<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 26, 1999
REGISTRATION NO. 333-84313
REGISTRATION NO. 333-84313-01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
<TABLE>
<S> <C>
MERCANTILE BANK CORPORATION MBWM CAPITAL TRUST I
(NAME OF SMALL BUSINESS CO-ISSUER IN ITS CHARTER) (NAME OF SMALL BUSINESS CO-ISSUER IN ITS CHARTER)
MICHIGAN DELAWARE
(STATE OR JURISDICTION OF INCORPORATION OR ORGANIZATION) (STATE OR JURISDICTION OF INCORPORATION OR ORGANIZATION)
6712 6719
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER) (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
38-3360865 APPLIED FOR
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
216 NORTH DIVISION AVENUE 216 NORTH DIVISION AVENUE
GRAND RAPIDS, MICHIGAN 49503 GRAND RAPIDS, MICHIGAN 49503
(616) 242-9000 (616) 242-9000
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL PLACE (ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL PLACE
OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS) OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS)
</TABLE>
-------------------------
GERALD R. JOHNSON, JR., CHAIRMAN
MERCANTILE BANK CORPORATION
216 NORTH DIVISION AVENUE
GRAND RAPIDS, MICHIGAN 49503
(616) 242-9000
(NAME, ADDRESS, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
-------------------------
COPIES TO:
<TABLE>
<S> <C>
JEROME M. SCHWARTZ JENNIFER R. EVANS, ESQ.
DICKINSON WRIGHT PLLC VEDDER, PRICE, KAUFMAN & KAMMHOLZ
500 WOODWARD AVENUE, 222 NORTH LASALLE STREET,
SUITE 4000 SUITE 2600
DETROIT, MICHIGAN 48226-3425 CHICAGO, ILLINOIS 60601-1003
</TABLE>
-------------------------
APPROXIMATE DATE OF COMMENCEMENT 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, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ]
-------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A)
OF THE SECURITIES ACT OF 1933, MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
SUBJECT TO COMPLETION, DATED AUGUST 26, 1999
1,400,000 PREFERRED SECURITIES
MBWM CAPITAL TRUST I
% CUMULATIVE PREFERRED SECURITIES
MERCANTILE LOGO (LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
FULLY, IRREVOCABLY AND UNCONDITIONALLY GUARANTEED
ON A SUBORDINATED BASIS AS DESCRIBED IN THIS PROSPECTUS BY
MERCANTILE BANK CORPORATION
-------------------------
The preferred securities of MBWM Capital Trust I being offered generally
consist of an indirect beneficial interest in % junior subordinated
debentures of Mercantile Bank Corporation. The junior subordinated debentures
have the same payment terms as the preferred securities and will be purchased
and held by MBWM Trust using the proceeds of this offering. A brief description
of the preferred securities can be found under "Prospectus Summary -- The
Offering" in this prospectus.
The preferred securities are expected to be approved for trading on the
Nasdaq National Market under the trading symbol "MBWMP". We expect that the
preferred securities will begin trading on the Nasdaq National Market when they
are issued.
-------------------------
YOU SHOULD CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 9 BEFORE INVESTING
IN THE PREFERRED SECURITIES.
-------------------------
THE PREFERRED SECURITIES ARE NOT SAVINGS ACCOUNTS, DEPOSITS, OR OTHER
OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE BANK INSURANCE FUND OF THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
<TABLE>
<CAPTION>
PER PREFERRED
SECURITY TOTAL
---------------------- ----------------------
<S> <C> <C>
Price to Public............................................ $10.00 $14,000,000
Proceeds to MBWM Trust..................................... $10.00 $14,000,000
</TABLE>
This is a firm commitment underwriting. Mercantile will pay underwriting
commissions of $ per preferred security, or a total of $ , for the
arranging of the investment in its junior subordinated debentures. The
underwriters have been granted a 30-day option to purchase up to an additional
200,000 preferred securities to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
STIFEL, NICOLAUS & COMPANY TUCKER ANTHONY CLEARY GULL
INCORPORATED
, 1999
<PAGE> 3
[KENT COUNTY MICHIGAN MAP]
-------------------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information included in this prospectus includes forward-looking
statements, which can be identified by the use of forward-looking terminology
such as may, will, expect, anticipate, believe, estimate, or continue, or the
negative thereof or other variations thereon or comparable terminology.
Forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements. These forward-looking statements are intended to be covered by the
safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
Factors that could cause actual results to differ materially include the risks
and uncertainties discussed in the "Risk Factors" section as well as continued
success of Mercantile's business strategy, general economic conditions, economic
conditions in the Grand Rapids area particularly and western Michigan generally,
the monetary policy of the Federal Reserve, changes in interest rates,
inflation, and changes in the state and federal regulatory regime applicable to
Mercantile and the Bank's operations.
i
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus
and may not contain all the information that may be important to you. You should
read the entire prospectus, including the financial statements and related
notes, before making a decision to invest in the preferred securities. Unless
indicated otherwise, all information in this prospectus assumes no exercise of
the underwriters' over-allotment option.
As used in this prospectus, the term "Mercantile" refers to Mercantile Bank
Corporation, a business corporation organized under Michigan law. The term "MBWM
Trust" refers to MBWM Capital Trust I, a Delaware business trust organized to
purchase Mercantile's junior subordinated debentures and issue the preferred
securities. The term "Bank" refers to Mercantile Bank of West Michigan, a bank
organized under the laws of Michigan that is a wholly owned subsidiary of
Mercantile. Unless the context otherwise requires, references in this prospectus
to Mercantile include Mercantile and the Bank, but not MBWM Trust.
MERCANTILE BANK CORPORATION
Mercantile is a single bank holding company headquartered in Grand Rapids,
Michigan. Mercantile owns the Bank and conducts business primarily in the Kent
and Ottawa counties of western Michigan.
Mercantile has a strong commitment to community banking and offers a wide
range of financial products and services, primarily for small- to medium-sized
businesses. Mercantile's lending strategy emphasizes commercial lending. The
Bank also provides services and makes residential and consumer loans to
individuals. Mercantile offers a broad array of deposit products, including
checking, savings, and money market accounts, business checking, direct deposits
and certificates of deposit.
Mercantile has grown significantly since the Bank opened in December 1997.
Mercantile first posted a profit in the third quarter of 1998, nine months after
the Bank opened. At June 30, 1999, Mercantile had total assets of $291.9
million, total loans of $246.7 million, total deposits of $245.8 million, and
shareholders' equity of $27.1 million. At that date Mercantile had no
non-performing assets and a ratio of allowance for loan losses to total loans of
1.50%. For the six months ended June 30, 1999, Mercantile recorded net income of
$855,000, or $0.35 per share.
While Mercantile has grown rapidly, management has placed an emphasis on
building a quality loan portfolio focusing on prudent lending and adequate
reserves. The allowance for loan losses is maintained at a level management
feels is adequate to absorb losses inherent in the loan portfolio, an evaluation
that is primarily based upon a review of Mercantile's and the banking industry's
historical loan experience, known and inherent risks contained in the loan
portfolio, composition and growth of the loan portfolio, and current and
projected economic factors. Mercantile has been successful in attracting local
deposits and has developed strategies to acquire wholesale deposits to provide
funding for the high level of loan demand Mercantile has experienced. Mercantile
has maintained a strong capital position by raising $30.3 million, in aggregate,
through its initial public offering in October 1997 and a second public offering
completed in July 1998. At June 30, 1999, Mercantile exceeded all applicable
minimum regulatory capital requirements.
1
<PAGE> 5
MARKET AREA
Mercantile's market area is the Kent and Ottawa counties of western
Michigan, which includes the City of Grand Rapids, the second largest city in
the State of Michigan. Kent County has a diverse economy based primarily on
manufacturing, retail and service businesses. According to available statistical
data, Kent County has approximately 547,000 people, 198,000 households and a
median household income that is estimated to have grown approximately 51% from
1990 to 1998. Kent County is a significant banking market in the State of
Michigan. According to available industry data, as of June 30, 1998, total
deposits in Kent County, including those of banks, thrifts and credit unions,
were approximately $7.9 billion.
BUSINESS STRATEGY
Mercantile's business strategy focuses on:
- recruiting and retaining highly-qualified people;
- commercial lending in western Michigan;
- using a combination of local deposits and wholesale funding to meet loan
growth;
- taking advantage of industry consolidation;
- community banking;
- using alternative delivery channels; and
- evaluating acquisition opportunities.
Mercantile's and MBWM Trust's principal executive offices are located at
216 North Division Avenue, Grand Rapids, Michigan. Their telephone number is
(616) 242-9000.
MBWM Trust is a business trust created in 1999 for the single purpose of
offering the preferred securities and purchasing the junior subordinated
debentures of Mercantile. MBWM Trust will have a term of 30 years, but may
dissolve earlier as provided in its trust agreement.
2
<PAGE> 6
THE OFFERING
Preferred Securities issuer..... MBWM Trust
Securities offered.............. MBWM Trust is offering 1,400,000 of its
preferred securities, which represent an
indirect beneficial interest in junior
subordinated debentures issued by Mercantile
and held by MBWM Trust.
MBWM Trust will sell its preferred
securities to the public and its common
securities to Mercantile. Together, the
preferred securities and the common
securities are referred to as the trust
securities. MBWM Trust will use the proceeds
from the sale of the trust securities to buy
a series of % junior subordinated
debentures due , 2029, from
Mercantile with the same payment terms as
the preferred securities.
Quarterly distributions are
payable to you on the Preferred
Securities.................... The distributions payable on each preferred
security will:
- be fixed and accumulate at a rate per year
of %;
- accrue from the date of issuance of the
preferred securities; and
- be payable quarterly on the 15th day of
October, January, April and July of each
year that the preferred securities are
outstanding, beginning on October 15,
1999, subject to the right to defer
distributions on the preferred securities.
Mercantile and MBWM Trust have
rights to defer distributions
to you on the Preferred
Securities.................... MBWM Trust will defer distributions on the
preferred securities if Mercantile defers
interest payments on the junior subordinated
debentures. Mercantile generally has the
right to defer interest payments on the
junior subordinated debentures for up to 20
consecutive quarters. During any deferral
period, you will still accumulate the right
to receive distributions when subsequently
made at the annual rate of %, plus you
will earn interest at the annual rate of
%, compounded quarterly, on any unpaid
distributions.
You will still be taxed even if
distributions on the Preferred
Securities are deferred....... If distributions on the preferred securities
are deferred, you will also be required to
accrue interest income and include it in
your gross income
3
<PAGE> 7
for United States federal income tax
purposes for as long as the junior
subordinated debentures remain outstanding,
even if you are a cash basis taxpayer. For
further information on deferrals and their
tax consequences, see "Risk
Factors -- Distributions on the preferred
securities may be deferred; you may have to
include interest in your taxable income
before you receive cash," "Description of
Junior Subordinated Debentures -- Option to
Extend Interest Payment Period" and
"Material Federal Income Tax
Consequences -- Interest Income and Original
Issue Discount."
You will be required to sell
your Preferred Securities to
MBWM Trust when the Junior
Subordinated Debentures
mature........................ The junior subordinated debentures will
mature on , 2029. You will be
required to sell your preferred securities
to MBWM Trust upon the stated maturity date
of the junior subordinated debentures or
earlier if they are prepaid.
If the Junior Subordinated
Debentures are prepaid your
Preferred Securities will be
redeemed...................... Upon Mercantile having received prior
approval of the Board of Governors of the
Federal Reserve System, if required,
Mercantile may prepay the junior
subordinated debentures prior to maturity:
- on or after , 2004; or
- at any time upon events occurring which
may have a significant adverse effect on
the benefits to Mercantile of having the
preferred securities outstanding.
Upon any prepayment of the junior
subordinated debentures, your preferred
securities will be redeemed at the
liquidation amount of $10 per preferred
security plus any accrued and unpaid
distributions to the date of redemption. For
further information on redemptions, see
"Description of the Preferred
Securities -- Redemption -- Mandatory and
Optional Rights of Mercantile" and
"Description of Junior Subordinated
Debentures -- Redemption."
At its option, Mercantile may
require you to exchange your
Preferred Securities for its
Junior Subordinated
Debentures.................... Mercantile has the right at any time to
dissolve or liquidate MBWM Trust and
distribute the junior subordinated
debentures to you in exchange for
4
<PAGE> 8
your preferred securities. However,
Mercantile must receive prior approval of
the Federal Reserve and first pay the
creditors, if any, of MBWM Trust. Upon a
dissolution or liquidation of MBWM Trust,
you will receive junior subordinated
debentures in exchange for the same
principal amount of your holdings in
preferred securities. For further
information concerning distribution of the
junior subordinated debentures, see
"Description of the Preferred
Securities -- Distribution of Junior
Subordinated Debentures." If the junior
subordinated debentures are distributed,
Mercantile will use reasonable efforts to
list them on a national securities exchange
or quotation system.
Your Preferred Securities are
fully and unconditionally
guaranteed by Mercantile on a
subordinated basis............ Mercantile will fully, irrevocably and
unconditionally guarantee the preferred securities on a subordinated basis. If
Mercantile does not make a payment on the
junior subordinated debentures, MBWM Trust
will not have sufficient funds to make
payments on the preferred securities. The
preferred securities guarantee does not
cover payments when MBWM Trust does not have
sufficient funds. For further information
concerning the preferred securities
guarantee of Mercantile, see "Description of
Preferred Securities Guarantee."
Your Preferred Securities rank
lower in payment compared to
other obligations of
Mercantile.................... Mercantile's obligations under its preferred
securities guarantee, the junior subordinated debentures and other governing
documents described in this prospectus are
unsecured and rank junior in right of
payment to all current and future senior and
subordinated debt of Mercantile. In
addition, because Mercantile is a bank
holding company, all existing and future
liabilities of any Mercantile subsidiary
will rank prior to all obligations of
Mercantile relating to the preferred
securities and the junior subordinated
debentures. There is no limit on the amount
of other preferred securities or other
junior subordinated debentures of Mercantile
that may be issued in the future. Future
issuances of this type will rank equally
with Mercantile's obligations under the
junior subordinated debentures and its
preferred securities guarantee described in
this prospectus. The preferred
5
<PAGE> 9
securities will generally rank equally and
payments on them will be made
proportionately, with the common securities
of MBWM Trust, which will be held by
Mercantile.
