additional material governmental restrictions, not known
to be in force and effect when this Agreement is signed, shall have
been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York
Stock Exchange, on the American Stock Exchange or on the
over-the-counter market, or trading in securities generally shall have
been suspended on either such Exchange or on the over-the-counter
market or a general banking moratorium shall have been established by
federal, New York or Michigan authorities, (2) a war or other calamity
shall have occurred or shall have accelerated to such an extent as to
affect adversely the marketability of the Shares, (3) the Company or
the Bank shall have sustained a material loss by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or
malicious act, which, whether or not said loss shall have been
insured, will in Roney & Co.'s opinion, make it inadvisable to proceed
with the offering of the Shares, (4) the FIB Order, the FDIC Order, or
the Federal Reserve Board Approval shall have been withdrawn or
materially altered, or notice shall have been received to the effect
that any of such approvals will not be received, or, if received, will
be subject to conditions that the Company would not be able to fulfill
in a reasonable time in Roney & Co.'s reasonable opinion, (5) in Roney
& Co.'s reasonable opinion it is not probable that the Company and
Bank will be able to commence business before December 31, 1997, for
any reason, or (6) there shall have been such material change in the
condition, business operations or prospects of the Company or the
market for the Shares or similar securities as in Roney & Co.'s
judgment would make it inadvisable to proceed with the offering of the
Shares; or
(c) at or before any Closing Date, if any of the
conditions specified in Section 5 or any other agreements,
representations or warranties of the Company in this Agreement shall
not have been fulfilled when and as required by this Agreement.
If this Agreement is terminated pursuant to any of its provisions, except as
otherwise provided in this Agreement, the Company shall not be under any
liability to the Underwriter (other than for obligations assumed in Section 6
hereof), and the Underwriter shall not be under any liability to the Company;
provided, however, that if this Agreement is terminated by Roney & Co. because
of any failure, refusal or inability on the part of the Company to comply with
the terms or to fulfill any of the conditions of this Agreement, or for any
reasons provided in subparagraphs (b) (other than (b)(6)) and (c) above, the
Company will reimburse the Underwriter for all accountable out-of-pocket
expenses (including, without limitation, road show expenses and fees and
disbursements of counsel to Roney & Co.) up to a maximum of $40,000 (including
the $20,000 advance below) incurred by it in connection with the proposed
purchase and sale of the Shares or in contemplation of performing its
obligations hereunder. The Underwriter acknowledges receipt of a $20,000
advance from the Company. If this Agreement is terminated for any reason, the
Underwriter shall be entitled to retain such advance as reimbursement for its
accountable out-of-pocket expenses; provided, however, in the event that the
accountable out-of-
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<PAGE> 23
pocket expenses to be reimbursed under this paragraph are less than $20,000,
the Underwriter shall pay such difference to the Company. If this Agreement is
not terminated, the $20,000 shall be credited at closing against the
underwriting discount.
10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements contained in this Agreement shall be
deemed to be representations, warranties and agreements at the Closing Dates,
and such representations, warranties and agreements of the Company, including,
without limitation, the payment and reimbursement agreements contained in
Section 6 hereof and the indemnity and contribution agreements contained in
Sections 7 and 8 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Underwriter or any
controlling person and shall survive termination of this Agreement and/or
delivery of the Shares to and payment for the Shares by the Underwriter
pursuant to this Agreement. In addition, the covenants contained in Section 6
hereof, the agreements contained in this Section 10 and in Sections 7, 8 and 9
shall survive termination of this Agreement and/or delivery of the Shares to
and payment for the Shares by the Underwriter pursuant to this Agreement.
11. MISCELLANEOUS. This Agreement has been and is made for the
benefit of the Underwriter, the Company and their respective successors and
assigns, and, to the extent expressed herein, for the benefit of persons
controlling the Underwriter or the Company, and directors and certain officers
of the Company, and their respective successors and assigns, and no other
person, partnership, association or corporation shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include any purchaser of Shares from the Underwriter merely because of such
purchase.
If any action or proceeding shall be brought by the
Underwriter or the Company in order to enforce any right or remedy under this
Agreement, the Underwriter and the Company hereby consent to, and agree that
they will submit to, the jurisdiction of the courts of the State of Michigan
and of any Federal court sitting in the State of Michigan.
All notices and communications hereunder shall be in writing
and mailed or delivered or by telephone or telegraph, if subsequently confirmed
in writing, to the Underwriter, Roney & Co., at One Griswold, Detroit, Michigan
48226 (facsimile No. (313) 963-2303) (with a copy to Donald J. Kunz, Honigman
Miller Schwartz and Cohn, 2290 First National Building, Detroit, Michigan 48226
(facsimile No. (313) 962-0176)); and to the Company at 216 N. Division Avenue,
Grand Rapids, Michigan 49503, Attention: Gerald R. Johnson, Jr., Chairman of
the Board and Chief Executive Officer (facsimile No. (616) _________) (with a
copy to Jerome M. Schwartz, Dickinson, Wright, Moon, Van Dusen & Freeman, 500
Woodward Avenue, Suite 4000, Detroit, Michigan 48226 (facsimile No. (313)
223-3598)).
The laws of the State of Michigan shall govern this Agreement,
its construction, and the determination of any rights, duties or remedies of
the parties arising out of or relating to this Agreement. The parties
acknowledge that the United States District Court for the Eastern District of
Michigan or the Michigan Circuit Court for the County of Wayne shall have
exclusive
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<PAGE> 24
jurisdiction over any case or controversy arising out of or relating to this
Agreement and that all litigation arising out of or relating to this Agreement
shall be commenced in the United States District Court for the Eastern District
of Michigan or in the Wayne County (Michigan) Circuit Court.
Please confirm that the foregoing correctly sets forth the agreement
between us.
Very truly yours,
MERCANTILE BANK CORPORATION
By:
-------------------------------------
Gerald R. Johnson, Jr.
Its: Chief Executive Officer
Confirmed by Roney & Co.,
RONEY & CO., L.L.C.
By:
---------------------------------
John C. Donnelly
Director, Corporate Finance
24
<PAGE> 25
EXHIBIT A
<TABLE>
<CAPTION>
Number Relationship
of of Person to
Name Shares to the Company
---- ------ --------------
<S> <C> <C>
Peter A. Cordes 25,000 Director
C. John Gill 25,000 Director
David M. Hecht 50,000 Director
Gerald R. Johnson 50,000 Chairman of the Board,
Chief Executive Officer and
Director
Lawrence R. Larsen 13,500 Director
Calvin D. Murdock 15,000 Director
Bruce Visser 50,000 Organizer
Dale J. Visser 50,000 Director
Robert M. Wynalda 50,000 Director
</TABLE>
<PAGE> 26
EXHIBIT B
States
Florida
Indiana
Michigan
Ohio
<PAGE> 1
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
CERTIFICATE IS TRANSFERABLE
IN BOSTON AND NEW YORK CUSIP 587376 10 4
-------------------
MERCATILE BANK CORPORATION SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF MICHIGAN
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF MERCATILE BANK
CORPORATION
transferable only on the books of the Corporation in person or by attorney upon
surrender of this certificate properly endorsed. This certificate is issued by
the Corporation and accepted by the holder subject to all of the terms and
conditions contained in the Articles of Incorporation and By-Laws of the
Corporation and is not valid unless countersigned by the Transfer Agent.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
<TABLE>
<S> <C> <C>
FACSIMILE OF
NEED SIGNATURE
DATED:
COUNTERSIGNED AND REGISTERED
STATE STREET BANK AND TRUST COMPANY CHAIRMAN AND CHIEF EXECUTIVE OFFICER
(BOSTON) [CORPORATE SEAL OF MICHIGAN] FACSIMILE OF
TRANSFER AGENT AND REGISTRAR NEED SIGNATURE
AUTHORIZED OFFICER SECRETARY
</TABLE>
<PAGE> 2
MERCANTILE BANK CORPORATION
The Corporation will furnish to each shareholder upon request and
without charge a full statement of the designation, relative rights,
preferences and limitations of the shares of each class of stock of this
Corporation authorized to be issued, the designation, relative rights,
preferences, and limitations of each series thereof so far as the same have
been prescribed and the authority of the Board of Directors of this Corporation
to designate and prescribe the relative rights, preferences and limitations of
other series.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT- Custodian
------------- --------------
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right of survivorship Act
and not as tenants in common -----------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
----------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------------------
- -----------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
________________________________________________________________________shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
------------------------------
---------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
EXHIBIT 10.3
Agreement Number: BK97-19IT
---------
AGREEMENT
between
FISERV SOLUTIONS, INC.
d/b/a FISERV Brookfield
255 Fiserv Drive
Brookfield, WI 53045
and
Mercantile Bank of West Michigan
3531 Eastern Avenue N.E.
Grand Rapids, Michigan 49504
Date: September 10, 1997
-----------------------
[FISERV LOGO]
<PAGE> 2
AGREEMENT dated as of September 10, 1997 (the "Agreement") between
FISERV SOLUTIONS, INC., a Wisconsin corporation d/b/a Fiserv Brookfield
("Fiserv"), and Mercantile Bank of West Michigan ("Client").