You will have limited voting
rights.......................... As a holder of preferred securities, you
have only limited voting rights. These
rights relate only to the dissolution or
termination of MBWM Trust and removal of the
property trustee and the indenture trustee
of MBWM Trust upon selected events described
in this prospectus. See "Description of the
Preferred Securities -- Voting Rights;
Amendment of the Trust Agreement."
The Preferred Securities will be
in book entry form only......... You will not receive a certificate for your
preferred securities. Instead, the preferred
securities will be represented by a global
security that will be deposited with and
registered in the name of The Depository
Trust Company or its nominee.
Proposed Nasdaq National Market
Listing....................... Application has been made to have the
preferred securities approved for trading on
the Nasdaq National Market under the trading
symbol "MBWMP".
Use of proceeds of sale of the
Preferred Securities.......... The proceeds of the sale of the preferred
securities will be invested by MBWM Trust in
the junior subordinated debentures.
Substantially all of the proceeds from the
issuance of the junior subordinated
debentures will be contributed by Mercantile
to the capital of the Bank.
Mercantile expects approximately $9.3
million of the proceeds of the preferred
securities to qualify as Tier 1 (or core)
capital of Mercantile under the capital
adequacy guidelines of the Federal Reserve.
The remaining $4.7 million of such proceeds
will be included in Mercantile's total
qualifying capital for purposes of the
capital adequacy guidelines. See "Use of
Proceeds" and "Capitalization." See also
"Supervision and Regulation -- Mercantile --
Capital Requirements" for a definition of
Tier 1 (or core) capital.
6
<PAGE> 10
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial and other
data of Mercantile. The selected income statement data for the year ended
December 31, 1998 and the period ended December 31, 1997 has been derived from
the audited consolidated statements of income and notes thereto which are
included elsewhere in this prospectus. The selected balance sheet data as of
December 31, 1998 has been derived from the audited consolidated financial
statements and notes thereto which are included elsewhere in this prospectus.
The consolidated statement of income data for the six months ended June 30, 1999
and 1998, and the consolidated balance sheet data as of June 30, 1999 and 1998,
have been derived from unaudited consolidated financial statements, which, in
the opinion of Mercantile, reflect all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the financial position
and results of operations of Mercantile for those periods. The consolidated
statements of income data for interim periods are not necessarily indicative of
results for subsequent periods or the full year. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with Mercantile's
consolidated financial statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS PERIOD ENDED
ENDED JUNE 30, DECEMBER 31,
-------------------------- ------------------------
1999 1998 1998 1997
----------- ----------- ---------- ----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income................................ $ 9,744 $ 3,384 $ 10,168 $ 154
Interest expense............................... 5,549 1,879 5,629 14
---------- ---------- ---------- ----------
Net interest income............................ 4,195 1,505 4,539 140
Provision for loan losses...................... 936 1,472 2,572 193
---------- ---------- ---------- ----------
Net interest income (loss) after provision for
loan losses................................. 3,259 33 1,967 (53)
Noninterest income............................. 416 87 488 --
Noninterest expense............................ 2,644 1,556 3,564 351
---------- ---------- ---------- ----------
Income (loss) before income taxes.............. 1,031 (1,436) (1,109) (404)
Provision for income taxes..................... 134 -- -- --
---------- ---------- ---------- ----------
Income (loss) before cumulative effect of
change in accounting principle.............. 897 (1,436) (1,109) (404)
Cumulative effect of change in accounting
principle (net of income taxes)............. 42 -- -- --
---------- ---------- ---------- ----------
Net income..................................... $ 855 $ (1,436) $ (1,109) $ (404)
========== ========== ========== ==========
PER SHARE DATA(1):
Earnings (loss) per common share:
Basic and diluted before cumulative effect
of change in accounting principle......... $ 0.36 $ (0.96) $ (0.58) $ (0.27)
Basic and diluted........................... 0.35 (0.96) (0.58) (0.27)
Average common shares and common share
equivalents outstanding..................... 2,472,500 1,495,000 1,907,658 1,495,000
Diluted book value (period end)................ $ 10.94 $ 8.05 $ 10.80 $ 9.01
</TABLE>
7
<PAGE> 11
<TABLE>
<CAPTION>
SIX MONTHS PERIOD ENDED
ENDED JUNE 30, DECEMBER 31,
-------------------------- ------------------------
1999 1998 1998 1997
----------- ----------- ---------- ----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Investment Securities.......................... $ 29,605 $ 14,495 $ 24,160 $ 2,998
Loans.......................................... 246,725 113,406 184,745 12,887
Total assets................................... 291,935 139,593 216,237 24,109
Total deposits................................. 245,811 116,691 171,998 9,688
Repurchase agreements.......................... 17,866 10,555 17,038 655
Total shareholders' equity..................... 27,060 12,038 26,701 13,473
Average assets (unaudited for all periods)..... 258,178 86,984 129,399 NM
SELECTED RATIOS:
Return on average total assets................. 0.66% (3.30)% (0.86)% NM
Return on average total shareholders' equity... 6.34 (22.91) (6.40) NM
Net interest margin............................ 3.41 3.37 3.62 NM
Efficiency ratio(2)............................ 57.34 97.74 70.90 NM
Average assets per employee (in millions)...... $ 6.21 $ 4.65 $ 6.18 $ 1.42
ASSETS QUALITY RATIOS:
Allowance for possible loan losses to loans.... 1.50% 1.50% 1.50% 1.50%
Nonperforming loans to loans(3)................ 0 0 0 0
Allowance for possible loan losses to
nonperforming loans(3)...................... NA NA NA NA
Nonperforming assets to loans and foreclosed
assets(4)................................... 0 0 0 0
Net loan charge-offs to average loans.......... 0 0 0 0
CAPITAL RATIOS
Average shareholders' equity to average
assets...................................... 9.52% 14.41% 13.83% 69.72%
Total risk-based capital ratio................. 10.77 11.22 11.79 77.04
Leverage ratio................................. 10.03 10.63 13.01 78.12
RATIO OF EARNINGS (LOSS) TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS(5)
Including interest on deposits................. 1.18 0.25 0.81 NM
Excluding interest on deposits................. 3.71 (8.03) (0.73) NM
</TABLE>
- -------------------------
(1) No dividends have been paid or declared since inception of Mercantile.
(2) The efficiency ratio = noninterest expense / (net interest income +
noninterest income).
(3) Nonperforming loans consist of nonaccrual loans, loans contractually past
due 90 days or more and loans with restructured terms. There have been no
nonperforming loans since inception of Mercantile.
(4) Nonperforming assets consist of nonperforming loans and foreclosed assets.
There have been no nonperforming assets since inception of Mercantile.
(5) For purposes of calculating the ratio of earnings to combined fixed charges
and preferred stock dividends, earnings consist of income before taxes plus
interest and rent expense. Fixed charges consist of interest and rent
expense.
NA Not applicable
NM Not meaningful
8
<PAGE> 12
RISK FACTORS
You should carefully read and consider the following risks and
uncertainties together with the other information provided in this prospectus
before purchasing any preferred securities.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
IF MERCANTILE DOES NOT MAKE PAYMENTS UNDER THE JUNIOR SUBORDINATED
DEBENTURES, MBWM TRUST WILL BE UNABLE TO PAY DISTRIBUTIONS AND LIQUIDATION
AMOUNTS AND THE PREFERRED SECURITIES GUARANTEE WILL NOT APPLY.
The ability of MBWM Trust to pay distributions and the liquidation amount
of $10 per preferred security when due is solely dependent upon the ability of
Mercantile to make the related payments on the junior subordinated debentures
when due. If Mercantile defaults on its obligation to pay principal or interest
on the junior subordinated debentures, MBWM Trust will not have sufficient funds
to pay distributions or the liquidation amount. In that case, you will not be
able to rely upon the preferred securities guarantee for payment of these
amounts because the preferred securities guarantee only applies if Mercantile
makes a payment of principal or interest on the junior subordinated debentures.
For more information on Mercantile's obligations under the preferred securities
guarantee and the junior subordinated debentures, see "Description of Preferred
Securities Guarantee -- Status of Preferred Securities Guarantee" and
"Description of Junior Subordinated Debentures -- Subordination of Junior
Subordinated Debentures to Senior and Subordinated Debt of Mercantile."
INTEREST AND PRINCIPAL PAYMENTS BY MERCANTILE ON THE JUNIOR SUBORDINATED
DEBENTURES ARE DEPENDENT ON THE RECEIPT OF DIVIDENDS FROM THE BANK.
Substantially all of Mercantile's assets consist of its investments in the
Bank. Thus, Mercantile's ability to pay interest and principal on the junior
subordinated debentures to MBWM Trust depends primarily upon the cash dividends
Mercantile receives from the Bank. Dividend payments from the Bank to Mercantile
are subject to, among other things:
- regulatory limitations, generally based on current and retained earnings,
and capital maintenance requirements which are higher during the first
three years of operations, imposed by various bank regulatory agencies;
- profitability, tax burden, financial condition and capital expenditures
and other cash flow requirements of the Bank; and
- prior claims of creditors of the Bank.
The Bank has not previously declared or paid dividends. The Bank is
currently subject to restrictions applicable to it as a recently formed bank
during the first three years of operations, and will continue to be subject to
regulatory restrictions that limit the amount of dividends a bank can pay. If
the Bank is unable to pay sufficient dividends to Mercantile, Mercantile will
likely be unable to make payments on the junior subordinated debentures, thereby
leaving insufficient funds for MBWM Trust to make payments to you on the
preferred securities. See "Risk Factors Relating to Mercantile -- The Bank is
subject to regulatory restrictions on the dividends it can declare and pay."
9
<PAGE> 13
DISTRIBUTIONS ON THE PREFERRED SECURITIES MAY BE DEFERRED; YOU MAY HAVE TO
INCLUDE INTEREST IN YOUR TAXABLE INCOME BEFORE YOU RECEIVE CASH.
It is possible that you will not receive cash distributions on your
preferred securities for one or more periods of up to five years. Because you
will still be required to include interest in your income for United States
federal income tax purposes as it accrues, you may have to pay taxes before you
actually receive the cash distributions.
Mercantile has the right, at one or more times, to defer interest payments
on the junior subordinated debentures for up to 20 consecutive quarters, but not
beyond the maturity date of the junior subordinated debentures. This right
exists only if no event of default under the junior subordinated debentures has
occurred and is continuing. If Mercantile exercises this right, MBWM Trust would
defer distributions on the preferred securities during any deferral period.
However, you would still accumulate the right to receive distributions when
subsequently made at the annual rate of % of the liquidation amount of $10
per preferred security, plus you will earn interest at the annual rate of
%, compounded quarterly, on those unpaid distributions. During a deferral
period, the preferred securities may trade at a price that does not fully
reflect the value of accrued but unpaid distributions.
During a deferral period and for as long thereafter as the junior
subordinated debentures remain outstanding, you will be required to accrue
interest income, as original issue discount, for United States federal income
tax purposes in respect of your pro rata share of the junior subordinated
debentures held by MBWM Trust. As a result, you would include the accrued
interest in your gross income for United States federal income tax purposes
prior to your receiving cash. You will also not receive the cash distributions
related to any accrued and unpaid interest from MBWM Trust if you sell the
preferred securities before the end of any deferral period. While Mercantile
will take the position that original issue discount will not arise before any
first deferral period, it is possible that all interest on the junior
subordinated debentures would be required to be accounted for as original issue
discount. In these circumstances, stated interest payments on interest
previously accrued would not separately be reported as taxable income.
Mercantile has no current intention of exercising its right to defer
interest payments on the junior subordinated debentures. However, if Mercantile
exercises its right in the future, the market price of the preferred securities
is likely to be adversely affected. If you sell the preferred securities during
an interest deferral period, you may not receive the same return on your
investment as someone else who continues to hold the preferred securities.
See "Material Federal Income Tax Consequences" for more information
regarding the tax consequences of the preferred securities.
YOU ARE SUBJECT TO PREPAYMENT RISK OF YOUR PREFERRED SECURITIES IN THE
EVENT OF TAX, LEGISLATIVE OR REGULATORY CHANGES THAT MAY TRIGGER THE REDEMPTION
OF THE JUNIOR SUBORDINATED DEBENTURES BY MERCANTILE AND PREPAYMENT OF THE
PREFERRED SECURITIES PRIOR TO THE STATED MATURITY DATE.
You are subject to prepayment risk relating to your preferred securities.
Although the junior subordinated debentures have a stated maturity date of
, 2029, they
10
<PAGE> 14
may be redeemed by Mercantile prior to maturity which would cause an early
redemption of the preferred securities, upon the following:
- In whole or in part, beginning on , 2004 at the option of
Mercantile.
- In whole upon a change in the federal tax laws or a change in the
interpretation of the tax laws by the courts or the IRS, which would
result in a risk that (1) MBWM Trust may be subject to federal income
tax, (2) interest paid by Mercantile on the junior subordinated
debentures will not be deductible by Mercantile for federal income tax
purposes, or (3) MBWM Trust is or will be subject to more than a minimal
amount of other taxes or governmental charges.
- In whole upon a change in the laws or regulations to the effect that MBWM
Trust is or will be considered to be an investment company that is
required to be registered under the Investment Company Act of 1940.
- In whole upon a change in the laws or regulations if there is a risk that
Mercantile will not be able to treat all or a substantial portion of the
preferred securities as core capital for purposes of capital adequacy
guidelines of the Federal Reserve.
The exercise of these redemption rights is subject to Mercantile having received
prior approval of the Federal Reserve, if required. For further information
concerning tax, legislative or regulatory events that may trigger redemption of
the junior subordinated debentures and prepayment of the preferred securities,
see "Description of the Preferred Securities -- Redemption -- Mandatory and
Optional Rights of Mercantile."
YOU ARE SUBJECT TO PREPAYMENT RISK BECAUSE POSSIBLE TAX LAW CHANGES COULD
RESULT IN A REDEMPTION OF THE PREFERRED SECURITIES.
Future legislation may be proposed or enacted that may prohibit Mercantile
from deducting its interest payments on the junior subordinated debentures for
federal income tax purposes, making redemption of the junior subordinated
debentures likely and resulting in a redemption of the preferred securities.
From time to time, the Clinton Administration has proposed tax law changes
that would, among other things, generally deny interest deductions to a
corporate issuer if the debt instrument has a term exceeding 15 years and if the
debt instrument is not reflected as indebtedness on the issuer's consolidated
balance sheet. Other proposed tax law changes would have denied interest
deductions if the debt instrument had a term exceeding 20 years. Although it is
impossible to predict future proposals, if a future proposal of this sort were
to become effective in a form applicable to already issued and outstanding
securities, Mercantile could be precluded from deducting interest on the junior
subordinated debentures. Enactment of any such proposal might in turn give rise
to a tax event as described under "Description of the Preferred
Securities -- Redemption -- Mandatory and Optional Rights of Mercantile."
You should also be aware that a petition was recently filed in the United
States Tax Court as a result of a challenge by the IRS of a taxpayer's treatment
as indebtedness of a security issued with characteristics similar to the junior
subordinated indentures. Although the IRS agreed to dismissal of the adjustments
related to this issue, it could assert similar adjustments against other
taxpayers. If it were to do so and the issue were litigated to a conclusion in
which the IRS's position on this matter were sustained, such a judicial
determination could constitute a tax event which could result in an early
redemption of the preferred securities. For further information, see
"Description of the Preferred Securities -- Redemption -- Mandatory and Optional
Rights of Mercantile," "Description of Junior
11
<PAGE> 15
Subordinated Indentures -- Redemption" and "Material Federal Income Tax
Consequences."
MERCANTILE'S OBLIGATIONS UNDER THE PREFERRED SECURITIES GUARANTEE AND THE
JUNIOR SUBORDINATED DEBENTURES RANK LOWER THAN OTHER MERCANTILE OBLIGATIONS.
Mercantile's obligations under the junior subordinated debentures are
unsecured and will rank junior in priority of payment to any senior and
subordinated debt Mercantile may incur, which generally includes indebtedness,
liabilities or obligations of Mercantile, contingent or otherwise. Mercantile's
obligations under the junior subordinated debentures will also be effectively
subordinated to all existing and future liabilities and obligations of its
subsidiaries, including the Bank.
The preferred securities, the junior subordinated debentures and the
preferred securities guarantee do not limit the ability of Mercantile or the
Bank to incur unlimited future indebtedness, liabilities and obligations, which
may rank senior to the junior subordinated debentures and the preferred
securities guarantee.
For more information on Mercantile's obligations under the preferred
securities guarantee and the junior subordinated debentures, see "Description of
Preferred Securities Guarantee -- Status of Preferred Securities Guarantee" and
"Description of Junior Subordinated Debentures -- Subordination of Junior
Subordinated Debentures to Senior and Subordinated Debt of Mercantile."
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF PREFERRED
SECURITIES MAY HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF YOUR HOLDINGS.
Your investment in the preferred securities may decrease in value if the
junior subordinated debentures are distributed to you. Mercantile cannot predict
the liquidity or market prices for the junior subordinated debentures that may
be distributed. Accordingly, the junior subordinated debentures that you receive
upon a distribution, or the preferred securities you hold pending such a
distribution, may trade at a discount to the price that you paid to purchase the
preferred securities.
Because you may receive junior subordinated debentures, you must also make
an investment decision with regard to the junior subordinated debentures. You
should carefully review all the information regarding the junior subordinated
debentures contained in this prospectus. If the junior subordinated debentures
are distributed, Mercantile will use reasonable efforts to list them on a
national securities exchange or quotation system.
The material United States federal income tax consequences of a
distribution of the junior subordinated debentures are discussed under "Material
Federal Income Tax Consequences -- Distribution of Junior Subordinated
Debentures to Holders of Preferred Securities."
YOU MUST RELY ON THE PROPERTY TRUSTEE OF MBWM TRUST TO ENFORCE YOUR RIGHTS
UNDER THE JUNIOR SUBORDINATED DEBENTURES IN THE EVENT OF DEFAULT.
You may not be able to directly enforce rights against Mercantile if an
event of default occurs. If an event of default under the junior subordinated
debentures occurs and is continuing, this event will also be an event of default
under the preferred securities. In that case, the holders of the preferred
securities would rely on the enforcement by the property trustee of its rights
as holder of the junior subordinated debentures against Mercantile. The holders
of a majority in liquidation amount of the preferred securities will have the
right to direct the property trustee to enforce its rights. If the property
trustee does not enforce its rights, any record holder may take action directly
against Mercantile
12
<PAGE> 16
to enforce the property trustee's rights. If a default under the preferred
securities occurs that is attributable to Mercantile's failure to pay interest
or principal on the junior subordinated debentures, a record holder of the
preferred securities may proceed directly against Mercantile. The holders of
preferred securities will not be able to exercise directly any other remedies
available to the holders of the junior subordinated debentures unless the
property trustee fails to do so. See "Description of the Preferred
Securities -- Events of Default; Notice" and "Description of Junior Subordinated
Debentures -- Indenture Events of Default" for more information on your rights
if an event of default occurs.
LIMITED COVENANTS RELATING TO THE PREFERRED SECURITIES AND THE JUNIOR
SUBORDINATED DEBENTURES DO NOT PROTECT YOU.
The covenants in the governing documents relating to the preferred
securities and the junior subordinated debentures are limited. As a result, the
governing documents do not protect you in the event of an adverse change in
Mercantile's financial condition or results of operations. Nor do the governing
instruments limit the ability of Mercantile or its subsidiary to incur
additional debt. You should not consider the terms of the governing documents to
be a significant factor in evaluating whether Mercantile will be able to comply
with its obligations under the junior subordinated debentures or the preferred
securities guarantee.
AS A HOLDER OF PREFERRED SECURITIES YOU WILL HAVE LIMITED VOTING RIGHTS.
As a holder of preferred securities, you have limited voting rights. These
rights relate only to the modification of the preferred securities and removal
of the property and indenture trustees of MBWM Trust upon the happening of a
limited number of events. You will not have any voting rights regarding
Mercantile or the administrative trustees. See "Description of the Preferred
Securities -- Voting Rights; Amendment of the Trust Agreement" for more
information on your limited voting rights.
INTEREST ACCRUALS ON THE PREFERRED SECURITIES MAY CREATE ADVERSE TAX
CONSEQUENCES FOR YOU IF THE PREFERRED SECURITIES ARE TRADED.
The preferred securities may trade at a price that does not reflect the
value of accrued but unpaid interest on the underlying junior subordinated
debentures. If you dispose of your preferred securities between record dates for
payments on the preferred securities, you may have adverse tax consequences.
Under these circumstances, you will be required to include accrued but unpaid
interest on the junior subordinated debentures allocable to the preferred
securities through the date of disposition in your income as ordinary income if
you use the accrual method of accounting or if such interest represents original
issue discount. If interest on the junior subordinated debentures is included in
income under the original issue discount provisions, you would add this amount
to your adjusted tax basis in your share of the underlying junior subordinated
debentures deemed disposed. If your selling price is less than your adjusted tax
basis, which will include all accrued but unpaid original issue discount
interest included in your income, you could recognize a capital loss which
cannot be applied to offset ordinary income for federal income tax purposes,
subject to exceptions. See "Material Federal Income Tax Consequences -- Interest
Income and Original Issue Discount" and "-- Sales or Redemption of Preferred
Securities" for more information on possible adverse tax consequences to you.
13
<PAGE> 17
THE PRICE OF YOUR PREFERRED SECURITIES COULD BE ADVERSELY AFFECTED BY A
POSSIBLE LIMITED PUBLIC MARKET.
There can be no assurance that an active and liquid trading market for the
preferred securities will develop or be sustained due to a possible limited
number of owners of the preferred securities or lack of interest by persons who
may want to trade the preferred securities. An inactive or illiquid trading
market could adversely affect the price of your preferred securities.
RISK FACTORS RELATING TO MERCANTILE
MERCANTILE HAS A LIMITED OPERATING HISTORY AND IS SUBJECT TO THE RISKS OF A
NEW BUSINESS.
Mercantile commenced its banking business on December 15, 1997, and has a
limited operating history. Mercantile is subject to the risks that accompany a
new business, including those relating to finding and retaining customers,
finding and hiring qualified people, growing the business, and developing and
offering products. Mercantile expects that its future operating earnings will be
adequate to enable it to make the quarterly distributions required to be paid to
MBWM Trust under the junior subordinated debentures. However, the level of
operating earnings in prior quarters would not have been adequate to fund the
payment of these amounts.
IF BORROWERS DO NOT REPAY LOANS IT WILL ADVERSELY AFFECT MERCANTILE.
Some borrowers may not repay loans that the Bank makes to them. This risk
is inherent in the commercial banking business. If a significant amount of loans
are not repaid, it would have an adverse effect on Mercantile's earnings and
overall financial condition, and could cause the insolvency of Mercantile.
Like all financial institutions, the Bank maintains an allowance for loan
losses to provide for loan defaults and nonperformance. The allowance for loan
losses is maintained at a level management feels is adequate to absorb losses
inherent in the loan portfolio, an evaluation that is primarily based upon a
review of the Bank's and the banking industry's historical loan loss experience,
known and inherent risks contained in the loan portfolio, composition, and
growth of the loan portfolio, and current and projected economic factors.
However, the Bank's allowance for loan losses may not be adequate to cover
actual losses, and future provisions for loan losses may adversely affect
Mercantile's earnings.
IF ECONOMIC CONDITIONS IN GENERAL AND IN MERCANTILE'S PRIMARY MARKET AREA
DETERIORATE, MERCANTILE'S REVENUES AND EARNINGS COULD DECREASE.
Mercantile's financial results may be adversely affected by changes in
prevailing economic conditions, including declines in real estate values, rapid
changes in interest rates, adverse employment conditions and the monetary and
fiscal policies of the federal government. Although economic conditions in
Mercantile's primary market area are good and have aided its recent growth,
there is no assurance that these conditions will continue. In addition,
substantially all of the loans made by the Bank are to individuals and
businesses in western Michigan, and any decline in the economy of this area
could have an adverse impact on the Mercantile. There is no assurance that
positive trends or developments discussed in this prospectus will continue or
that negative trends or developments will not have a significant adverse effect
on Mercantile.
14
<PAGE> 18
A DECREASE IN INTEREST RATE SPREADS MAY DECREASE MERCANTILE'S PROFITS.
Mercantile's profitability is in part a function of the spread between the
interest rates earned on assets and the interest rates paid on deposits and
other interest-bearing liabilities. A decrease in interest rate spreads would
have a negative effect on the net interest income and profitability of
Mercantile, and there is no assurance that a decrease will not occur. Although
management believes that the maturities of Mercantile's assets are moderately
balanced in relation to maturities of liabilities, this balance involves
estimates as to how changes in the general level of interest rates will impact
the yields earned on assets and the rates paid on liabilities.
THE BANK IS SUBJECT TO REGULATORY RESTRICTIONS ON THE DIVIDENDS IT CAN
DECLARE AND PAY TO MERCANTILE.
Mercantile's sources of funds for payment of interest on the junior
subordinated debentures (which payments will be the sole source of funds
available for payment of distributions on the preferred securities) will consist
primarily of dividends, if and when received, from the Bank. The Bank has not
paid any dividends to date, and no agreement, written or otherwise, between the
Bank and Mercantile exists that requires the Bank to pay any dividends to
service Mercantile's debt. The Bank is and will continue to be subject to
applicable regulatory restrictions which limit the amount of dividends that can
be paid by banking institutions.
Also, pursuant to the Bank's original application to the FDIC for deposit
insurance, the Bank was prohibited from declaring or paying dividends for the
first three years of operations, or until December 15, 2000, absent regulatory
consent. While the necessary regulators have consented to the Bank declaring
dividends sufficient to pay the amounts due on the junior subordinated
debentures so long as the Bank maintains a Tier I leverage ratio of at least
8.0% until December 15, 2000, and continues to be profitable, there can be no
assurance that the Bank will declare and pay dividends in amounts sufficient to
pay amounts due on the preferred securities.
MANAGEMENT WILL HAVE BROAD DISCRETION IN MERCANTILE'S USE OF THE PROCEEDS
IT RECEIVES.
Mercantile will receive approximately $13.2 million in net proceeds from
the sale of its junior subordinated indentures, after deducting underwriting
commissions and estimated expenses payable by Mercantile. The Bank's management
will have broad discretion to allocate these net proceeds to uses it believes
are appropriate. See "Use of Proceeds" for the application of the proceeds. The
amount and timing of the allocations will depend on a number of factors and may
affect Mercantile's earnings.
GOVERNMENT REGULATIONS IMPOSE LIMITATIONS AND MAY RESULT IN HIGHER
OPERATING COSTS AND COMPETITIVE DISADVANTAGES FOR MERCANTILE.
Mercantile and the Bank are subject to extensive state and federal
government supervision and regulation that is intended primarily to protect
depositors and the Federal Deposit Insurance Corporation's Bank Insurance Fund,
rather than investors. Existing state and federal banking laws subject the Bank
to substantial limitations with respect to loans, the purchase of securities,
the payment of dividends and many other aspects of its banking business. Some of
the banking laws may benefit the Bank, others may increase the cost of doing
business or otherwise adversely affect the Bank and create competitive
advantages for non-bank competitors. 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
15
<PAGE> 19
economic and monetary policy may affect the Bank's ability to attract deposits,
make loans and achieve satisfactory interest spreads. See "Supervision and
Regulation."