Fiserv and Client hereby agree as follows:
1. Term. The initial term of this Agreement shall be three ( 3 )
years and, unless written notice of non-renewal is provided by either party at
least 180 days prior to expiration of the initial term or any renewal term,
this Agreement shall automatically renew for a renewal term of one ( 1 )
year. This Agreement shall commence on the earliest of the day the Fiserv
Services (as hereinafter defined) are first used by Client or December 31,
1997.
2. Services. (a) Services Generally. Fiserv, itself and through its
affiliates, agrees to provide Client, and Client agrees to obtain from Fiserv
the services (the "Services") and products (the "Products") (collectively the
"Fiserv Services") described in the attached Exhibits:
Exhibit A - Account Processing Services
Exhibit B - Performance Standards
The Exhibits set forth specific terms and conditions applicable to the
Services and/or Products, and where applicable, the Fiserv affiliate performing
the Services and/or Products. Client may also select additional services (the
"Additional Services") and products (the "Additional Products") (collectively
the "Fiserv Additional Services") from time to time by incorporating an
appropriate Exhibit H to this Agreement.
(b) Conversion Services. Fiserv will convert existing applicable Client
data files to the Fiserv Services. Those activities designed to transfer the
processing of Client's data from its present servicer to the Fiserv Services
are referred to as "Conversion Services". Client agrees to cooperate with
Fiserv in connection with Fiserv's provision of Conversion Services and to
provide all necessary information and assistance in order to convert the Client
data files. Client is responsible for all out-of-pocket expenses associated
with the Conversion Services. Fiserv will provide Conversion Services as
required in connection with Fiserv Services.
(c) Training Services. Fiserv shall provide training, training aids, user
manuals, and other documentation for Client's use to enable Client personnel to
become familiar with the Fiserv Services. If requested by Client, classroom
training in the use and operation of the Fiserv Services will be provided at a
training facility designated by Fiserv. All such training aids and manuals
remain the property of Fiserv.
(d) Network Support Services. At Client's request, Fiserv shall provide
Network Support Services (the "Network Support Services") consisting of
communication line monitoring and diagnostic equipment and support personnel to
discover, diagnose, repair, or report line problems to the appropriate
telephone company.
3. Communication Lines, Computer Terminals, and Related Equipment. (a)
Communications Lines and Related Equipment. Fiserv shall order, on Client's
behalf, the installation of appropriate data communication lines and
communications equipment at Fiserv's data center to facilitate Client's access
to the Fiserv Services. Client understands and agrees to pay such charges
relating to the installation and use of data communications lines and
communications equipment as set forth in the Exhibits. Except to the extent
Fiserv shall provide Network Support Services to Client, Fiserv shall not be
responsible for the reliability or continued availability of the telephone
lines and/or communications equipment used to access the Fiserv Services.
(b) Computer Terminals and Related Equipment. Client shall obtain for its
locations sufficient computer terminals and other equipment, approved by Fiserv
and compatible with the Fiserv Services, to transmit and receive data between
Client's locations and Fiserv's data center. Fiserv and Client may mutually
agree to change the type of computer terminal and equipment used by Client.
4. Fees for Fiserv Services. (a) General. Client agrees to pay Fiserv
the fees for the Fiserv Services specified in the Exhibits. Fees for Fiserv
Services may be increased from time to time as set forth in the applicable
Exhibit. Upon notification to and acceptance by Client, Fiserv may increase
its fees in excess of amounts listed in the Exhibits in the event that Fiserv
implements major system enhancements to comply with changes in law, government
regulation, or industry practices.
(b) Additional Charges. Fees for passthrough expenses, such as telephone,
microfiche, courier, and other charges incurred by Fiserv for goods or services
obtained by Fiserv on Client's behalf shall be billed to Client at cost plus
the applicable Fiserv service fee. Such passthrough expenses may be changed
from time to time upon notification of a fee change from a vendor/provider.
2
<PAGE> 3
(c) Taxes. Fiserv shall add to each invoice, and Client shall pay, any
sales, use, excise, value added, and other taxes and duties however designated
that are levied by any taxing authority relating to the Fiserv Services. In no
event shall Client be responsible for taxes based upon the net income of
Fiserv.
(d) Exclusions. The charges and fees set forth in the Exhibits do not
include, and Client shall be responsible for, furnishing transportation or
transmission of information between the Fiserv data center, Client's site or
sites, and any applicable clearing house, regulatory agency, or Federal Reserve
Bank.
(e) Network Support Services. Network Support Services shall be rendered
from Fiserv premises. Off-premise support will be provided upon Client's
request on an as available basis at the then-current Fiserv time and materials
rates, plus reasonable travel and living expenses.
(f) Payment Terms. Fees for Fiserv Services are due and payable monthly
upon receipt of invoice. Such invoice will contain:
(i) estimated fees for the following month applicable to each
Service and/or Product;
(ii) estimated out-of-pocket charges for the following month payable
by Fiserv for the account of Client; and
(iii) estimated sales or other taxes thereon (collectively the
"Estimated Fees").
Fiserv shall timely reconcile the Estimated Fees paid by Client for the
Fiserv Services for the month and the fees and charges actually due Fiserv
based on Client's actual use of Fiserv Services for such month and notify
Client of any difference. Fiserv shall either issue a credit to Client or
provide Client with an invoice for any additional fees or other charges owed.
Fiserv may change the amount of Estimated Fees billed at any time to reflect
appropriate changes in actual use of Fiserv Services. In the event any amounts
due remain unpaid beyond the 30th day after payment is due, Client shall pay a
late charge of 1.0% per month. Client agrees that it shall neither make nor
assert any right of deduction or set-off from invoices submitted by Fiserv for
Fiserv Services; provided that if Client should dispute any charges on an
invoice, that amount may be set aside without being considered in default until
resolved with Fiserv in a timely manner.
Client agrees to the Automated Clearing House ("ACH") method of payment of
invoices by the twenty-fifth (25th) of the month of the month of invoice.
5. Procedures for Use of Services. (a) Procedures. Client agrees to
comply with any applicable regulatory requirements and with reasonable
operating and access procedures for use of the Services established by Fiserv
and furnished from time to time to Client.
(b) Changes. Fiserv continually reviews and modifies the Fiserv systems
used in the delivery of the Services (the "Fiserv System") to improve service
and to comply with government regulations, if any, applicable to the data
utilized in providing the Services. Fiserv reserves the right to make changes
in the Services, including but not limited to operating procedures, the type of
equipment or software resident at, and the location of the Fiserv data center.
Fiserv will notify Client of any material change that affects Client's normal
operating procedures, reporting, or service costs prior to implementation of
such change.
6. Client Obligations. (a) Input. Client shall be solely responsible
for the input, transmission, or delivery to and from Fiserv of all information
and data required by Fiserv to perform the Services unless Client has retained
Fiserv to handle such responsibilities. The data shall be provided in a format
and manner approved by Fiserv. Client will provide at its own expense or
procure from Fiserv all equipment, computer software, communication lines, and
interface devices required to access the Fiserv System. If Client has elected
to provide such items itself, Fiserv shall provide Client with a list of
compatible equipment and software; Fiserv reserves the right to charge Client
its standard fee for recertification of the Fiserv System resulting from such
election for changes for equipment not on the certified list.
(b) Client Personnel. Client shall designate appropriate Client personnel
for training in the use of the Fiserv System, shall supply Fiserv with
reasonable access to Client's site during normal business hours for Conversion
Services and shall cooperate with Fiserv personnel in their performance of
Services, including Conversion Services.
(c) Use of Fiserv System. Client shall comply with any operating
instructions on the use of the Fiserv System provided by Fiserv, shall review
all reports furnished by Fiserv for accuracy, and shall work with Fiserv to
reconcile any out of balance conditions. Client shall determine and be
responsible for the authenticity and accuracy of all information and data
submitted to Fiserv.
(d) Forms, Supplies, Etc. Client shall furnish, or, if Fiserv agrees to
so furnish, reimburse Fiserv for, any special forms, supplies, microfiche, or
courier services applicable to the provision of Services.
3
<PAGE> 4
7. Ownership and Confidentiality. (a) Fiserv Information Client
acknowledges that all computer programs, including software modifications
developed by Fiserv for its proprietary software (subject to rights of Client
to Custom Programming of Client as mutually agreed upon from time to time),
software documentation and training aids, and all data, code, techniques,
algorithms, methods, logic, architecture, and designs, embodied or incorporated
therein, made available by Fiserv as part of the Services are CONFIDENTIAL
INFORMATION belonging exclusively to Fiserv or third parties from whom Fiserv
has secured a right of use. Client shall treat as confidential and will not
disclose or otherwise make available any of the Confidential Information, in
any form, to any person other than employees or authorized representatives of
Client who require such access or disclosure to perform their duties for Client
and have agreed to keep the Confidential Information confidential, consistent
with this Agreement. Client will not use the Confidential Information except
in connection with the Services under this Agreement. The Confidential
Information will be returned to Fiserv upon Fiserv's request or in the event of
termination of this Agreement. The term "Confidential Information" shall not
include information or data which was known to the receiving party prior to
delivery by one to the other, is or becomes publicly available or is disclosed
to the other party by a third party who is not under a duty of confidentiality.