THE BANKING BUSINESS IN MERCANTILE'S MARKET AREA IS HIGHLY COMPETITIVE.
Mercantile and the Bank 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 competes are not subject to
the same degree of regulation as the Bank. Many of the financial institutions
and financial services organizations aggressively compete for business in the
Bank's market area. Most of these competitors have been in business for many
years, have customer bases, deposits and lending limits that are substantially
larger than those of the Bank, and are able to offer certain services that the
Bank does not currently provide, including branch networks, 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. This competition may limit
Mercantile's growth or earnings. See "Business -- Competition." Additionally,
recently effective legislation regarding interstate branching and banking may
increase competition in the future from out-of-state banks.
IF THE COMPUTER SYSTEMS OF MERCANTILE OR ITS SUPPLIERS AND CUSTOMERS DO NOT
TIMELY BECOME YEAR 2000 COMPLIANT, MERCANTILE MAY BE ADVERSELY AFFECTED.
Mercantile faces a significant business issue regarding how existing
application software programs and operating systems can accommodate the date
value for the year 2000. Many existing software application products, including
software application products used by Mercantile and its suppliers and
customers, were designed to accommodate only a two-digit date value which
represents the year. Such faulty recognition could result in a system failure,
disruption of operations, or inaccurate information or calculations. The
interruption to Mercantile's business could be substantial if Mercantile's main
data processing service provider fails to become year 2000 compliant. In
addition, failure by suppliers and customers of Mercantile to modify and convert
their own computer systems could have a significant adverse effect on the
suppliers' or customers' operations and profitability, thus inhibiting their
ability to provide services or repay loans to Mercantile. For further
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Year 2000."
MERCANTILE WILL NEED TO APPLY NEW TECHNOLOGY TO SERVICE ITS CUSTOMERS.
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. Mercantile'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
16
<PAGE> 20
products and services or be successful in marketing such products and services
to its customers.
MERCANTILE IS DEPENDENT ON KEY PERSONNEL.
Mercantile is dependent on the continued services of Mr. Johnson and Mr.
Price, the two senior executive officers of Mercantile who have provided vision
and leadership since its organization. The loss of either of these officers
could have an adverse affect on Mercantile's growth and performance. Mercantile
and the Bank have entered into employment contracts with Mr. Johnson and Mr.
Price that provide for their employment through December 31, 2001. Mercantile
presently maintains policies of key man life insurance on the lives of Mr.
Johnson and Mr. Price in the amount of $1 million each.
GROWTH AND EXPANSION MAY BE LIMITED BY MANY FACTORS.
Mercantile has pursued and intends to continue to pursue an internal growth
strategy, the success of which will depend primarily on generating an increasing
level of loans and deposits at acceptable risk levels without corresponding
increases in non-interest expenses. There can be no assurance that Mercantile
will be successful in continuing its growth strategies due to delays and other
impediments resulting from regulatory oversight, limited availability of
qualified personnel, unavailability of branch sites or poor site selection of
bank branches. In addition, the success of Mercantile's growth strategy will
depend on maintaining sufficient regulatory capital levels and on continued
favorable economic conditions in Mercantile's market area.
DECLINE IN AVAILABILITY OF OUT-OF-AREA DEPOSITS COULD CAUSE LIQUIDITY
CONCERNS OR LIMIT MERCANTILE'S GROWTH
Mercantile has utilized out-of-area deposits to support the asset growth of
Mercantile as these are generally a lower cost source of funds when compared to
the interest rates that would have to be offered in the local market to generate
a commensurate level of funds. In addition, the overhead costs associated with
the out-of-area deposits are considerably less than the overhead costs that
would be incurred to administer a similar level of local deposits. A reduction
in the availability of such deposits would likely cause Mercantile to fund
growth with more costly funding sources which would reduce net interest margin,
or limit growth or reduce asset size.
17
<PAGE> 21
USE OF PROCEEDS
MBWM Trust will use all of the proceeds from the sale of preferred
securities to purchase the junior subordinated debentures from Mercantile. The
net proceeds to Mercantile from the sale of the junior subordinated debentures,
after deducting underwriting commissions and offering expenses, are expected to
be approximately $13.2 million, or $15.1 million if the underwriters'
over-allotment option is exercised in full. Mercantile intends to use
substantially all of the net proceeds to make a contribution to the capital of
the Bank. The Bank will use the net proceeds to invest in both short term
investment securities and loans.
Mercantile is required by the Federal Reserve to maintain defined levels of
capital for bank regulatory purposes. In 1996, the Federal Reserve announced
that qualifying amounts of securities having the characteristics of the
preferred securities could be included as core capital for bank holding
companies subject to certain limits. See "Capitalization." This capital
treatment, together with Mercantile's ability to deduct, for federal income tax
purposes, interest payable on the junior subordinated debentures, are expected
to provide Mercantile with a cost-effective means of obtaining capital for bank
regulatory purposes.
Therefore, a portion of these proceeds will qualify as core capital. To
support its growth, the Bank will be able to leverage this core capital by
continuing to grow deposits internally or through wholesale deposits and
borrowing additional funds. The additional capital that will be contributed to
the Bank will result in an increased legal lending limit which may add to the
Bank's ability to serve additional borrowing needs of the Bank's current
customers and larger customers in the Bank's market.
18
<PAGE> 22
MARKET FOR MERCANTILE'S COMMON STOCK AND PRICE RANGE
The common stock of Mercantile is quoted on the Nasdaq National Market
under the symbol MBWM. Prior to July 19, 1999, Mercantile's common stock was
quoted on the OTC Bulletin Board under the same symbol. At August 24, 1999,
there were 94 record holders of Mercantile's common stock. In addition,
Mercantile estimates that there are more than 1,500 beneficial owners of its
common stock who own their shares through brokers or banks. Mercantile has not
paid dividends since its formation in 1997.
The following table shows the high and low bid prices by quarter during the
period from the date of Mercantile's initial public stock offering (October 23,
1997) through June 30, 1999. The quotations reflect bid prices as reported by
the OTC Bulletin Board, and do not include retail mark-up, mark-down or dealer
commission.
<TABLE>
<CAPTION>
BID PRICES
----------------
HIGH LOW
------ ------
<S> <C> <C>
CALENDAR YEAR 1999
First Quarter............................................... $17.50 $13.00
Second Quarter.............................................. $16.63 $13.00
CALENDAR YEAR 1998
First Quarter............................................... $18.50 $10.25
Second Quarter.............................................. $19.00 $14.50
Third Quarter............................................... $17.12 $15.50
Fourth Quarter.............................................. $16.75 $12.37
CALENDAR YEAR 1997
Fourth Quarter (October 23, 1997 through December 31,
1997)..................................................... $11.75 $ 9.75
</TABLE>
19
<PAGE> 23
ACCOUNTING TREATMENT
For financial reporting purposes, MBWM Trust will be treated as a
subsidiary of Mercantile and, accordingly, the accounts of MBWM Trust will be
included in the consolidated financial statements of Mercantile. The preferred
securities will be presented as a separate line item in the consolidated balance
sheets of Mercantile under the caption "Guaranteed Preferred Beneficial
Interests in the Company's Subordinated Debentures," and appropriate disclosures
about the preferred securities, the preferred securities guarantee of Mercantile
and the junior subordinated debentures will be included in the notes to
consolidated financial statements. For financial reporting purposes, Mercantile
will record distributions payable on the preferred securities as interest
expense in the consolidated statements of income.
Future reports of Mercantile filed under the Securities Exchange Act of
1934, as amended, will include a footnote to the consolidated financial
statements stating that:
- MBWM Trust is a wholly-owned subsidiary of Mercantile;
- the sole asset of MBWM Trust is the junior subordinated debentures,
specifying the principal amount, interest rate and maturity date of the
junior subordinated debentures; and
- the obligations of Mercantile described in this prospectus, in the
aggregate, constitute a full, irrevocable and unconditional guarantee on
a subordinated basis by Mercantile of the obligations of MBWM Trust under
the preferred securities. MBWM Trust will not provide separate reports
under the Securities Exchange Act of 1934.
No separate financial statements of MBWM Trust have been included in this
prospectus. Mercantile and MBWM Trust do not consider that financial statements
of MBWM Trust would be material to holders of the preferred securities because
MBWM Trust is a newly formed, special purpose entity, has no operating history
or independent operations and is not engaged in and does not propose to engage
in any activity other than holding as assets the junior subordinated debentures
of Mercantile and issuing the preferred securities. For more information, see
"Description of the Preferred Securities," "Description of Junior Subordinated
Debentures" and "Description of Preferred Securities Guarantee."
20
<PAGE> 24
CAPITALIZATION
The following table shows (1) the consolidated capitalization of Mercantile
at June 30, 1999 and (2) the consolidated capitalization of Mercantile giving
effect to the issuance of the preferred securities of MBWM Trust in this
offering and receipt by Mercantile of the net proceeds from the corresponding
sale of the junior subordinated debentures to MBWM Trust, as if the sale of the
preferred securities had been consummated on June 30, 1999, and assuming the
Underwriter's over-allotment option is not exercised.
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
LONG TERM DEBT........................................... $ 0 $ 0
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE
COMPANY'S SUBORDINATED DEBENTURES...................... 0 14,000
SHAREHOLDERS' EQUITY
Preferred Stock, no par value; 1,000,000 shares
authorized; 0 shares issued and outstanding......... $ 0 $ 0
Common stock, no par value; 9,000,000 shares
authorized; 2,472,500 shares issued and
outstanding......................................... 28,182 28,182
Retained earnings (deficit)............................ (658) (658)
Unrealized gain (loss), net of tax, on available for
sale securities..................................... (464) (464)
------- -------
Total shareholders' equity.......................... 27,060 27,060
------- -------
Total capitalization................................ $27,060 $41,060
======= =======
CAPITAL RATIOS:
Shareholders' equity to total assets................... 9.27% 8.85%
Leverage ratio(1)(2)(3)(4)............................. 10.03 13.37
Risk-based capital ratios:(3)(4)
Tier 1 capital to risk-weighted assets.............. 9.52 12.57
Total risk-based capital to risk-weighted assets.... 10.77 15.48
</TABLE>
- -------------------------
(1) The leverage ratio is Tier 1 capital divided by average quarterly assets,
after deducting intangible assets and net deferred tax assets in excess of
regulatory maximum limits.
(2) The capital ratios, as adjusted, are computed including the total estimated
net proceeds from the sale of the preferred securities, in a manner
consistent with Federal Reserve guidelines.
(3) Federal Reserve guidelines for calculation of Tier 1 capital to
risk-weighted assets limits the amount of cumulative preferred securities
which can be included in Tier 1 capital to 25% of total Tier 1 capital.
(4) Unrealized gain (loss), net of tax, on available for sale securities is not
included in calculating regulatory capital ratios.
21
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
This Management's Discussion and Analysis should be read in conjunction
with the consolidated financial statements and related notes contained elsewhere
in this prospectus. This discussion provides information about the consolidated
financial condition and results of operations of Mercantile and its wholly-owned
subsidiary, the Bank.
Mercantile was incorporated on July 15, 1997 as a bank holding company to
establish and own the Bank. In October 1997, in connection with the organization
of Mercantile and Bank, Mercantile sold 1,495,000 shares of common stock in an
underwritten, initial public offering. Mercantile funded the capital of the Bank
and paid certain expenses from the net proceeds of the public offering.
The Bank, after receiving all necessary regulatory approvals, began
operations on December 15, 1997. The Bank has a strong commitment to community
banking and offers a wide range of financial products and services, primarily to
small- to medium-sized businesses, as well as individuals. The Bank's lending
strategy focuses on commercial lending, and, to a lesser extent, residential
mortgage and consumer lending. The Bank also offers a broad array of deposit
products, including checking, savings, money market, and certificates of
deposit, as well as security repurchase agreements. The Bank's primary market
area is the Kent and Ottawa County areas of western Michigan, which includes the
City of Grand Rapids, the second largest city in the State of Michigan.
FINANCIAL CONDITION AS OF JUNE 30, 1999 AND DECEMBER 31, 1998
During the first six months of 1999, the assets of Mercantile increased
from $216.2 million on December 31, 1998, to $291.9 million on June 30, 1999.
This represents a total increase in assets of $75.7 million, or 35.0%. The asset
growth was comprised primarily of a $61.0 million increase in net loans, a $6.5
million increase in cash and cash equivalents, and an increase of $5.4 million
in investment securities. The increase in assets was primarily funded by a $73.8
million growth in deposits and an increase of $0.8 million in securities sold
under agreements to repurchase. The growth in deposits was in both local
deposits and out-of-area CD's. While management expects continuing asset growth,
it is anticipated to be at a slower rate.
Commercial loans increased by $56.7 million during the first six months of
1999, and at June 30, 1999 comprised 93% of the total loan portfolio. The
significant concentration in commercial loans and the rapid growth of this
portion of Mercantile's business is in keeping with a strategy of focusing a
substantial amount of effort on "wholesale" banking. Corporate and business
lending is an area of expertise for all of Mercantile's senior management team.
Commercial loans are also the assets most easily originated and managed by the
fewest number of staff, thus reducing overhead through necessitating fewer
full-time equivalents (FTE's)/$million in assets. The commercial sector of
Mercantile's business generates the greatest amount of local deposits, and is
virtually the only source of significant demand deposits.
Residential mortgage and consumer loans also increased by $4.9 million and
$0.4 million, respectively, during the first six months of 1999. However, the
commercial sector of the lending efforts and resultant assets have been and
continue to be Mercantile's
22
<PAGE> 26
primary strategy for growth and profitability, and Mercantile expects that the
current composition of the loan portfolio will remain relatively stable.
Deposits increased $73.8 million during the first six months of 1999,
totaling $245.8 million at June 30, 1999. Local deposits increased $21.5
million, while out-of-area deposits increased $52.3 million. Although the level
of local deposits has declined as a percent of total deposits from 43.4% as of
December 31, 1998, to 39.1% at June 30, 1999, due to the higher level of growth
in out-of-area deposits, there have been significant dollar volume increases in
all categories of the local deposits.