(b) Client Information. Fiserv will treat Client Files as confidential
and will not disclose or otherwise make available Client Files to any person or
entity except as described in paragraph 8. Fiserv will also maintain the
confidentiality of all Client's business practices and procedures.
(c) Confidentiality of This Agreement. Fiserv and the Client agree to
keep confidential without disclosure to third parties other than authorized
representatives of Client to include, but not limited to, auditors,
accountants, attorneys, representations of the Security Exchange Commissions
and consultants, the prices, terms and conditions set forth in this Agreement.
(d) Securities filing exception. Notwithstanding any other provision of
this Agreement, Fiserv agrees that Client may file this Agreement with the
Securities and Exchange Commission ("SEC") and any state securities agencies,
and may include a brief summary of this Agreement in any registration statement
or report that it files with the SEC or any such agencies.
8. Regulatory Agencies, Regulations and Legal Requirements. (a) Client
Files. The records maintained and produced for Client in the performance of
this Agreement (the "Client Files") may be subject to examination by such
Federal, State, or other governmental regulatory agencies as may have
jurisdiction over the Client's business to the same extent as such records
would be subject if they were maintained by Client on its own premises. Client
agrees that Fiserv is authorized to give all reports, summaries, or information
contained in or derived from the data in the possession of Fiserv relating to
Client when formally requested to do so by an authorized regulatory or
government agency.
(b) Compliance with Regulatory Requirements. Client agrees to comply
with, and shall be responsible for complying with, applicable regulatory and
legal requirements, if applicable, including without limitation:
(i) submitting a copy of this Agreement to the appropriate
regulatory agencies prior to the date Services commence;
(ii) providing adequate notice to the appropriate regulatory
agencies of the termination of this Agreement or any material changes in
Services;
(iii) retaining records of its accounts as required by regulatory
authorities;
(iv) obtaining and maintaining, at its own expense, any Fidelity
Bond required by any regulatory or governmental agency; and
(v) maintaining, at its own expense, such casualty and business
interruption insurance coverage for loss of records from fire, disaster,
or other causes, and taking such precautions regarding the same, as may
be required by regulatory authorities.
9. Warranties. (a) Fiserv Warranties. Fiserv represents and warrants
that:
(i)(A) the Services will conform to the specifications as referenced
in the Information Technology, Inc. documentation for those modules set
forth in the Exhibit A - 1 copies of which will have been delivered to
Client as referenced in Section 2(c); (B) Fiserv will perform Client's
work accurately provided that Client supplies accurate data and follows
the procedures described in all Fiserv documentation, notices, and
advices; (C) Fiserv personnel will exercise due care in the provision of
Services; (D) the Fiserv System will comply in all material respects with
all applicable Federal and State regulations governing the Services; and
(E) the Fiserv System is or will be Year 2000 compliant.
4
<PAGE> 5
In the event of an error or other default caused by any Fiserv personnel,
systems, or equipment, Fiserv shall correct the data and/or correctly
reprocess the affected report at no additional cost to Client.
Notwithstanding any other provision of this Agreement, Client's exclusive
remedy pertaining to this Agreement and the Services rendered shall be
recomputation of affected accounts or items. Client agrees to supply
Fiserv with a written request for correction of the error within ninety
(90) days after Client's receipt of the work containing the error. Work
reprocessed due to errors in data supplied by Client, on Client's behalf
by a third party, or by Client's failure to follow reasonable procedures
set forth by Fiserv shall be billed to Client at the then current Fiserv
time and material rates.
(ii) it owns or has a license to furnish all equipment or software
comprising the Fiserv System. Fiserv shall indemnify Client and hold it
harmless against any claim or action that alleges that the use of the
Fiserv System infringes a United States patent, copyright, or other
proprietary right of a third party. Client agrees to notify Fiserv
promptly of any such claim provided that Fiserv acknowledges that such
claim is entitled to the indemnity and grants to Fiserv the sole right to
control the defense and disposition of all such claims. Client shall
provide Fiserv with reasonable cooperation and assistance in the defense
of any such claim.
THE WARRANTY STATED ABOVE IS A LIMITED WARRANTY AND IS THE ONLY WARRANTY MADE
BY FISERV. FISERV DOES NOT MAKE, AND CLIENT HEREBY EXPRESSLY WAIVES, ALL OTHER
WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. THE STATED EXPRESS WARRANTY IS IN LIEU OF ALL LIABILITIES
OR OBLIGATIONS OF FISERV FOR DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE
DELIVERY, USE, OR PERFORMANCE OF FISERV SERVICES.
(b) Client Warranties. Client represents and warrants that: (A) no
contractual obligations exist that would prevent Client from entering into this
Agreement; (B) it has complied with all applicable regulatory requirements; and
(C) Client has requisite authority to execute, deliver, and perform this
Agreement. Client will indemnify and hold harmless Fiserv, its officers,
directors, employees, and affiliates against any claims or actions arising out
of (x) the use by Client of the Fiserv System in a manner other than that
provided in this Agreement or in the operating instructions supplied by Fiserv
to Client and (y) any and all claims by third parties through Client arising
out of the performance and non-performance of services by Fiserv, provided that
the indemnity listed in clause (y) hereof shall not preclude Client's recovery
of direct damages pursuant to the terms and subject to the limitations of this
Agreement.
10. Limitation of Liability. (a) General. IN NO EVENT SHALL FISERV BE
LIABLE FOR LOSS OF GOODWILL, OR FOR SPECIAL, INDIRECT, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES ARISING FROM CLIENT'S USE OF FISERV'S SERVICES, OR
FISERV'S SUPPLY OF EQUIPMENT OR SOFTWARE, REGARDLESS OF WHETHER SUCH CLAIM
ARISES IN TORT OR IN CONTRACT. CLIENT MAY NOT ASSERT ANY CLAIM AGAINST FISERV
MORE THAN TWO (2) YEARS AFTER SUCH CLAIM ACCRUED. FISERV'S AGGREGATE LIABILITY
FOR ANY AND ALL CAUSES OF ACTION RELATING TO SERVICES SHALL BE LIMITED TO THE
TOTAL FEES PAID BY CLIENT TO FISERV FOR THE SERVICES RESULTING IN SUCH
LIABILITY IN THE TWELVE (12) MONTH PERIOD PRECEDING THE DATE THE CLAIM ACCRUED.
FISERV'S AGGREGATE LIABILITY FOR A DEFAULT RELATING TO EQUIPMENT OR SOFTWARE
SHALL BE LIMITED TO THE AMOUNT PAID FOR THE EQUIPMENT OR SOFTWARE.
(b) Lost Records. If Client's records or other data submitted for
processing are lost or damaged as a result of any failure by Fiserv, its
employees, or agents to exercise reasonable care to prevent such loss or
damage, the liability of Fiserv on account of such loss or damages shall not
exceed the reasonable cost of reproducing such records or data.
11. Disaster Recovery. (a) General. Fiserv maintains a disaster
recovery service plan (the "Disaster Recovery Service Plan") for each Service
provided by Fiserv. A "Disaster" shall mean any unplanned interruption of the
operations of or inaccessibility to the Fiserv data center in which Fiserv,
using reasonable judgment, requires relocation of processing to a primary
recovery location. Fiserv shall notify Client as soon as possible after it
deems a service outage to be a Disaster. Fiserv shall move the processing of
Client's standard on-line services to a primary recovery location as
expeditiously as possible and shall coordinate the cut-over to back-up
telecommunication facilities with the appropriate carriers. Client shall
maintain adequate records of all transactions during the period of service
interruption and shall have personnel available to assist Fiserv in
implementing the switchover to the primary recovery location. During a
Disaster, optional or on-request services shall be provided by Fiserv only to
the extent adequate capacity exists at the primary recovery
5
<PAGE> 6
location and only after stabilizing the provision of base on-line
services.
(b) Data Communications. Fiserv shall work with Client to establish a
plan for alternative data communications in the event of a Disaster.
(c) Annual Test. Fiserv shall test its Disaster Recovery Service Plan
annually. Client agrees to participate in and assist Fiserv with such test, if
requested by Fiserv. Test results will be made available to Client's
management, regulators, internal and external auditors, and Client's insurance
underwriters, upon request.
(d) Client Plans. Fiserv agrees to release the information necessary to
allow Client to develop a disaster contingency plan that operates in concert
with the Disaster Recovery Service Plan.
(e) No Warranty. Client understands and agrees that the Disaster Recovery
Service Plan is designed to minimize, but not eliminate, risks associated with
a Disaster affecting the Fiserv data center supplying the Services. Fiserv
does not warrant that service will be uninterrupted or error free in the event
of a Disaster. Client maintains responsibility for adopting a disaster
recovery plan relating to disasters affecting Client's facilities and for
securing business interruption insurance or other insurance as necessary for
Client's protection.
12. Termination. (a) Material Breach. Either party may terminate this
Agreement in the event of a material breach by the other party not cured
within ninety (90) days following written notice stating, with particularity
and in reasonable detail, the nature of the claimed breach.