Out-of-area deposits totaled $149.6 million, or 60.9% of total deposits, as
of June 30, 1999. Out-of-area deposits consist primarily of certificates of
deposit obtained from depositors located outside Mercantile's market area and
placed by deposit brokers for a fee, but also include certificates of deposit
obtained from the deposit owners directly. Out-of-area deposits are utilized to
support the asset growth of Mercantile, and are generally a lower cost source of
funds when compared to the interest rates that would have to be offered in the
local market to generate a commensurate level of funds. In addition, the
overhead costs associated with the out-of-area deposits are considerably less
than the overhead costs that would be incurred to administer a similar level of
local deposits. Although local deposits have and are expected to increase as new
business, governmental and consumer deposit relationships have been established
and as existing customers increase their deposit accounts, the high reliance on
out-of-area deposits will likely remain.
Securities sold under agreements to repurchase increased by $0.8 million
during the first six months of 1999. As part of Mercantile's sweep account
program, collected funds from certain business noninterest-bearing checking
accounts are invested into over-night interest-bearing repurchase agreements.
Although not considered a deposit account and therefore not afforded federal
deposit insurance, these repurchase agreements have characteristics very similar
to that of business checking deposit accounts.
RESULTS OF OPERATIONS FOR THE SIX MONTHS AND THREE MONTHS ENDED
JUNE 30, 1999 AND 1998
Net operating income for the second quarter of 1999 was $503,472 ($0.20 per
share), which compares favorably to the net loss of $294,624 (-$0.20 per share)
recorded during the second quarter of 1998. Net operating income for the first
six months of 1999 was $855,163 ($0.35 per share), which also compares favorably
to the net loss of $1,436,201 (-$0.96 per share) recorded during the first six
months of 1998. The improvement during both time periods is primarily the result
of an increase in net interest income, greater employee efficiency and a
reduction of provisions to the allowance for loan losses. The year-to-date 1999
net operating income includes a one-time $42,210 ($0.02 per share) charge
reflecting an accounting adjustment for organization costs. In accordance with
previous accounting guidelines, these costs were being amortized over a
five-year period; however, as required by AICPA Statement of Position 98-5, the
unamortized balance was written off effective January 1, 1999, and is reflected
in the Consolidated Financial Statements as a change in accounting principle.
Interest income during the second quarter of 1999 was $5,212,444, a
significant increase over the $2,204,973 earned during the second quarter of
1998. Interest income during the first six months of 1999 was $9,743,639, a
significant increase over the $3,383,678 earned during the first six months of
1998. The growth in interest income during both time periods is primarily
attributable to an increase in earning assets. During
23
<PAGE> 27
the second quarter of 1999, earning assets averaged $266.2 million, a level
substantially higher than the average earning assets of $107.5 million during
the second quarter of 1998. During the first six months of 1999, earning assets
averaged $250.3 million, a level substantially higher than the average earning
assets of $82.4 million during the same time period in 1998. Somewhat offsetting
the positive impact of the increase in earning assets is the decline in yield on
earning assets. During the second quarter of 1999 and 1998, earnings assets had
a weighted average rate of 7.85% and 8.23%, respectively. During the first six
months of 1999 and 1998 earning assets had a weighted average rate of 7.79% and
8.26%, respectively. This decline is primarily due to an overall decline of
market interest rates, in part evidenced by the 75 basis point drop in the prime
lending rate during the last six months of 1998.
Interest expense during the second quarter of 1999 was $2,947,730, a
significant increase over the $1,299,514 expensed during the second quarter of
1998. Interest expense during the first six months of 1999 was $5,549,147, a
significant increase over the $1,878,455 expensed during the first six months of
1998. The growth in interest expense is primarily attributable to the growth in
assets, which necessitated an increase in funding liabilities. During the second
quarter of 1999, interest-bearing liabilities averaged $230.1 million, a level
substantially higher than average interest-bearing funds of $92.3 million during
the second quarter of 1998. During the first six months of 1999,
interest-bearing liabilities averaged $215.1 million, a level substantially
higher than average interest-bearing funds of $66.4 million during the same time
period in 1998. Also adding to the increased level of interest expense is the
increase of interest-bearing liabilities as a percent of average assets. During
the second quarter of 1999, interest-bearing liabilities averaged 83.8% of
average assets, an increase from the 80.9% level of the second quarter of 1998.
During the first six months of 1999, interest-bearing liabilities averaged 83.3%
of average assets, a notable increase from the 76.3% level during the same time
period in 1998. The increase is primarily the result of the planned and expected
leveraging of shareholders' equity. During the second quarter of 1999,
shareholders' equity averaged 9.9% of average assets, a decline from the 10.7%
level during the second quarter of 1998. During the first six months of 1999,
shareholders' equity averaged 10.4% of average assets, a decline from the 14.4%
level during the first six months of 1998. Somewhat offsetting the increased
level of interest-bearing liabilities is the decline in the average rate paid on
interest-bearing liabilities. During the second quarter of 1999 and 1998,
interest-bearing liabilities had a weighted average rate of 5.14% and 5.65%,
respectively. During the first six months of 1999 and 1998, interest-bearing
liabilities had a weighted average rate of 5.17% and 5.76%, respectively. This
decline, as mentioned previously, is due in large part to the overall decline of
market interest rates during the last six months of 1998.
Net interest income during the second quarter of 1999 was $2,264,714, a
significant increase over the $905,459 earned during the second quarter of 1998.
Net interest income during the first six months of 1999 was $4,194,492, a
significant increase over the $1,505,223 earned during the same time period in
1998. As described above, the increase is primarily due to the substantial
growth experienced between the compared time periods. Additional factors
impacting net interest income included, but were not limited to, changes in
interest rates and a reduction of the capital level.
The following table sets forth certain information relating to Mercantile's
consolidated average interest earning assets and interest-bearing liabilities
and reflects the average yield on assets and average cost of liabilities for the
period indicated. Such yields and costs are derived by dividing income or
expense by the average daily balance of assets or liabilities,
24
<PAGE> 28
respectively, for the period presented. During the period presented, there were
no nonaccrual loans.
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 1999
-------------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Loans........................................... $230,483 $4,696 8.17%
Investment securities........................... 28,634 433 6.07
Federal funds sold.............................. 6,451 76 4.73
Short term investments.......................... 586 7 4.79
-------- ------ ----
Total interest-earning assets................ 266,154 5,212 7.85
Allowance for loan losses....................... (3,393)
Other assets.................................... 11,734
--------
Total assets................................. $274,495
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits....................... $213,432 $2,776 5.22%
Other borrowings................................ 16,674 172 4.14
-------- ------ ----
Total interest-bearing liabilities........... 230,106 2,948 5.14
Noninterest-bearing deposits.................... 16,235
Other liabilities............................... 1,026
Shareholders' equity............................ 27,128
--------
Total liability and shareholders' equity..... $274,495
========
Net interest income............................. $2,264
======
Net interest rate spread........................ 2.71%
====
Net interest margin on earning assets........... 3.41%
====
</TABLE>
Interest rate risk is the exposure of Mercantile's financial condition and
operating performance to adverse movements in interest rates. Mercantile derives
its income primarily from the excess of interest collected on its
interest-earning assets over the interest paid on its interest-bearing
liabilities. Since market rates are subject to change over time, Mercantile is
exposed to lower profitability if interest rate changes result in a reduction of
the Bank's net interest margin. Accordingly, effective risk management that
maintains interest rate risk at prudent levels is essential to Mercantile's
safety and soundness. The primary measurement method utilized by Mercantile to
assess interest rate risk is commonly referred to as net interest income
simulation analysis. This computer-based model measures the direction and
magnitude of variations in net interest income resulting from potential changes
in market interest rates. Although the assumptions used within the model are
inherently uncertain and subject to fluctuation and revision, and therefore
actual results will differ from the simulated results, management believes this
25
<PAGE> 29
methodology provides meaningful information to assist in managing the interest
rate risk of Mercantile.
Mercantile conducted multiple simulations as of June 30, 1999, whereby it
was assumed that a simultaneous, instant and sustained change in market interest
rates occurred. The following table illustrates the suggested impact on net
interest income over the next twelve months, which are well within Mercantile's
policy parameters established to manage and monitor interest rate risk.
<TABLE>
<CAPTION>
DOLLAR CHANGE IN PERCENT CHANGE IN
INTEREST RATE SCENARIO NET INTEREST INCOME NET INTEREST INCOME
- ---------------------- ------------------- -------------------
<S> <C> <C>
Interest rates down 200 basis points....... $ 670,911 8.3%
Interest rates down 100 basis points....... 388,640 4.8
No change in interest rates................ 106,422 1.3
Interest rates up 100 basis points......... (132,375) (1.6)
Interest rates up 200 basis points......... (372,083) (4.6)
</TABLE>
In addition to changes in interest rates, the level of future net interest
income is also dependent on a number of other variables, including: the growth,
composition and absolute levels of loans, deposits, and other earning assets and
interest-bearing liabilities; economic and competitive conditions; potential
changes in lending, investing and deposit gathering strategies; client
preferences; and other factors.
Provisions to the allowance for loan losses during the second quarter of
1999 were $480,900, a level similar to the $473,000 expensed during the same
time period in 1998. Provisions to the allowance for loan losses during the
first six months of 1999 were $935,900, a notable decline from the $1,471,800
expensed during the same time period in 1998. The reduction reflects the lower
level of loan growth during the first six months of 1999 when compared to the
first six months of 1998. The allowance for loan losses as a percentage of total
loans outstanding as of June 30, 1999 was 1.5%, which also represents the level
that has been maintained since inception of the Bank. The allowance for loan
losses is maintained at a level management feels is adequate to absorb losses
inherent in the loan portfolio. The evaluation is based upon a continuous review
of Mercantile's and the banking industry's historical loan loss experience,
known and inherent risks contained in the loan portfolio, composition and growth
of the loan portfolio, current and projected economic conditions and other
factors. Reflecting its focus on credit quality, Mercantile has not experienced
any loan charge-offs since its inception.
Noninterest income during the second quarter of 1999 was $205,835, a
significant increase over the $72,823 earned during the same time period in
1998. Noninterest income during the first six months of 1999 was $415,558, a
significant increase over the $87,263 earned during the same time period in
1998. Fees earned on referring residential mortgage loan applicants to various
third parties and commitment fees charged on issued standby letters of credit,
combined with an increase in fee income earned on deposit and repurchase
agreements resulting from an increase in deposit and repurchase accounts,
comprise a majority of the increase.
Noninterest expense during the second quarter of 1999 was $1,380,177, a
significant increase over the $799,906 expensed during the same time period in
1998. Noninterest expense during the first six months of 1999 was $2,642,777, a
significant increase over the $1,556,887 expensed during the same time period in
1998. An increase in all major
26
<PAGE> 30
overhead cost categories, including salaries and benefits, occupancy, and
furniture and equipment, was recorded. The increases primarily result from the
hiring of additional staff. All other noninterest costs have also increased,
reflecting additional expenses required to administer the significantly
increased loan and deposit base.
While the dollar volume of noninterest costs has increased, as a percent of
average assets the level has substantially declined as a result of Mercantile's
growth and realized operating efficiencies. During the second quarter of 1999
noninterest costs were 2.01% of average assets on an annualized basis, a
significant decline from the 2.80% level during the same time period in 1998.
During the first six months of 1999, noninterest costs were 2.05% of average
assets on an annualized basis, a significant decline from the 3.58% level during
the same time period in 1998. Monitoring and controlling noninterest costs,
while at the same time providing high quality service to customers, is of utmost
importance to Mercantile. The efficiency ratio, computed by dividing noninterest
expenses by net interest income plus noninterest income, was 55.9% and 57.3%
during the second quarter and first six months of 1999, respectively. This
compares favorably to the efficiency ratios of 81.8% and 97.8% during the second
quarter and first six months of 1998, respectively. This improved performance is
primarily due to the rapid asset growth that has translated into increased net
interest income, as well as Mercantile's lending philosophy of concentrating on
commercial lending that results in higher average loan balances compared to
residential mortgage and consumer loans which provides for a greater dollar
volume of loans with fewer people.
Federal income tax expense was $106,000 and $134,000 during the second
quarter and first six months of 1999, respectively. No tax expense was recorded
in 1998 due to Mercantile's operating loss; however, federal income tax expense
is being recorded in 1999 as it is expected that a portion of Mercantile's 1999
net operating income will be subject to federal income tax.
FINANCIAL CONDITION AS OF DECEMBER 31, 1998 AND 1997
Mercantile experienced significant asset growth during 1998, its first full
year of operations. Assets of Mercantile increased from $24.1 million on
December 31, 1997 to $216.2 million on December 31, 1998. This represents an
increase in total assets of $192.1 million, which was primarily comprised of a
$171.8 million increase in loans and a $21.2 million increase in investment
securities. The increase in assets was primarily funded by a $162.3 million
increase in deposits, a $16.4 million increase in securities sold under
agreements to repurchase (repurchase agreements), and an increase of $13.2
million in shareholders' equity. While Mercantile expects continued asset
growth, it is anticipated that the growth will occur at a slower rate.
EARNING ASSETS
Mercantile's loan portfolio, which equaled 84% of average earning assets
during 1998, is primarily comprised of commercial loans. Averaging over 93% of
average loans and growing by $159.3 million during 1998, the commercial loan
portfolio represents loans to business interests generally located within
Mercantile's market area. As of December 31, 1998, approximately two-thirds of
the commercial loans are primarily secured by real estate properties, with the
remaining generally secured by other business assets such as accounts
receivable, inventory, and equipment. There are no significant industry
concentrations within the commercial loan portfolio. The concentration and rapid
growth in
27
<PAGE> 31
commercial loans is in keeping with Mercantile's strategy of focusing a
substantial amount of its efforts on commercial banking. Business lending is an
area of expertise for all of Mercantile's senior management team and commercial
lending staff.
Residential mortgage and consumer lending, while averaging under 7% of
average loans during 1998, also experienced excellent growth. However, the
commercial sector of the lending efforts and resultant assets have been and
continue to be Mercantile's primary strategy for growth and profitability, and
it is expected that the current composition of the loan portfolio will remain
relatively stable.
The following table presents the maturity of total loans outstanding, other
than residential mortgages and personal loans, as of December 31, 1998,
according to scheduled repayments of principal. All figures are stated in
thousands of dollars.
<TABLE>
<CAPTION>
0-1 1-5 AFTER 5
YEAR YEARS YEARS TOTAL
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Construction and land
development -- fixed
rate....................... $ 2,387,606 $ 3,940,409 $4,780,688 $ 11,108,703
Construction and land
development -- variable
rate....................... 2,547,581 2,547,581
Real estate -- secured by
nonfarm nonresidential
properties -- fixed rate... 1,195,799 81,248,005 1,934,056 84,377,860
Real estate -- secured by
nonfarm nonresidential
properties -- variable
rate....................... 18,462,661 18,462,661
Commercial -- fixed rate..... 929,624 23,794,327 463,999 25,187,950
Commercial -- variable
rate....................... 29,883,397 29,883,397
----------- ------------ ---------- ------------
$55,406,668 $108,982,741 $7,178,743 $171,568,152
=========== ============ ========== ============
</TABLE>
Mercantile's credit policies establish guidelines to manage credit risk and
asset quality. These guidelines include loan review and early identification of
problem loans to ensure effective loan portfolio administration. The credit
policies and procedures are meant to minimize the risk and uncertainties
inherent in lending. In following these policies and procedures, Mercantile must
rely on estimates, appraisals and evaluations of loans and the possibility that
changes in these could occur quickly because of changing economic conditions.
Identified problem loans, which exhibit characteristics (financial or otherwise)
that could cause the loans to become nonperforming or require restructuring in
the future, are included on the internal loan "Watch List." Senior management
reviews this list regularly and adjusts for changing conditions. Since inception
of Mercantile no scheduled loan payments have been 90 days or more past due, and
no loans have been placed in nonaccrual status or charged-off.
In each accounting period, the allowance for loan and lease losses is
adjusted by management to the amount necessary to maintain the allowance at
adequate levels. Through its credit department, management will attempt to
allocate specific portions of the allowance for loan losses based on
specifically identifiable problem loans. Management's
28
<PAGE> 32
evaluation of the allowance is further based on consideration of actual loss
experience, the present and prospective financial condition of borrowers,
industry concentrations within the portfolio and general economic conditions.
Management believes that the present allowance is adequate, based on the broad
range of considerations listed above.
The following table illustrates the breakdown of the allowance balance to
loan type.
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
PERCENT OF LOANS PERCENT OF LOANS
BALANCE TO END OF IN EACH CATEGORY IN EACH CATEGORY
PERIOD APPLICABLE TO AMOUNT TO TOTAL LOANS AMOUNT TO TOTAL LOANS
- -------------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural............. $2,612 84.3% $193 98.6%
Real
estate -- construction... 57 7.4
Real estate -- mortgage.... 57 7.2 1.3
Installment loans to
individuals.............. 39 1.1 0.1
Unallocated................ -- N/A -- N/A
------ ----- ---- -----
$2,765 100.0% $193 100.0%
====== ===== ==== =====
</TABLE>
The primary risk element considered by management with respect to each
installment and residential real estate loan is lack of timely payment.
Management has a reporting system that monitors past due loans and has adopted
policies to pursue its creditors' rights in order to preserve the Bank's
position. The primary risk elements with respect to commercial loans are the
financial condition of the borrower, the sufficiency of collateral, and lack of
timely payment. Management has a policy of requesting and reviewing periodic
financial statements from its commercial loan customers, and periodically
reviews existence of collateral and its value.
Although management believes that the allowance for loan and lease losses
is adequate to absorb losses as they arise, there can be no assurance that the
Bank will not sustain losses in any given period which could be substantial in
relation to the size of the allowance for loans and lease losses.
The investment securities portfolio also experienced significant growth
during 1998, increasing from $3.0 million on December 31, 1997 to $24.2 million
at December 31, 1998. Mercantile maintains the portfolio at levels to provide
adequate pledging for the repurchase agreement program and secondary liquidity
for Mercantile's daily operations. In addition, the portfolio serves a primary
interest rate risk management function. During 1998 the portfolio equaled 12% of
average earning assets. At December 31, 1998 the portfolio was comprised of high
credit quality U.S. Treasury notes (19%), U.S. Government Agency issued bonds
(50%), and U.S. Government issued and guaranteed mortgage-backed securities
(31%). Since the inception of Mercantile, all securities have been designated as
"available for sale" as defined in Financial Accounting Standards Board Standard
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Securities designated as available for sale are stated at fair value, with the
unrealized gains and losses, net of income tax, reported as a separate component
of shareholders' equity. The net unrealized gain recorded at December 31, 1998,
was $31,836, while the net unrealized loss recorded at December 31, 1997, was
$3,631.
29
<PAGE> 33
Federal funds sold, consisting of excess funds sold overnight to
correspondent banks, are used to manage daily liquidity needs and interest rate
sensitivity. During 1998 the average balance of these funds equaled 4% of
average earning assets. This level is well within internal policy guidelines,
and is not expected to change significantly in the future.
SOURCE OF FUNDS
Mercantile's major source of funds is from deposits. Total deposits
increased from $9.7 million at December 31, 1997, to $172.0 million on December
31, 1998. Although Mercantile experienced significant success in obtaining
deposits from customers located within the market area, the substantial asset
growth necessitated the acquisition of funds from depositors located outside of
the market area. Out-of-area deposits are utilized to support the asset growth
of Mercantile, and are generally a lower cost source of funds when compared to
the interest rates that would have to be offered in the local market to generate
a commensurate level of funds. In addition, the overhead costs associated with
the out-of-area deposits are considerably less than the overhead costs that
would be incurred to administer a similar level of local deposits. Although
local deposits have and are expected to increase as new business, governmental
and consumer deposit relationships have been established and as existing
customers increase their deposit accounts, the high reliance on out-of-area
deposits will likely remain.
Mercantile experienced significant growth in its noninterest-bearing
checking, interest-bearing checking, and savings accounts during 1998.
Noninterest-bearing checking accounts, comprised primarily of business loan
customers, grew $7.1 million and equaled 8% of average funding sources during
1998. Interest-bearing checking and savings accounts increased by $7.6 million
and $26.7 million and equaled 3% and 13% of average funding sources during 1998
and 1997, respectively. Business loan customers also comprise the majority of
these deposit types, although to a lesser extent than noninterest-bearing
checking accounts. Per banking regulations, incorporated businesses may not own
interest-bearing checking accounts and transactions from a savings account are
limited. Mercantile anticipates continued growth of its checking and savings
deposits as additional business loans are extended.
Mercantile introduced a new deposit account, a money market account, during
1998. The balance of this limited transaction checking account was $3.8 million
at December 31, 1998, and equaled 1% of average funding sources during 1998. A
majority of these accounts were opened and funded in the latter part of the
year, and Mercantile anticipates continued growth in the future.
Certificates of deposit increased by $117.1 million and represented 52% of
average funding sources during 1998. At December 31, 1998, this deposit type
totaled $117.3 million. Of this amount 17% of the balances were owned by
customers from within Mercantile's market area, primarily individuals and local
government municipalities. The remaining certificates of deposit were obtained
from depositors outside of Mercantile's market area. These out-of-area deposits
consist primarily of certificates of deposit placed by deposit brokers for a
fee, but also include certificates of deposit obtained from the deposit owners
directly. The owners of out-of-area certificates of deposit are comprised mainly
of credit unions located throughout the United States, but include banks,
savings and loans, government municipalities, businesses, and individuals from
across the country as well.
30
<PAGE> 34
Repurchase agreements increased $16.4 million and equaled 8% of average
funding sources during 1998. As part of Mercantile's sweep account program,
collected funds from certain business noninterest-bearing checking accounts are
invested into over-night interest-bearing repurchase agreements. The securities
involved in the repurchase agreement program are recorded as assets of
Mercantile. Although not considered deposits, and therefore not afforded Federal
Deposit Insurance Corporation insurance, this product enables Mercantile to
provide the equivalent of an interest-bearing checking account to incorporated
businesses that are prohibited by banking regulations from owning such an
account. The sweep account program is designed for businesses that maintain
relatively large checking account balances.
Shareholders' equity increased $13.2 million and equaled 13% of average
funding sources during 1998. The increase is directly attributable to the
secondary stock offering completed during the year, whereby Mercantile received
$14.3 million in net proceeds from the sale of 977,500 shares of common stock.
Substantially all of the net proceeds were contributed to the Bank to provide
support for asset growth, fund investments in loans and securities, and for
general corporate purposes. Shareholders' equity was negatively impacted by the
net loss from operations of $1.1 million recorded for all of 1998. Mercantile
did record net income from operations during the third and fourth quarters of
1998, and believes that this performance will continue in the future.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
SUMMARY
As anticipated, Mercantile recorded a net operating loss during 1998, its
first full year of operations. The net operating loss was $1.1 million, or $0.58
per share, and was primarily the result of a non-cash charge of $2.6 million for
provision for loan losses. Although Mercantile did not record any loan
charge-offs during the year, significant provisions were required as the result
of the substantial loan growth. The loan loss provisions are made in the period
the loans are booked, and are an immediate reduction to earnings. Loan loss
provisions are expected to continue to reduce earnings, although more
moderately, as the anticipated rate of loan growth slows relative to the size of
Mercantile.
Although continued significant future asset growth is anticipated,
resulting in additional large loan loss provisions, management expects the
overall earnings performance of Mercantile to improve. Mercantile did not record
any tax benefit as a result of the losses incurred and will not record income
tax expense until the net operating losses are recovered. The asset growth of
Mercantile should result in an increased level of net interest income, which
when coupled with noninterest income, should exceed the growth and level of
noninterest expense plus provisions for loan losses. In fact, on a quarter-by-
quarter basis, Mercantile has already achieved profitable status. During the
third and fourth quarters of 1998 Mercantile recorded net income of $116,000 and
$212,000, respectively.
31
<PAGE> 35
The following table shows some of the key equity performance ratios for the
year ended December 31, 1998, and the period from July 15, 1997 (inception)
through December 31, 1997.
<TABLE>
<CAPTION>
1998 1997
---- -----
<S> <C> <C>
Return on average total assets.............................. (0.9)% (21.8)%
Return on average equity.................................... (0.6) (30.9)
Dividend payout ratio....................................... N/A N/A
Average equity to average assets............................ 13.4 70.4
</TABLE>
NET INTEREST INCOME
Net interest income, the difference between revenue generated from earning
assets and the interest cost of funding those assets, is Mercantile's primary
source of earnings. Interest income and interest expense totaled $10.1 million
and $5.6 million during 1998, respectively, providing for net interest income of
$4.5 million. The net yield on average earning assets during 1998 was 3.62%. The
level of net interest income is primarily a function of asset size, as the
weighted average interest rate received on earning assets is greater than the
weighted average interest cost of funding sources; however, factors such as
types of assets and liabilities, interest rate risk, liquidity, and customer
behavior also impact net interest income as well as the net yield. The following
table depicts the average balance, interest earned and paid, and weighted
average rate of Mercantile's assets, liabilities and shareholders' equity during
1998 (in thousands):
<TABLE>
<CAPTION>
INTEREST AVERAGE
AVERAGE EARNED YIELD
BALANCE OR PAID OR COST
-------- ------- -------
<S> <C> <C> <C>
ASSETS:
Loans........................................... $104,838 $9,008 8.59%
Investment securities........................... 15,341 881 5.74
Federal funds sold.............................. 4,831 256 5.31
Short term investments.......................... 413 23 5.68
-------- ------ ----
Total interest-earning assets........... 125,423 10,168 8.11
Allowance for loan losses....................... (1,584)
Other assets.................................... 5,560
--------
Total assets............................ $129,399
========
</TABLE>
32
<PAGE> 36
<TABLE>
<CAPTION>
INTEREST AVERAGE
AVERAGE EARNED YIELD
BALANCE OR PAID OR COST
-------- ------- -------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing checking....................... $ 4,015 171 4.25
Savings......................................... 17,455 904 5.18
Money market.................................... 1,330 58 4.39
Certificates of deposit......................... 67,817 4,008 5.91
Short term borrowings........................... 10,340 488 4.72
-------- ------ ----
Total interest-bearing liabilities...... 100,957 5,629 5.58
Noninterest-bearing checking.................... 10,798
Other liabilities............................... 319
Shareholder's equity............................ 17,325
--------
Total liabilities and shareholders'
equity............................... $129,399
========
Net Interest Income............................... $4,539
======
Net Yield on Interest-Earning Assets.............. 3.62%
====
</TABLE>
Interest income is primarily generated from the loan portfolio, which
comprised 81% of average total assets during 1998. The loan portfolio, with an
average yield of 8.59%, earned $9.0 million, or 89% of total interest income.
The investment securities portfolio and Federal funds sold equaled 12% and 4% of
average total assets during 1998, respectively. With an average yield of 5.74%
investment securities contributed $0.9 million, or 9% of total interest income,
while Federal funds sold ended 1998 with an average yield of 5.31%, and earned
$0.3 million, or 3% of total interest income.
Interest expense is primarily generated from certificates of deposit, which
equaled 52% of average total assets during 1998. Certificates of deposit, with
an average rate of 5.91%, cost $4.0 million, or 71% of total interest expense.
Savings deposits and interest-bearing checking accounts equaled 13% and 3% of
average total assets during 1998, respectively. With an average rate of 5.18%
savings deposits cost $0.9 million, or 16% of total interest expense, while
interest-bearing checking accounts ended 1998 with an average rate of 4.25%, and
cost $0.2 million, or 3% of total interest expense. Short term borrowings,
comprised primarily of repurchase agreements but also included Federal funds
purchased, had an average rate of 4.72% during 1998. Mercantile paid $0.5
million in short term interest expense, or 9% of total interest expense, during
1998.