(b) Failure to Pay. In the event any invoice remains unpaid by Client
thirty (30) days after its due date, or Client has deconverted any of its data
from the Fiserv System without prior written consent from Fiserv, Fiserv, at
its sole option, may terminate this Agreement and/or Client's access to and use
of the Fiserv Services. Any invoice submitted by Fiserv shall be deemed
correct unless Client provides written notice to Fiserv within fifteen (15)
days of the invoice date specifying the nature of the disagreement. Should
Client dispute any charges on an invoice, that amount may be set aside without
being considered in default until resolved with Fiserv in a timely manner.
Remedies contained in this Section 12 are cumulative and are in addition to the
other rights and remedies available to Fiserv under this Agreement or
otherwise.
(c) Defaults. If Client:
(i) defaults in the payment of any sum of money due hereunder;
(ii) breaches this Agreement in any material respect or otherwise
defaults in any material respect in the performance of any of its
obligations under this Agreement; or
(iii) commits an act of bankruptcy or becomes the subject of any
proceeding under the Bankruptcy Act or becomes insolvent or if any
substantial part of Client's property becomes subject to any levy,
seizure, assignment, application, or sale for or by any creditor or
governmental agency;
then, in any such event, Fiserv may, at its sole option, upon written notice,
terminate this Agreement and be entitled to recover from Client as liquidated
damages an amount equal to the present value of all payments remaining to be
made hereunder for the remaining term of the Initial Term or any renewal term
of this Agreement. For purposes of the preceding sentence, present value shall
be computed using the "prime" rate (as published in the Wall Street Journal) in
effect at the date of termination and "all payments remaining to be made" shall
be calculated based on the average bills for the three (3) months immediately
preceding the date of termination. Client agrees to reimburse Fiserv for any
expenses Fiserv may incur, including reasonable attorneys' fees, in taking any
of the foregoing actions. The remedies contained in this subsection are
cumulative and in addition to all other rights and remedies available to Fiserv
under this Agreement, by law or otherwise.
(d) Convenience. Client may terminate this Agreement during any term by
paying a termination fee based on the remaining unused term of this Agreement,
the amount to be determined by multiplying the Client's largest monthly invoice
for each of the Fiserv Services received by Client during the term by eighty
(80) percent times the remaining months of the term, plus any unamortized
conversion fees or third party costs existing on Fiserv's books on the date of
termination. Client understands and agrees that Fiserv losses incurred as a
result of early termination of the Agreement would be difficult or impossible
to calculate as of the effective date of termination since they will vary based
on, among other things, the number of clients using the Fiserv System on the
date the Agreement terminates. Accordingly, the amount set forth in the first
sentence of this subsection represents Client's agreement to pay and Fiserv's
agreement to accept as liquidated damages (and not as a penalty) such amount
for any such Client termination for convenience.
(e) Merger. In the event of a merger or reorganization between Client and
another organization in which Client is not the surviving organization and
where the
6
<PAGE> 7
other organization was not previously a user of Fiserv services similar to the
Services being provided hereunder, Fiserv will allow an early termination of
this Agreement upon the following terms and conditions:
(i) Written notice must be given three (3) months in advance,
specifying the termination date;
(ii) Fiserv may specify a deconversion date (not more than thirty
(30) days after the requested termination date), based on its previous
commitments and work loads; and
(iii) Fiserv may charge a termination fee in accordance to the
following schedule: (A) for the first and second years, the Client's
average monthly invoice excluding third party charges during that year,
for the Fiserv service terminated, times eighty (80%) percent times
twelve (12) months; (B) for the third year, the Client's average monthly
invoice excluding third party costs during the prior year, for the Fiserv
service terminated, times fifty (50%) percent times twelve (12) months.
(f) Return of Data Files. Upon expiration or termination of this
Agreement, Fiserv shall furnish to Client such copies of Client's data files
("Client Files") as Client may request in Fiserv's standard machine readable
format form along with such information to include applicable reports and
assistance as is reasonable and customary to enable Client to deconvert from
the Fiserv System, provided, however, that Client consents and agrees and
authorizes Fiserv to retain Client Files until (i) Fiserv has been paid in full
for all Services provided hereunder through the date such Client Files are
returned to Client, and has been paid any and all other amounts that are due or
will become due under this Agreement, including, but not limited to, data
communication lease obligations, if any; (ii) Fiserv has been paid its then
standard rates as outlined in Exhibit A - 2 - Paragraph 5 for providing the
services necessary to return such Client Files; (iii) if this Agreement is
being terminated, Fiserv has been paid any applicable termination fee pursuant
to subsection (c), (d), or (e) above; and (iv) Client has returned to Fiserv
all Fiserv Confidential Information if requested by Fiserv. Unless directed by
Client in writing to the contrary, Fiserv shall be permitted to destroy Client
Files any time after thirty (30) days from the final use of Client Files for
processing.
(g) Miscellaneous. Client understands and agrees that Client is
responsible for the deinstallation and return shipping of any Fiserv-owned
equipment located on Client's premises. Prior to termination of this
Agreement, Client shall promptly reimburse Fiserv for the cost of any
preprinted statements, checks, or any other forms that Fiserv has prepared
specifically for the Client and has on hand at the termination of this
Agreement.
13. Arbitration. (a) General. Except with respect to disputes arising
from a misappropriation or misuse of either party's proprietary rights, any
dispute or controversy arising out of this Agreement, or its interpretation,
shall be submitted to and resolved exclusively by arbitration under the rules
then prevailing of the American Arbitration Association, upon written notice of
demand for arbitration by the party seeking arbitration, setting forth the
specifics of the matter in controversy or the claim being made. The
arbitration shall be heard before an arbitrator mutually agreeable to Client
and Fiserv; provided, that if Client and Fiserv cannot agree on the choice of
an arbitrator within ten (10) days after the first party to seek arbitration
has given written notice, then the arbitration shall be heard by three
arbitrators, one to be chosen by Client, one to be chosen by Fiserv, and the
third to be chosen by those two arbitrators. A hearing on the merits of all
claims for which arbitration is sought by either party shall be commenced not
later than sixty (60) days from the date demand for arbitration is made by the
first party seeking arbitration. The arbitrator(s) must render a decision
within ten (10) days after the conclusion of such hearing. Any award in such
arbitration shall be final and binding upon the parties, and the judgment
thereon may be entered in any court of competent jurisdiction.
(b) Applicable Law. The arbitration shall be governed by the United
States Arbitration Act, 9 U.S.C. 1-16. The arbitrators shall apply the
substantive law of the State of Wisconsin, without reference to provisions
relating to conflict of laws. The arbitrators shall not have the power to
alter, modify, amend, add to, or subtract from any term or provision of this
Agreement, nor to rule upon or grant any extension, renewal, or continuance of
this Agreement. The arbitrators shall have the authority to grant any legal
remedy available had the parties submitted the dispute to a judicial
proceeding.
(c) Situs. If arbitration is required to resolve any disputes between the
parties, the proceedings to resolve the first such dispute shall be held in
Grand Rapids, Michigan, the proceedings to resolve the second such dispute
shall be held in Milwaukee, Wisconsin, and the proceedings to resolve any
subsequent disputes shall alternate between Milwaukee, Wisconsin and GRAND
RAPIDS, MICHIGAN.
14. Insurance. Fiserv carries the following types of insurance policies
written by a carrier or carriers rated "A" or above by Best:
(i) Comprehensive General Liability in an amount not less than $1
million per occurrence for
7
<PAGE> 8
claims arising out of bodily injury and property damage;
(ii) Commercial Crime covering employee dishonesty in an amount not
less than $5 million;
(iii) All-risk property coverage including Extra Expense and
Business Income coverage; and
(iv) Workers Compensation as mandated or allowed by the laws of the
state in which the services are being performed, including $500,000
coverage for Employer's Liability.
15. Audit. Fiserv employs an internal auditor responsible for ensuring
the integrity of its data processing environments and internal controls. In
addition, Fiserv provides for periodic independent audits of its operations.
Fiserv shall provide Client with a copy of the audit of the Fiserv data center
serving Client within a reasonable time after its completion and shall charge
each client a fee based on the pro rata cost of such audit. Fiserv shall also
provide a copy of such audit to the appropriate regulatory agencies, if any,
having jurisdiction over Fiserv's provision of Services hereunder.
16. General. (a) Binding Agreement. This Agreement is binding upon the
parties and their respective successors and permitted assigns. Neither this
Agreement nor any interest may be sold, assigned, transferred, pledged or
otherwise disposed of by Client, without the prior written consent of Fiserv.
Client agrees that Fiserv may subcontract any of the Services to be performed
under this Agreement. Any such subcontractors shall be required to comply with
all of the applicable terms and conditions of this Agreement.
(b) Entire Agreement. This Agreement, including its Exhibits, which are
expressly incorporated herein by reference, constitutes the complete and
exclusive statement of the agreement between the parties as to the subject
matter hereof and supersedes all previous agreements with respect thereto.
Modifications of this Agreement must be in writing and signed by duly
authorized representatives of the parties. Each party hereby acknowledges that
it has not entered into this Agreement in reliance upon any representation made
by the other party not embodied herein. In the event any of the provisions of
any Exhibit or Schedule hereto are in conflict with any of the provisions of
this Agreement, the terms and provisions of this Agreement shall control unless
the Exhibit or Schedule in question expressly provides that its terms and
provisions shall control.
(c) Severability. If any provision of this Agreement is held to be
unenforceable or invalid, the other provisions shall continue in full force
and effect.
(d) Governing Law. This Agreement will be governed by the substantive
laws of the State of Wisconsin, without reference to provisions relating to
conflict of laws.
By entering into this Agreement, Fiserv agrees that the Office of Thrift
Supervision, FDIC, or other regulatory agencies having authority over Client's
operations shall have the authority and responsibility provided to the
regulatory agencies pursuant to the Bank Service Corporation Act, 12 U.S.C.
1867(C) relating to services performed by contract or otherwise.
(e) Force Majeure. Neither party shall be responsible for delays or
failures in performance resulting from acts reasonably beyond the control of
that party.
(f) Notices. Any written notice required or permitted to be given
hereunder shall be given by: (i) Registered or Certified Mail, Return Receipt
Requested, postage prepaid; (ii) by confirmed facsimile; or (iii) by nationally
recognized courier service to the other party at the addresses listed on the
cover page of this Agreement or to such other address or person as a party may
designate in writing.
(g) No Waiver. The failure of either party to insist on strict
performance of any of the provisions hereunder shall not be construed as the
waiver of any subsequent default of a similar nature.
(h) Financial Statements. Fiserv shall provide Client and the appropriate
regulatory agencies who so require a copy of Fiserv, Inc.'s audited
consolidated financial statements.
(i) Prevailing Party. The prevailing party in any arbitration, suit, or
action brought against the other party to enforce the terms of this Agreement
or any rights or obligations hereunder, shall be entitled to receive its
reasonable costs, expenses, and attorneys' fees of bringing such arbitration,
suit, or action.
(j) Survival. All rights and obligations of the parties under this
Agreement that, by their nature, do not terminate with the expiration or
termination of this Agreement shall survive the expiration or termination of
this Agreement.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date indicated below.
<TABLE>
<S> <C>
For Client: For Fiserv
Mercantile Bank of West Michigan FISERV SOLUTIONS, INC.
- ---------------------------------------------------------
a Michigan Banking Corporation in Formation by d/b/a FISERV Brookfield
- --------------------------------------------------------- -------------------------
Mercantile Bank Corporation
- ---------------------------------------------------------
By: /s/ Robert B. Kaminski, Jr. By: /s/ David W. Serti
----------------------------------------------------- -------------------------------------------------------
Name: Robert B. Kaminski, Jr. Name: David W. Serti
--------------------------------------------------- -----------------------------------------------------
Title: Senior Vice President Title: Senior Vice President
-------------------------------------------------- ----------------------------------------------------
Date: 9/11/97 Date: 9/15/97
--------------------------------------------------- -----------------------------------------------------
</TABLE>
9
<PAGE> 10
Exhibit A
Account Processing Services
Client agrees with Fiserv as follows:
1. Services. Fiserv will provide Client the Account Processing Services
(the "Account Processing Services") specified in Exhibit A - 1 hereto.
2. Fees. Client shall pay Fiserv the fees and other charges for the
Account Processing Services specified in Exhibit A - 2 hereto.
3. Reconstruction of Error Conditions. Reconstruction of error
conditions attributable to Client or to third parties acting on Client's behalf
will be done at prevailing rates as set forth in Exhibit A - 2.
4. Annual Histories. Fiserv currently maintains annual histories, where
applicable, for each of its Clients. These histories can be used to
reconstruct Client files in an emergency. However, in order to permit prompt
and accurate reconstruction of accounts, Client agrees to retain at all times
and make available to Fiserv upon request, the most recent data printout(s)
received from Fiserv, together with copies or other accurate and retrievable
records of all transactions to be reflected on the next consecutive
printout(s).
5. Hours of Operation. The Account Processing Services will be available
for use by Client during standard Fiserv business hours, excluding company
holidays, as specified in Exhibit A - 3 hereto. The Account Processing
Services may be available during additional hours, during which time Client may
use the Services at its option and subject to additional charges.
6. Software Modifications. (a) Custom Programming. Fiserv will develop
a preliminary estimate of the anticipated man hours and costs plus or minus
fifty (50) percent associated with the implementation of said change. This
estimate will be returned to Client within four (4) weeks. Written acceptance
by Client to proceed with the project will be required prior to beginning the
final specifications. Fiserv will assign a projected completion date to the
project, provided no additional changes or modifications to the original
specifications occur once the project is in development.
(b) Regulatory Software Changes. Software changes required by government
bodies will be quoted in accordance with subsection (a) above and such costs
will be distributed to all data center clients on an equitable basis.
(c) Major Software Enhancements. All major software enhancements will be
subject to additional charges for processing and development in accordance with
Exhibit A - 2 hereto. Fiserv is under no obligation to upgrade its software
during the term of this Agreement.
7. Protection of Data. For the purpose of compliance with applicable
government regulations, Fiserv has developed an operations backup center, for
which Client has agreed to pay the charges indicated in Exhibit A - 2. Fiserv
tests the procedure periodically to ensure the data center's compliance.
Copies of transaction files are maintained by Fiserv off premises in secured
vaults.
8. Processing Priority. Fiserv does not subscribe to any processing
priority; all users receive equal processing consideration.
9. On-Line Security. Fiserv provides "on-line" security via utilization
of leased lines with poll/select protocol.
10. Forms and Supplies. Client assumes and will pay the charges for all
customized forms, supplies, and delivery charges.
1
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Exhibit A to the
Agreement to be executed by their duly authorized representatives as of the
date indicated below.
<TABLE>
<S> <C>
For Client: For Fiserv
Mercantile Bank of West Michigan FISERV SOLUTIONS, INC.
- ---------------------------------------------------------
a Michigan Banking Corporation in Formation by d/b/a FISERV Brookfield
- --------------------------------------------------------- -------------------------
Mercantile Bank Corporation
- ---------------------------------------------------------
By: /s/ Robert B. Kaminski, Jr. By: /s/ David W. Serti
----------------------------------------------------- -------------------------------------------------------
Name: Robert B. Kaminski, Jr. Name: David W. Serti
--------------------------------------------------- -----------------------------------------------------
Title: Senior Vice President Title: Senior Vice President
-------------------------------------------------- ----------------------------------------------------
Date: 9/11/97 Date: 9/15/97
--------------------------------------------------- -----------------------------------------------------
</TABLE>
2
<PAGE> 12
EXHIBIT A - 1
Account Processing Services
Fiserv will provide Client with the following Account Processing Services:
Fiserv shall provide data processing services for the Client with software
modules selected by the Client from Information Technology, Inc. This package
includes:
Customer Information System
Demand Deposit Accounts
Savings
Club Accounts
Loans - all types
Certificates of Deposit
General Ledger
ACH (receiving) processing
Express Exception Item Module
Online Loans Collection System
Remote Print
Optical Laser Retrieval ** (Report Archive only)
ATM Processing (Depending upon ATM Switch Selected)
Federal Call reporting
Currency Transaction System
Retirement Accounting
Automated Collateral Insurance Module
Automated Credit Reporting
Premier Reference System
Loan Origination Interface
Interactive Deposit Interface
Loan Custodial
ALM II
Safe Deposit Accounting (CIS Application)
Smart Reports (ADHOC Reports) (5 per month)
Premier II
3
<PAGE> 13
EXHIBIT A - 2
Account Processing Services Fees
Fiserv will provide Client the following Account Processing Services at the
fees and prices indicated:
Client agrees to pay Fiserv for the services rendered by Fiserv as identified
in Exhibit A-1 pursuant to this agreement and in accordance with the rates
outlined in this Schedule.
1. Charges for Services
A. Monthly Processing Fees are based upon the actual number of open and
closed application accounts.
B. The monthly processing fee for services as described in Exhibit A-1
will be as follows:
<TABLE>
<CAPTION>
Number of Open and Closed Cost Per
Loan and Deposit Accounts Account
------------------------- --------
<S> <C>
0 - 4,000 $.85
4,000 - 8,000 $.80
8,000 - 12,000 $.70
12,000 and over $.65
</TABLE>
C. The minimum monthly fees for services as described in Exhibit A-1 are as
follows:
Month 1 - 6 $ 750
Months 7 - 12 $1,500
Months 13 - 24 $2,000
Months 25 & beyond $2,500
D. ACH Charges - $.05 per transaction
E. ATM Charges - $.05 per Transaction ($500/month minimum)
F. Smart Reports in excess of amount stated in Exhibit A-1 - $50.00 each
G. PCBanc and ExecuBanc require the installation of dedicated communication
servers to provide a secure path to the host system for your customers.
This is not included in the above monthly cost.
H. There will be no price increases for the first two years of service.
Any price increases beyond year two will be limited to CPI.
I. Unless specifically provided for all costs incurred for all third
party services, such as, but not limited to, forms, supplies, report
delivery, interface fees, and PC software and maintenance fees, shall
be in addition to the Monthly Processing Fees and shall be paid by
Client, either directly to respective third party service provider(s)
or via reimbursement to Fiserv for those third party services billed to
Fiserv on Client's behalf.