PROVISION FOR LOAN LOSSES
Reflecting significant loan growth the provision for loan losses totaled
$2.6 million during 1998. The allowance for loan losses as a percentage of total
loans outstanding as of December 31, 1998 was 1.50%, which also represents the
average ratio for the entire year. Mercantile maintains the allowance for loan
losses at a level management feels is adequate to absorb losses inherent in the
loan portfolio. The evaluation is based upon a continuous
33
<PAGE> 37
review of Mercantile's and the banking industry's historical loan loss
experience, known and inherent risks contained in the loan portfolio,
composition and growth of the loan portfolio, current and projected economic
conditions and other factors. Reflecting its focus on credit quality, Mercantile
has not experienced any loan charge-offs since its inception.
NONINTEREST INCOME
Other income was $488,000 during 1998. Fees earned on referring residential
mortgage loan applicants to various third parties was $210,000, commitment fees
charged on issued commercial standby letters of credit equaled $159,000, and
deposit and repurchase agreement service charges totaled $82,000.
NONINTEREST EXPENSE
Noninterest expense totaled $3.6 million during 1998. Salary and benefit
costs were $1.9 million, while occupancy, furniture and equipment expenses
totaled another $0.5 million. Additional large overhead expenses include
computer data processing and software ($171,000), loan processing ($154,000),
and advertising ($110,000). While the future dollar volume of noninterest costs
are anticipated to increase, as a percent of average assets the level is
expected to decline as Mercantile continues to grow and operating efficiencies
are realized.
Monitoring and controlling overhead expenses, while at the same time
providing high quality of service to customers, is of utmost importance to
Mercantile. The efficiency ratio, computed by dividing noninterest expenses by
net interest income plus noninterest income, was 70.9% for all of 1998. However,
due primarily to the rapid asset growth that has translated into increased net
interest income, Mercantile's efficiency ratio declined throughout 1998 and was
only 55.8% during the fourth quarter. In addition, Mercantile's lending
philosophy of concentrating on commercial lending results in higher average loan
balances compared to residential mortgage or consumer loans, which provides for
a greater volume of loans with fewer people thereby improving its efficiency.
This point is demonstrated by Mercantile's total assets per employee ratio,
which as of December 31, 1998 was approximately $6.0 million. This level
compares very favorably to the $3.4 million level of Michigan community banks of
similar asset size.
INCOME TAX EXPENSE
Due to the net loss from operations recorded by Mercantile no provisions to
income tax expense were necessary during 1998. It is anticipated that Mercantile
will be in a taxable position in the future.
34
<PAGE> 38
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
Mercantile was incorporated on July 15, 1997 as a bank holding company to
establish and own the Bank. The Bank received all necessary regulatory approvals
and began operations on December 15, 1997.
The Bank experienced significant growth in the loan portfolio during the
first 17 days of operations from December 11, 1997 to December 31, 1997. This
growth continued into 1998 and at a more rapid rate than deposit growth.
Management has chosen to fund this loan growth in 1998 in part by obtaining
brokered and out-of-state deposits to augment normal deposit growth and expects
to continue this practice until alternative funding sources become readily
available. Management has staggered the maturities of brokered and out-of-state
deposits with terms of 12 months to 60 months.
As of December 31, 1997, Mercantile had a retained deficit of $404,071.
This retained deficit was primarily the result of pre-opening fees and expenses
totaling approximately $178,000 as well as $193,300 in provision expense to
establish the allowance for loan losses at a level of 1.50% of total loans.
Management anticipated that Mercantile would generate a net loss for 1998 as a
result of expenditures made to build its management team and open the main
office. Significant ongoing additions to loan loss reserves were expected to
also contribute to this deficit due to the projected rapid increase in the loan
portfolio. Management further believes that the expenditures made in 1997 and
1998 will create the infrastructure and lay the foundation for growth in
subsequent years.
CAPITAL RESOURCES
Shareholders' equity is a noninterest-bearing source of funds which
provides support for asset growth. Shareholders' equity was $27.1 million, $26.7
million, and $13.5 million at June 30, 1999, December 31, 1998, and December 31,
1997. The increase during 1999 was due to net income recorded during the first
six months of 1999, net of the change in unrealized gains (losses) on securities
available for sale. The increase during 1998 is attributable to the secondary
common stock offering completed during the year, when 977,500 shares of common
stock were sold. Net proceeds to Mercantile, after deducting underwriting and
other related costs, was $14.3 million. Substantially all of the net proceeds
were contributed to the Bank, which were used to support anticipated growth in
assets, fund investments in loans and securities, and for general corporate
purposes. Mercantile's net operating loss of $1.1 million negatively impacted
shareholders' equity.
Mercantile and the Bank are subject to regulatory capital requirements
administered by federal banking agencies. Failure to meet the various capital
requirements can initiate regulatory action that could have a direct material
effect on the financial statements. Since inception, both Mercantile and the
Bank have been categorized as "Well Capitalized," the highest classification
rating contained within the banking regulations. It is Mercantile's strategy to
maintain the "Well Capitalized" rating for both Mercantile and the Bank;
however, if the rapid asset growth that Mercantile and the Bank have experienced
since inception continues, the acquisition of additional capital will be
required. This additional capital would likely be obtained through the sale of
common stock or trust preferred securities, or possibly a combination of both.
The sale of stock is, in large part, subject to
35
<PAGE> 39
the capital markets environment. While Mercantile believes this environment is
currently favorable, this could change at any time, thereby significantly
impacting the ability of Mercantile to raise additional capital. The capital
ratios of Mercantile and the Bank as of June 30, 1999, December 31, 1998, and
December 31, 1997 are disclosed under Note 14 of the Notes to Consolidated
Financial Statements included elsewhere in this prospectus.
The ability of Mercantile to pay cash and stock dividends is subject to
limitations under various laws and regulations and to prudent and sound banking
practices. No cash or stock dividends have been paid since Mercantile's
inception.
LIQUIDITY
Liquidity is measured by Mercantile's ability to raise funds through
deposits, borrowed funds, capital or cash flow from the repayment of loans and
investment securities. These funds are used to meet deposit withdrawals,
maintain reserve requirements, fund loans and operate Mercantile. Liquidity is
primarily achieved through the growth of deposits (both local and out-of-area)
and liquid assets such as securities available for sale, matured securities, and
Federal funds sold. Asset and liability management is the process of managing
the balance sheet to achieve a mix of earning assets and liabilities that
maximizes profitability, while providing adequate liquidity.
Mercantile's liquidity strategy is to fund loan growth with deposits and
repurchase agreements and to maintain an adequate level of short- and
medium-term investments to meet typical daily loan and deposit activity.
Although deposit and repurchase agreement growth from depositors located in the
market area increased by $81.4 million during 1998, the growth was not
sufficient to meet the substantial loan growth of $171.8 million and provide
monies for additional investing activities. To provide the additional needed
funds Mercantile regularly obtained deposits from customers outside of the
market area. These out-of-area deposits consist primarily of certificates of
deposit placed by deposit brokers for a fee, but also include certificates of
deposit obtained from the deposit owners directly. As of December 31, 1998,
out-of-area deposits totaled approximately $97.3 million, or 51% of combined
deposits and repurchase agreements. Although local deposits are expected to
increase as new business, governmental and consumer deposit relationships have
been established and as existing customers increase their deposit accounts, the
high reliance on out-of-area deposits will likely remain.
Mercantile has the ability to borrow money on a daily basis through
correspondent banks (Federal funds purchased), which it did on several occasions
during 1998; however, this is viewed as only a secondary and temporary source of
funds. During 1998 Mercantile's Federal funds sold position averaged $4.8
million.
In addition to normal loan funding and deposit flow, Mercantile also needs
to maintain liquidity to meet the demands of certain unfunded loan commitments
and standby letters of credit. As of December 31, 1998, Mercantile had a total
of $90.5 million in unfunded loan commitments and $19.3 million in unfunded
standby letters of credit. Of the total unfunded loan commitments, $68.7 million
were commitments available as lines of credit to be drawn at any time as
customers' cash needs vary, and $21.8 million were for loan commitments
scheduled to close and become funded within the next three
36
<PAGE> 40
months. Mercantile monitors fluctuations in loan balances and commitment levels,
and includes such data in its overall liquidity management.
MARKET RISK ANALYSIS
Mercantile's primary market risk exposure is interest rate risk and, to a
lesser extent, liquidity risk. All of Mercantile's transactions are denominated
in U.S. dollars with no specific foreign exchange exposure. Mercantile has only
limited agricultural-related loan assets and therefore has no significant
exposure to changes in commodity prices. Any impacts that changes in foreign
exchange rates and commodity prices would have on interest rates are assumed to
be insignificant.
Interest rate risk is the exposure of Mercantile's financial condition to
adverse movements in interest rates. Mercantile derives its income primarily
from the excess of interest collected on its interest-earning assets over the
interest paid on its interest-bearing liabilities. The rates of interest
Mercantile earns on its assets and owes on its liabilities generally are
established contractually for a period of time. Since market interest rates
change over time, Mercantile is exposed to lower profitability if interest rate
changes result in a reduction of the Bank's net interest margin. Accepting
interest rate risk can be an important source of profitability and shareholder
value; however, excessive levels of interest rate risk could pose a significant
threat to Mercantile's earnings and capital base. Accordingly, effective risk
management that maintains interest rate risk at prudent levels is essential to
Mercantile's safety and soundness.
Evaluating the exposure to changes in interest rates includes assessing
both the adequacy of the process used to control interest rate risk and the
quantitative level of exposure. Mercantile's interest rate risk management
process seeks to ensure that appropriate policies, procedures, management
information systems and internal controls are in place to maintain interest rate
risk at prudent levels with consistency and continuity. In evaluating the
quantitative level of interest rate risk Mercantile assesses the existing and
potential future effects of changes in interest rates on its financial
condition, including capital adequacy, earnings, liquidity and asset quality.
There are two interest rate risk measurement techniques used by Mercantile.
The first, which is commonly referred to as GAP analysis, measures the
difference between the dollar amounts of interest-sensitive assets and
liabilities that will be refinanced or repriced during a given time period. A
significant repricing gap could result in a negative impact to Mercantile's net
interest margin during periods of changing market interest rates. The
37
<PAGE> 41
following table depicts Mercantile's GAP position as of December 31, 1998
(dollars in thousands):
<TABLE>
<CAPTION>
WITHIN THREE TO ONE TO AFTER
THREE TWELVE FIVE FIVE
MONTHS MONTHS YEARS YEARS TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Assets:
Commercial loans........ $ 53,211 $ 3,458 $107,586 $ 7,735 $171,990
Residential real estate
loans................ 2,609 1,400 5,376 1,271 10,656
Consumer loans.......... 796 25 1,076 201 2,098
Securities available for
sale(1).............. 1,500 3,023 13,916 5,721 24,160
Interest-bearing
deposits............. 515 0 0 0 515
Allowance for loan
losses............... 0 0 0 (2,765) (2,765)
Other assets............ 0 0 0 9,583 9,583
-------- -------- -------- -------- --------
Total Assets.............. 58,631 7,906 127,954 21,746 216,237
-------- -------- -------- -------- --------
Liabilities:
Interest-bearing
checking............. 7,766 0 0 0 7,766
Savings................. 28,796 0 0 0 28,796
Money market accounts... 3,822 0 0 0 3,822
Time deposits
<$100,000............ 15,310 46,987 18,856 0 81,153
Time deposits $100,000
and over............. 13,816 13,548 8,777 0 36,141
Other borrowings........ 17,038 0 0 0 17,038
Noninterest-bearing
checking............. 0 0 0 14,319 14,319
Other liabilities....... 0 0 0 501 501
-------- -------- -------- -------- --------
Total Liabilities......... 86,548 60,535 27,633 14,820 189,536
Shareholders' Equity...... 0 0 0 26,701 26,701
-------- -------- -------- -------- --------
Total Sources of Funds.... 86,548 60,535 27,633 41,521 $216,237
-------- -------- -------- -------- --------
Net GAP................... $(27,917) $(52,649) $100,321 $(19,775)
======== ======== ======== ========
Cumulative GAP............ $(27,917) $(80,546) $ 19,775 $ 0
======== ======== ======== ========
Percent of cumulative GAP
to total assets......... (13)% (37)% 9% 0%
======== ======== ======== ========
</TABLE>
- -------------------------
(1) Mortgage-backed securities are categorized by expected maturities based upon
prepayment trends as of December 31, 1998.
38
<PAGE> 42
The second interest rate risk measurement used is commonly referred to as
net interest income simulation analysis. Mercantile believes that this
methodology provides a more accurate measurement of interest rate risk than the
GAP analysis, and therefore, serves as the primary interest rate risk
measurement technique used by Mercantile. The simulation model assesses the
direction and magnitude of variations in net interest income resulting from
potential changes in market interest rates. Key assumptions in the model include
prepayment speeds on various loan and investment assets; cash flows and
maturities of interest-sensitive assets and liabilities; and changes in market
conditions impacting loan and deposit volume and pricing. These assumptions are
inherently uncertain, subject to fluctuation and revision in a dynamic
environment; therefore, the model cannot precisely estimate net interest income
or exactly predict the impact of higher or lower interest rates on net interest
income. Actual results will differ from simulated results due to timing,
magnitude, and frequency of interest rate changes and changes in market
conditions and Mercantile's strategies, among other factors.
Mercantile conducted multiple simulations as of December 31, 1998, whereby
it was assumed that a simultaneous, instant and sustained change in market
interest rates occurred. The following table reflects the suggested impact on
net interest income over the next twelve months, which are well within
Mercantile's policy parameters established to manage and monitor interest rate
risk.