4
<PAGE> 14
EXHIBIT A - 2
2. Charges for Implementation of System
<TABLE>
<S> <C> <C> <C>
A. Product Definition
Deposits $700/day 5 days $ 3,500
Loans $700/day 4 days 2,800
General Ledger $700/day 1 day 700
Product Specifications
Review/Revision $700/day 4 days 2,800
Post-opening $700/day 5 days/2 from Fiserv onsite 7,000
------------------------------------------------------------------------------
Total Fiserv Costs $16,800
</TABLE>
B. Payment of the above charges can be spread over the initial term of
the data processing agreement (5 years) with 50% paid at conversion.
C. Travel and out-of-pocket expenses of bank employees and Fiserv
personnel will be the responsibility of the Client.
3. Training Charges
<TABLE>
<S> <C> <C>
A. FIS1 $1,000 (up to 4 people) One Week - Fiserv/Atlanta
FIS2 $1,000 (up to 4 people) One Week - Fiserv/Atlanta
ITI preconversion training/Q&A $3,500 onsite 5 days optional
</TABLE>
B. Training for additional bank personnel at Fiserv/Atlanta will be $350.00
per attendee, per week
4. Data Communication Charges
A. Fiserv will provide data communication for $600 per month based upon 6
online devices connected to local area network.
Monthly cost includes:
Frame Relay Service: Unit $ Monthly
-------------------- ------ -------
AT&T Frame Relay Access $282
Telco Installation
Network Support Services:
-------------------------
19 Terminals $22 418
Equipment:
----------
Router Maintenance $30 30
-------
TOTAL: $730
------
5
<PAGE> 15
EXHIBIT A - 2
B. One time cost for circuit installation, data communication equipment
and equipment installation will be $6,270.
One time charges include:
Frame Relay Service: Unit $ One Time
-------------------- ------ --------
AT&T Frame Relay Access $ 525
Telco Installation
Network Support Services:
-------------------------
19 Terminals 2,500
Equipment:
----------
1 CISCO 1602 Router $2,995 2,995
includes CSU
Router Installation $ 250 250
--------
TOTAL: $6,270
------
C. Included in A & B above are:
Main Office Link
56 KB Port
32 KB PVC to Data Center
Frame Relay TCP/IP (ITI System)
D. Not included in A & B above are:
LAN Hubs
Inside LAN Wiring
E. Additional software to be purchased by Client:
DCA Open Transport systems and TCP/IP Software
F. Additional Information
1) The addition of any of the four systems listed below may
alter the Data Communication configuration shown in A & B above and
therefore the monthly and/or one time cost.
a. Voice Response
b. ExecuBanc
c. PCBanc
d. ATM
2) Any changes in the data communication configuration as shown
in A & B above could alter the monthly and/or one time costs.
3) Third Party charges for frame relay service and maintenance
are subject to change.
4) Third Party interfaces may require DCA terminal emulation.
6
<PAGE> 16
EXHIBIT A - 2
4. Remote Printing System (Estimated Cost)
<TABLE>
<CAPTION>
QTY. DESCRIPTION EACH
---- ----------- ------
<S> <C> <C>
1 Depcon Software $ 1,500
1 Remote Print PC; DTK Pentium 100, 1GB HD, 16 MBRam, 1.44 Floppy 1,868
Drive, PCI VGA, Keyboard, Mouse Kit, DOS, Windows Workgroup, 14"
SVGA Monitor, Surge Strip, Ethernet NIC
1 Infoconnect with Open Transport Module 595
1 HP Laser Jet 5 SI, 24 PPM, 600 DPI, 12 MB Ram, (1 Yr. Onsite 3,510
Warranty)
1 Duplex Accessory 525
1 2000 Sheet Input Tray for HP Laser Jet 5 SI 1,134
1 2000 Sheet Output Tray and Paper Hander 1,867
1 Depcon Onsite Installation, Configuration, Testing, Training 5,000
-------
TOTAL $15,999
</TABLE>
Note: Annual Maintenance 12-14% of List
5. DECONVERSION CHARGES
Fiserv will charge deconversion fees in accordance with the following
schedule.
<TABLE>
<CAPTION>
DECONVERSION TASK COST BASIS
----------------- ----------
<S> <C>
TEST FILES .0175/ACCT/$200MIN/PER TAPE
LIVE DECONVERSION FILES .0175/ACCT/$200MIN/PER TAPE
DECONV REPORTS - TEST $300 PER FILE
DECONV REPORTS - LIVE $300 PER FILE
SV MONTH-TO DATE-HISTORY .01/ACCT/$100 MIN.
SV MTD HISTORY COPIES $50 PER COPY
SV ANNUAL HISTORY REPORTS .01/ACCT/$100 MIN.
SV TRIAL BALANCE REPORT .01/ACCT/$100 MIN.
SV TRIAL COPIES $50 PER COPY
SV STATEMENTS 3 HRS. PROG.+.05/ACCT ($75 MIN)
SV NEW ACCOUNT REPORT $75 + $50 PER COPY
SV CLOSED ACCOUNT REPORT $75 + $50 PER COPY
SV DORMANT ACCOUNT REPORT $75 + $50 PER COPY
SV ACCRUALS UPDATED ADS003 (MASS CHANGE) CHARGE OF $400 PER PASS
RRM SUMMARY STATEMENTS .10/ACCT, $100 MIN.
RRM STATEMENTS COPIES $75 + $50 PER COPY
RRM PLAN TRIAL .01/ACCT/$100 MIN.
DDA TRIAL BALANCE REPORT $50 PER COPY
DDA STATEMENTS 3 HRS PROG + .05/ACCT ($75 MIN)
DDA SERVICE CHARGES WAIVED 3 HRS. PROGRAMMING
LAS MONTH TO DATE HISTORY .01/ACCT/$100 MIN.
LAS MTD HISTORY COPIES $50 PER COPY
LAS ANNUAL HISTORY REPORT .01/ACCT/$100 MIN.
</TABLE>
7
<PAGE> 17
EXHIBIT A-2
<TABLE>
<S> <C>
LAS ML ANNUAL HISTORY COPIES $50 PER COPY
LAS TRIAL BALANCE REPORT .01/ACCT/$100 MIN.
LAS TRIAL COPIES $50 PER COPY
LAS HISTORY STATEMENTS .15/ACCT/$75 MIN.
LAS STATEMENTS COPIES $50 PER COPY
LAS ESCROW POSTING 6 HRS PROG. + $50/COPY
LAS ACCRUED INTEREST REPORT $75 + $50 PER COPY
INVESTOR CYCLE REPORTS ADS003 CHARGE + $50/COPY
FMS MONTH TO DATE HISTORY $150 CHARGE + $50/COPY
FMS CHART OF ACCOUNTS $50 PER COPY
CIS NAME AND ADDRESS REPORT .01/ACCT/$100 MIN.
RELEASE AND POST WAREHOUSED ACH 4 HRS. PROG. + $100 PER RUN
CLOSE SAV ACCOUNTS 15 HOURS PROGRAMMING
CLOSE RRM ACCOUNTS 15 HOURS PROGRAMMING
PURGE EFT ACCOUNTS 9 HOURS PROGRAMMING
CLOSE DDA ACCOUNTS 15 HOURS PROGRAMMING
CLOS4E LAS ACCOUNTS 15 HOURS PROGRAMMING
PURGE CIS FILES 15 HOURS PROGRAMMING
PURGE FMS ACCOUNTS 15 HOURS PROGRAMMING
DEBIT CARD FILES .01/ACCT/$100 MIN.
DEBIT CARD TRIAL BALANCE $50 PER COPY
DATACOMM REMOVED $110/HOUR
PROJECT COORDINATION $110/HOUR
OPERATIONS/CONVERSIONS $110/HOUR
CPU HOUR $200/HOUR
PROGRAMMING PER HOUR $65/HOUR
MAN-HOURS
---------
Test Files 1 hour per file
Live Files 1 hour per file
Cut-off processing 5 hours per application
Close accounts 5 hours per application
Purge Files 5 hours per application
Deconversion jobflows, scheduling Actual operations time to remove
Project Management Actual P.M. time
Datacomm disconnected Actual time to remove datacomm
</TABLE>
8
<PAGE> 18
EXHIBIT A - 3
Hours of Operation
The Fiserv Data Center will be in operation for On-Line Accounting Applications
(as defined in Exhibit A - 1) in accordance with the following schedule central
time zone:
Monday 7:00 A.M. - 8:00 P.M.
Tuesday 7:00 A.M. - 8:00 P.M.
Wednesday 7:00 A.M. - 8:00 P.M.
Thursday 7:00 A.M. - 8:00 P.M.
Friday 7:00 A.M. - 8:00 P.M.
Saturday 7:00 A.M. - 5:00 P.M.
The Fiserv Data Center will observe national holidays, and will be closed for
on-line operations.
9
<PAGE> 19
EXHIBIT B
Performance Standards
(a) Fiserv's standard for on-line performance ("On-Line Performance") shall be
on-line availability of the computer (exclusive of telecommunications and
terminals) for processing 98% of the time that it is scheduled to be so
available over a three (3) month period (the "Measurement Period"). The
Measurement Period shall be defined as calendar quarters during the term of
this Agreement. Actual on-line performance will be calculated monthly by
comparing (i) the number of hours which the computer, but not the terminals or
telecommunications, was scheduled to be operational on an on-line basis
exclusive of any emergency maintenance other than preventive maintenance and
scheduled maintenance beyond the control of Fiserv, with (ii) the number of
hours, or a portion thereof, it was actually operational on an on-line basis
during the Measurement Period.
(1) Definitions:
(i) "On-line Servicing hours" shall mean the total elapsed "Service
Time" wall clock time in which the computers are available for
on-line service to all clients.
(ii) "Service Time" shall mean:
Monday thru Thursday 7:00 AM thru 8:00 PM CST Time
Friday 7:00 AM thru 8:00 PM CST Time
Saturday 7:00 AM thru 5:00 PM CST Time
Exclusive of: New Year's Day, Labor Day, Memorial Day, Thanksgiving,
Independence Day and Christmas.
(2) Measurements: Fiserv's Data Center will log and retain a record of
downtime maintaining appropriate analytical reports. Downtime reports will
be tabulated monthly and provided at Client's request. Client agrees to
provide written acknowledgment of each report received.
(3) Exclusions: Downtime due to acts or omissions of Client or third
parties, not subject to control or direction by Fiserv; hardware malfunction
or failure; and failure to meet the standard for performance for reasons
beyond Fiserv's control.
(b) Fiserv's standard performance for Delivery of scheduled Critical Daily
reports shall be that, over a "Measurement Period", 95% of all Critical Daily
Reports shall be delivered on time without significant errors. Performance
will be calculated by comparing (i) the total number of Critical Daily Reports
to be provided by Fiserv with (ii) the number of Critical Daily Reports that
were delivered by Fiserv on time without significant error. Fiserv shall
advise Client of the deadlines by which Client must provide data to Fiserv for
processing and the contents and format of such data. A detailed listing of all
Critical Daily Reports shall be incorporated into the implementation plan.
(1) Definitions:
(i) "Critical Daily Reports" shall mean priority group reports which
Fiserv and Client have mutually agreed in writing during the conversion
planning process and are necessary to properly account for the previous
day's activity and properly notify Client of overdraft, NSF, or return
items.
(ii) "Deliver" and "Delivery" of reports shall mean that, depending on
the method selected by Fiserv, the report is printed in hard copy where
printing is performed in-house by Fiserv; the report data is ready for
remote printing by Fiserv, to the Client site; or the report data is
ready for transmission by Fiserv to Client over the data lines designated
for that purpose.
(iii) "On Time" shall mean 7:00 AM CST time at Client's designated
central print site and is subject to change as may be mutually agreed
upon by both parties.
(iv) "Significant error" is one which impairs Client's ability to
properly account for the previous days activity and/or properly account
for overdraft, NSF or return items.
(2) Measurements: Client shall notify Fiserv on a daily basis of any late
Delivery, non-Delivery and significant errors and shall identify all claimed
errors for review. On a monthly basis, Fiserv and Client shall compile a
written performance analysis, if requested by either party.
(3) Exclusions: Special request of special cycle items; reports that are
Delivered late, not Delivered or contain errors due to acts or omissions of
Client or third parties, not subject to control or direction by Fiserv;
hardware malfunction or failure; and failure to meet the standard for
performance due to reasons beyond Fiserv's control.
(c) Fiserv's standard for response time performance ("Response Time
Performance") shall be the average total time taken for the central processor
to receive a transaction from the Data Center telecommunications controller,
process that transaction, and return the answer to such advice. Such average
total response time, as determined by Fiserv from measurements taken over a
1
<PAGE> 20
EXHIBIT B
three (3) month period ("the measurement period") shall be two (2) seconds
or less.
(1) Definitions: "Transaction" shall mean basic deposit, withdrawal, and
single application inquiry transactions.
(2) Measurements: Fiserv's Data Center will log and retain a record of
response time maintaining appropriate analytical reports. Response time
reports will be tabulated monthly and provided to Client at Client's
request. Client agrees to provide written acknowledgment of each report
received.
(3) Exclusions: Downtime due to acts of omissions of the Client or third
parties, not subject to control or direction by Fiserv; hardware malfunction
or failure to meet the standard performance for reasons beyond Fiserv's
control.
(d) Exclusive Remedy
In the event that Fiserv's performance is less than the
percentage/standard specified in "Service Performance Standards" above
and such failure is not the result of a Client error or omission, or of
any other event specified in the applicable "EXCLUSIONS", Client shall
notify Fiserv immediately in writing specifying the Service Performance
Standard(s) not met and the nature of the deficiency. Within thirty (30)
days of receipt of the foregoing notice Fiserv shall establish an action
plan to meet the Performance Standard(s) and shall communicate same to
Client. Upon expiration of the thirty (30) day period Fiserv shall have
a period of sixty (60) days to measure its performance and to bring its
performance to the percentage/standard specified in the relevant Service
Performance Standard, and Fiserv shall advise Client of its performance
at the end of said period. Should Fiserv's performance be below the
Standard at that time Client may terminate this Agreement by giving
Fiserv written notice of termination. Client may also terminate this
Agreement if Fiserv's performance for the same standard is below that
relevant service performance standard for more than two (2) measurement
periods in any twelve (12) month period or for more than five measurement
periods during the term of this Agreement by giving Fiserv written notice
of termination. Termination shall be without penalty or any charge to
Client other than charges for service fees incurred prior to the
effective date of termination.
2
<PAGE> 21
EXHIBIT B
IN WITNESS WHEREOF, the parties hereto have caused this Exhibit B to the
Agreement to be executed by their duly authorized representatives as of the
date indicated below.
<TABLE>
<S> <C>
For Client: For Fiserv
Mercantile Bank of West Michigan FISERV SOLUTIONS, INC.
- ---------------------------------------------------------
a Michigan Banking Corporation in Formation by d/b/a FISERV Brookfield
- --------------------------------------------------------- -------------------------
Mercantile Bank Corporation
- ---------------------------------------------------------
By: /s/ Robert B. Kaminski, Jr. By: /s/ David W. Serti
----------------------------------------------------- -------------------------------------------------------
Name: Robert B. Kaminski, Jr. Name: David W. Serti
--------------------------------------------------- -----------------------------------------------------
Title: Senior Vice President Title: Senior Vice President
-------------------------------------------------- ----------------------------------------------------
Date: 9/11/97 Date: 9/15/97
--------------------------------------------------- -----------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.4
[THE AMERICAN INSTITUTE OF ARCHITECTS LOGO]
- -------------------------------------------------------------------------------
AIA Document A101
STANDARD FORM OF AGREEMENT BETWEEN
OWNER AND CONTRACTOR
where the basis of payment is a
STIPULATED SUM
1987 EDITION
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH
AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION.
The 1987 Edition of AIA Document A201, General Conditions of the
Contract for Construction, is adopted in this document by reference.
Do not use with other general conditions unless this document is modified.
This document has been approved and endorsed by The Associated General
Contractors of America.
- -------------------------------------------------------------------------------
AGREEMENT
made as of the Seventeenth day of September in the year of Nineteen Hundred and
Ninety - Seven.
BETWEEN the Owner:
(Name and address) Mercantile Bank of West Michigan
42 Deer Run Drive, NE
Ada, MI 49301
and the Contractor:
(Name and address) Visser Brothers Construction
1946 Turner, NW
Grand Rapids, MI 49504
The Project is:
(Name and location) Mercantile Bank of West Michigan
216 North Division
Grand Rapids, MI 49503
The Architect is:
(Name and address) Concept Design Group
89 Monroe Center, NW
Grand Rapids, MI 49503
The Owner and Contractor agree as set forth below.
Copyright 1915, 1918, 1925, 1937, 1951, 1958, 1961, 1963, 1967, 1974, 1977,
(C)1987 by The American Institute of Architects, 1735 New York Avenue, N.W.,
Washington, D.C. 20006. Reproduction of the material herein or substantial
quotation of its provisions without written permission of the AIA violates the
copyright laws of the United States and will be subject to legal prosecution.
AIA DOCUMENT A101 - OWNER-CONTRACTOR AGREEMENT - TWELFTH EDITION - AIA(R) - (C)
1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W.,
WASHINGTON, D.C. 20006
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ARTICLE 1
THE CONTRACT DOCUMENTS
The Contract Documents consist of this Agreement, Conditions of the Contract
(General, Supplementary and other Conditions), Drawings, Specifications,
addenda issued prior to execution of this Agreement, other documents listed in
this Agreement and Modifications issued after execution of this Agreement;
these form the Contract, and are as fully a part of the Contract as if attached
to this Agreement or repeated herein. The Contract represents the entire and
integrated agreement between the parties hereto and supersedes prior
negotiations, representations or agreements, either written or oral. An
enumeration of the Contract Documents, other than Modifications, appears in
Article 9.
ARTICLE 2
THE WORK OF THIS CONTRACT
The Contractor shall execute the entire Work described in the Contract
Documents, except to the extent specifically indicated in the Contract
Documents to be the responsibility of others, or as follows:
1. Telephone Wiring & Systems
2. Furniture
3. Banking Equipment
ARTICLE 3
DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
3.1 The date of commencement is the date from which the Contract Time of
Paragraph 3.2 is measured, and shall be the date of this Agreement, as first
written above, unless a different date is stated below or provision is made for
the date to be fixed in a notice to proceed issued by the Owner.
(Insert the date of commencement, if it differs from the date of this Agreement
or, if applicable, state that the date will be fixed in a notice to proceed.)
Unless the date of commencement is established by a notice to proceed issued by
the Owner, the Contractor shall notify the Owner in writing not less than five
days before commencing the Work to permit the timely filing of mortgages,
mechanic's liens and other security interests.
3.2 The Contractor shall achieve Substantial Completion of the entire Work not
later than December 1, 1997.
(Insert the calendar date or number of calendar days after the date of
commencement. Also insert any requirements for earlier Substantial Completion
of certain portions of the Work, if not stated elsewhere in the Contract
Documents.)
, subject to adjustments of this Contract Time as provided in the Contract
Documents.
(Insert provisions, if any, for liquidated damages relating to failure to
complete on time.)
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ARTICLE 4
CONTRACT SUM
4.1 The Owner shall pay the Contractor in current funds for the Contractor's
performance of the Contract the Contract Sum of Six Hundred Two Thousand and
Two Hundred Twenty-Nine Dollars ($602,229.00****), subject to additions and
deductions as provided in the Contract Documents.
4.2 The Contract Sum is based upon the following alternates, if any, which
are described in the Contract Documents and are hereby accepted by the Owner:
(State the numbers or other identification of accepted alternates. If
decisions on other alternates are to be made by the Owner subsequent to the
execution of this Agreement, attach a schedule of such other alternates showing
the amount for each and the date until which that amount is valid.)
BASE BID $ 450,200.00
Superior Wood Products Bid $ 149,600.00
Add to use Rice Veneers and Koster & Devries to Superior $ 2,429.00
Wood Products Bid
Add Koster & DeVries Interior Finish to Base Bid $ 0
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TOTAL $ 602,229.00
4.3 Unit prices, if any, are as follows:
ALTERNATE PRICE
The Mercantile Bank of West Michigan requests the following separate price
for all material & labor, etc., required to complete the Work as described
below. This price is NOT included in the Base Bid.
A. Door type `E` (refer to Sheet A2.1 for details & dimensions).
Door may be installed up to one year after project is
substantially completed.
Add $ 2,700.00
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ARTICLE 5
PROGRESS PAYMENTS
5.1 Based upon Applications for Payment submitted to the Architect by the
Contractor and Certificates for Payment issued by the Architect, the
Owner shall make progress payments on account of the Contract Sum to the
Contractor as provided below and elsewhere in the Contract Documents.
5.2 The period covered by each Application for Payment shall be one calendar
month ending on the last day of the month, or as follows:
5.3 Provided an Application for Payment is received by the Architect not
later than the first day of a month, the Owner shall make payment to the
Contractor not later than the fifteenth day of the same month. If
an Application for Payment is received by the Architect after the application
date fixed above, payment shall be made by the Owner not later than
fifteen days after the Architect receives the Application for Payment.
5.4 Each Application for Payment shall be based upon the schedule of values
submitted by the Contractor in accordance with the Contract Documents. The
schedule of values shall allocate the entire Contract Sum among the various
portions of the Work and be prepared in such form and supported by such data to
substantiate its accuracy as the Architect may require. This schedule, unless
objected to by the Architect, shall be used as a basis for reviewing the
Contractor's Applications for Payment.
5.5 Applications for Payment shall indicate the percentage of completion of
each portion of the Work as of the end of the period covered by the Application
for Payment.
5.6 Subject to the provisions of the Contract Documents, the amount of each
progress payment shall be computed as follows:
5.6.1. Take that portion of the Contract Sum properly allocable to completed
Work as determined by multiplying the percentage completion of each portion of
the Work by the share of the total Contract Sum allocated to that portion of
the Work in the schedule of values, less retainage of *********************
*********************** Five****** percent ( 5%). Pending final
determination of cost to the Owner of changes in the Work, amounts not in
the dispute may be included as provided in Subparagraph 7.3.7 of the General
Conditions even though the Contract Sum has not yet been adjusted by Change
Order;
5.6.2. Add that portion of the Contract Sum properly allocable to materials
and equipment delivered and suitably stored at the site for subsequent
incorporation in the completed construction (or, if approved in advance by
the Owner, suitably stored off the site at a location agreed upon in writing),
less retainage of Ten******* percent ( 10%);
5.6.3 Subtract the aggregate of previous payments made by the Owner; and
5.6.4 Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment as provided in Paragraph 9.5 of the
General Conditions.
5.7 The progress payment amount determined in accordance with Paragraph 5.6
shall be further modified under the following circumstances:
5.7.1 Add, upon Substantial Completion of the Work, a sum sufficient to
increase the total payments to five ******
percent( 5%) of the Contract Sum, less such amounts as the Architect
shall determine for incomplete Work and unsettled claims; and
5.7.2 Add, if final completion of the Work is thereafter materially delayed
through no fault of the Contractor, any additional amounts payable in accordance
with Subparagraph 9.10.3 of the General Conditions.
5.8 Reduction or limitation of retainage, if any, shall be as follows:
(If it is intended, prior to Substantial Completion of the entire Work, to
reduce or limit the retainage resulting from the percentages inserted in
Subparagraphs 5.6.1 and 5.6.2 above, and this is not explained elsewhere in the
Contract Documents, insert here provisions for such reduction or limitation.)
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ARTICLE 6
FINAL PAYMENT
Final payment, constituting the entire unpaid balance of the Contract Sum,
shall be made by the Owner to the Contractor when (1) the Contract has been
fully performed by the Contractor except for the Contractor's responsibility to
correct nonconforming Work as provided in Subparagraph 12.2.2 of the General
Conditions and to satisfy other requirements, if any, which necessarily
survive final payment; and (2) a final Certificate for Payment has been issued
by the Architect; such final payment shall be made by the Owner not more than
30 days after the issuance of the Architect's final Certificate for Payment, or
as follows:
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 Where reference is made in this Agreement to a provision of the General
Conditions or another Contract Document, the reference refers to that provision
as amended or supplemented by other provisions of the Contract Documents.
7.2 Payments due and unpaid under the Contract shall bear interest from the
date payment is due at the rate stated below, or in the absence thereof, at the
legal rate prevailing from time to time at the place where the Project is
located.
(Insert rate of interest agreed upon, if any.)
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Contractor's principal places of business, the location of the Project and
elsewhere may affect the validity of this provision. Legal advice should be
obtained with respect to deletions or modifications, and also regarding
requirements such as written disclosures or waivers.)
7.3 Other provisions:
ARTICLE 8
TERMINATION OR SUSPENSION
8.1 The Contract may be terminated by the Owner or the Contractor as provided in
Article 14 of the General Conditions.
8.2 The Work may be suspended by the Owner as provided in Article 14 of the
General Conditions.
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ARTICLE 9
ENUMERATION OF CONTRACT DOCUMENTS
9.1 The Contract Documents, except for Modifications issued after execution
of this Agreement, are enumerated as follows:
9.1.1 The Agreement is this executed Standard Form of Agreement Between Owner
and Contractor, AIA Document A101, 1987 Edition.
9.1.2 The General Conditions are the General Conditions of the Contract for
Construction, AIA Document A201, 1987 Edition.
9.1.3 The Supplementary and other Conditions of the Contract are those
contained in the Project Manual dated , and are as follows:
DOCUMENT TITLE PAGES
General Note Architectural Specification SP1
9.1.4 The Specifications are those contained in the Project Manual dated as in
Subparagraph 9.1.3, and are as follows:
(Either list the Specifications here or refer to an exhibit attached to this
Agreement.)
SECTION TITLE PAGES
Division 1 to 16 Architectural Specification SP1 & SP2
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9.1.5 The Drawings are as follows, and are dated August 20, 1997 unless a
different date is shown below:
(Either list the Drawings here or refer to an exhibit attached to this
Agreement.)
NUMBER TITLE DATE
See Attached Sheet Exhibit 1
9.1.6 The addenda, if any, are as follows:
NUMBER DATE PAGES
Addendum #1 August 25, 1997 2 of 2
Addendum #2 August 28, 1997 1 of 1
Addendum #3 September 2, 1997 1 of 1
Portions of addenda relating to bidding requirements are not part of
the Contract Documents unless the bidding requirements are also enumerated in
this Article 9.
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9.1.7 Other documents, if any, forming part of the Contract Documents are as
follows:
(List here any additional documents which are intended to form part of the
Contract Documents. The General Conditions provide that bidding requirements
such as advertisement or invitation to bid, Instructions to Bidders, sample
forms and the Contractor's bid are not part of the Contract Documents unless
enumerated in this Agreement. They should be listed here only if intended to
be part of the Contract Documents.)
1. Letter from Visser Brothers, Inc. Dated September 11, 1997.
2. Letter from Super Wood Products, Inc. Dated September 10, 1997.
3. Letter from Kosters & DeVries, Inc. Dated September 15, 1997.
This Agreement is entered into as of the day and year first written above and
is executed in at least three original copies of which one is to be delivered
to the Contractor, one to the Architect for use in the administration of the
Contract, and the remainder to the Owner.
OWNER CONTRACTOR
/s/ Gerald Johnson /s/ Bruce Visser
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(Signature) (Signature)
Gerald Johnson, President Bruce Visser, President
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(Printed name and title) (Printed name and title)
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