<TABLE>
<CAPTION>
DOLLAR CHANGE PERCENT CHANGE
IN NET IN NET
INTEREST RATE SCENARIO INTEREST INCOME INTEREST INCOME
- ---------------------- --------------- ---------------
<S> <C> <C>
Interest rates down 200 basis points............. $ 748,690 16.6%
Interest rates down 100 basis points............. 468,956 10.4
No change in interest rates...................... 191,660 4.3
Interest rates up 100 basis points............... (36,753) (0.8)
Interest rates up 200 basis points............... (267,532) (5.9)
</TABLE>
In addition to changes in interest rates, the level of future net interest
income is also dependent on a number of other variables, including: the growth,
composition and absolute levels of loans, deposits, and other earning assets and
interest-bearing liabilities; economic and competitive conditions; potential
changes in lending, investing, and deposit gathering strategies; client
preferences; and other factors.
YEAR 2000
The year 2000 issue confronting Mercantile and its suppliers, customers,
and competitors, centers on the inability of computer systems and embedded
technology to properly recognize dates near the end of and beyond the year 1999.
Mercantile has established a year 2000 working group consisting of senior
officers and other key employees and has been actively implementing a
comprehensive plan throughout 1998 and 1999, as required by bank regulatory
guidelines, to address the potential impact of the year 2000 problem on
Mercantile's information technology and non-information
39
<PAGE> 43
technology systems. Mercantile's year 2000 plans are subject to modification and
are revised periodically as additional information is developed.
READINESS
Mercantile has completed the inventory, assessment and planning phases for
its mission-critical information technology and non-information technology
systems, which pose risks to Mercantile's ability to process data for its loans,
deposits and general ledger impacting revenues and operating results. Based on
testing that has been completed, management believes that all mission-critical
systems are year 2000 compliant.
Mercantile recognizes that its ability to be year 2000 compliant is
somewhat dependent upon the year 2000 efforts of its vendors. In 1998 and 1999,
Mercantile has requested year 2000 readiness information from its significant
vendors. All mission-critical vendors have represented that they are or will be
year 2000 compliant. Mercantile is continuing to monitor its non-mission
critical vendors to determine their level of year 2000 readiness as well.
Mercantile is also following bank regulatory requirements that require an
assessment of loan customers' year 2000 readiness. Letters and questionnaires
have been utilized to assess material loan customers' readiness based on the
size of their loan type. The number of existing customers that have not
responded to the letters and questionnaires is minimal. Follow-up letters or
phone calls are being made when necessary to obtain additional information from
these customers. Of those who have responded, all material customers represented
that they are year 2000 compliant or are working toward compliance. Of those
customers still working towards year 2000 compliance, in Mercantile's opinion,
their inability to become compliant will not have a material adverse effect on
Mercantile's business or operating results. The Bank requires business customers
applying for new loans to disclose the potential impact of the year 2000 problem
on their businesses.
WORST CASE SCENARIO AND CONTINGENCY PLANS
Mercantile has determined the most reasonably likely worst case scenario is
the possibility of the lack of power or communication services for a period of
time in excess of one day. If this scenario were to occur, Mercantile's
operations could be interrupted. Mercantile has developed plans and procedures
to address this scenario, ranging from producing complete printed reports from
the core banking systems prior to January 1, 2000, to ensure that a hard copy of
the data is available in the event of a failure, to preparations for failures of
voice and data communications through the use of manual posting and courier
services, use of generators, alternative customer service locations or reduced
lobby hours.
Contingency planning, including the type discussed above is an integral
part of Mercantile's year 2000 readiness plan. Mercantile's contingency plans
attempt to address alternative courses of action in the event that
mission-critical systems do not function properly with the date change.
Development of the contingency plans was recently completed. The year 2000
contingency plans have been tested and the effectiveness of contingent
procedures was validated by an independent accounting firm.
40
<PAGE> 44
COSTS
The total costs associated with Mercantile's year 2000 compliance are
estimated at less than $75,000. These costs principally relate to the added
personnel costs, the employment of external consultants, and the purchase of
software upgrades. Mercantile expects to pay these costs from operating income.
Information technology staff and senior management have devoted significant
time and resources to year 2000 activities. While this has resulted in
allocating resources that would have otherwise been devoted to other information
technology projects, no projects have been delayed or postponed that would have
a material adverse impact on operations.
REGULATORY OVERSIGHT
Bank regulators have issued numerous statements and guidance on year 2000
compliance issues and the responsibilities of senior management and directors of
banks and bank holding companies. In addition, bank regulators have issued
safety and soundness guidelines to be followed by insured depository
institutions, such as the Bank, to ensure resolution of any year 2000 problems.
Periodic year 2000 reviews are performed by various bank regulatory agencies.
Most of the recent examinations have been performed by the FDIC and it is
expected that the FDIC will continue its frequent examinations throughout 1999.
The bank regulatory agencies have asserted that year 2000 testing and
certification is a key safety and soundness issue in conjunction with regulatory
examinations. Consequently, failure to address appropriately the year 2000 issue
could result in supervisory action, including the reduction of the Bank's
supervisory ratings, the denial of applications for examination, or the
imposition of civil money penalties.
41
<PAGE> 45
BUSINESS
OVERVIEW
Mercantile was incorporated as a Michigan business corporation on July 15,
1997. Mercantile was formed to acquire all of the Bank's capital stock and to
engage in the business of a bank holding company under the federal Bank Holding
Company Act of 1956, as amended (the "BHCA"). The Bank is Mercantile's only bank
subsidiary, and Mercantile's only other subsidiary is MBWM Trust.
In October 1997, in connection with the organization of Mercantile and the
Bank, Mercantile sold 1,495,000 shares of its common stock in an underwritten,
initial public offering, at a price of $10 per share. Mercantile funded the
capital of the Bank and paid certain expenses from the net proceeds of the
public offering. In July of 1998, Mercantile sold an additional 997,500 shares
of its common stock in an underwritten public offering at a price of $15.75 per
share.
The Bank is a Michigan banking corporation that commenced business on
December 15, 1997. The Bank has a strong commitment to community banking and
offers a wide range of financial products and services, primarily to small- to
medium-sized businesses, as well as individuals. The Bank's lending strategy
focuses on commercial lending, and, to a lesser extent, residential and consumer
lending. The Bank also offers a broad array of deposit products, including
checking, savings, and money market accounts, business checking, direct deposits
and certificates of deposit.
MARKET AREA
Mercantile's market area is the Kent and Ottawa Counties of western
Michigan, which includes the city of Grand Rapids, the second largest city in
the State of Michigan. Kent County has a diverse economy based primarily on
manufacturing, retail and service businesses. According to available statistical
data, Kent County has approximately 547,000 people, 198,000 households and a
median household income that is estimated to have grown approximately 51% from
1990 to 1998.
Kent County is a significant banking market in the State of Michigan.
According to available industry data, as of June 30, 1998, total deposits in
Kent County, including those of banks, thrifts and credit unions, were
approximately $7.0 billion.
BUSINESS STRATEGY
Mercantile's business strategy revolves around the focused execution of the
following seven practices:
- RECRUIT AND RETAIN HIGHLY-QUALIFIED PERSONNEL. Mercantile's strategy
focuses on the recruitment of experienced community banking personnel and
empowering these employees to make decisions and resolve customer
problems as a means of providing outstanding customer service.
Mercantile's compensation structure is intended to reward its employees
for generating quality loans and maximizing long-standing customer
relationships. The lack of any non-performing assets since Mercantile's
inception, the consistent maintenance of a 1.50% reserves to total loans
ratio and the rapid growth of loans to $246.7 million at June 30, 1999,
provide evidence of the conservative credit culture Mercantile has
established. Mercantile
42
<PAGE> 46
employs 53 people, most of whom have prior banking experience, and many
of whom have previously worked together. Mercantile's management team has
an average of 17 years in the banking industry.
- EMPHASIZE COMMERCIAL LENDING IN MERCANTILE'S PRIMARY
MARKET. Mercantile's lending philosophy concentrates on commercial
lending, which represented 93% of its loan portfolio as of June 30, 1999.
This emphasis on commercial lending results in higher average loan
balances compared to residential or consumer loans, which allows
Mercantile to generate a greater volume of loans with fewer people,
thereby improving Mercantile's efficiency. Also, Mercantile's commercial
loan customers contribute to core deposit growth through demand deposit
relationships, which totaled $16.3 million as of June 30, 1999, and
provide Mercantile with a cost-effective source of liquidity.
- USING A COMBINATION OF LOCAL DEPOSITS AND WHOLESALE FUNDING TO MEET LOAN
GROWTH. While local deposits have grown rapidly to $96.2 million since
opening, commercial loan originations have outpaced local deposit growth,
creating a need for additional funding. Management believes the lowest
"all-in" cost source of funding in excess of the local deposit base comes
from out-of-market certificates of deposit. Mercantile's experience
indicates that wholesale deposits can be obtained at a minimal cost
premium to local deposits and have a lower associated servicing cost than
traditional retail deposits. Funding from deposits acquired primarily
from loan customers supplemented with out-of-market deposits has
permitted Mercantile to operate with higher average assets per employee
($6.2 million for the three months ended June 30, 1999) than comparable
institutions by:
- operating only two offices;
- emphasizing commercial loans, which tend to be larger in size than
retail loans;
- employing an experienced staff of lending officers; and
- outsourcing services where possible.
- TAKE ADVANTAGE OF INDUSTRY CONSOLIDATION. Mercantile's marketplace has
experienced several bank mergers where a local bank has been merged into
a regional or super-regional bank. Management believes that these mergers
have resulted in certain customers becoming dissatisfied with the quality
of services being provided as well as certain customers being negatively
impacted by the merger integration process. Mercantile is in a position
to offer these disenfranchised customers a local banking alternative.
Additionally, these mergers have made available to Mercantile experienced
banking personnel. Management believes Mercantile is better able to
compete effectively in the marketplace because:
- industry consolidation has resulted in fewer independent banks and
fewer banks addressing Mercantile's target market niche;
- Mercantile's lending officers and senior management maintain close
working relationships with their commercial customers and their
businesses;
- Mercantile is often able to react more quickly to loan requests than
its larger competitors; and
43
<PAGE> 47
- management and loan officers have significant experience within the
Grand Rapids community.
Management would attribute the majority of Mercantile's rapid loan growth
to the high level of service provided to customers rather than from
offering below market interest rates to attract new business.
- EMPHASIZE COMMUNITY BANKING. Mercantile strives to maintain a strong
commitment to community banking. Management encourages and expects all
employees to participate actively in local philanthropic activities and
to build relationships in the community. Through the development of such
relationships, Mercantile's goal is to attract small- to medium-sized
business owners and employees as customers who wish to conduct business
with a local community bank that demonstrates an active and knowledgeable
interest in their business and personal financial affairs. Management
believes that Mercantile is better able than many of its larger
competitors to deliver more timely decisions, provide customized
financial products and services, and offer customers the personal
attention of senior banking officers.
- UTILIZE ALTERNATIVE DELIVERY CHANNELS. Management believes that the
business of banking is rapidly evolving. One of the major changes taking
place is the way in which customers access their money. Rather than
construct and staff numerous branches, management has chosen to emphasize
less expensive delivery channels. Examples of these channels are courier
service, telephone and computer banking, ATM and other electronic access
points including direct deposit.
- EVALUATE ACQUISITION OPPORTUNITIES. Management intends to evaluate
merger and acquisition opportunities which may arise in western Michigan
to enhance or expand Mercantile's market position. The goals and
strategies of Mercantile's business plan make the acquisition of a
typical community bank which would serve primarily to expand Mercantile's
market area unappealing, however, management would consider acquisition
opportunities which would further Mercantile's growth consistent with the
objectives of its business plan. To date, management has not initiated
any bank or branch acquisition. Mercantile presently has no agreements,
commitments, understandings or arrangements to acquire any other banks or
branches and there is no assurance that Mercantile will be successful in
taking advantage of any such opportunities.
MARKETING PLAN
The Bank's marketing plan focuses on the concepts of corporate citizenship
and personal interaction within the communities the Bank serves through
promotion of, and active participation in, a number of civic organizations and
ongoing community activities. Management believes that these efforts establish
the identity and philosophy of the Bank within the communities it serves and
allow Bank officers and employees to personally interact with local business
leaders and members of the public. The marketing plan also emphasizes direct
customer interaction and relationships by Bank officers. Management believes
that the experience and expertise of its senior officers allow the Bank to
differentiate itself from its competition. Mercantile emphasizes the convenience
of alternative delivery systems such as courier service, electronic and
telephone banking, direct deposits and ATMs.
44
<PAGE> 48
BUSINESS FINANCIAL SERVICES. The Bank's business development efforts are
directed by Mr. Price, the President and Chief Executive Officer of the Bank,
whose duties include administering and coordinating the business development
efforts of the Bank.
Each Bank officer is responsible for creating new business opportunities
for the Bank. The targeted list of new business customers represents a mix of
industrial, manufacturing, professional and retail clients with an emphasis on
businesses with credit needs of $8 million or less.
The Bank has an aggressive calling program based in part on an extensive
knowledge of its market area possessed by the officers contacting potential or
current customers. The Bank also relies on a strong referral system from
lawyers, accountants and other professionals, many of whom are well known to
officers of the Bank. The Bank regularly hosts "after hours" receptions for
accounting and law firms to develop or nurture business contacts and
relationships.
CONSUMER FINANCIAL SERVICES. The Bank originates residential real estate
loans through its main office. Bank officers and mortgage loan originators
develop new residential mortgage applications from several sources, including
real estate brokers, insurance agents, accountants, attorneys, existing
residential mortgage customers and other customers of the Bank. An extensive
selling effort generates potential customers as a result of these contacts.
The Bank, as a result of its secondary market operations, is able to offer
a variety of loan products that serve the needs of first-time home buyers by
providing five percent down payment loans and loans with no points. Customers
desiring to construct new homes are able to obtain financing as a result of the
Bank's construction loan program that is offered in addition to permanent loans.
The Bank has developed its own home equity loan, debit card and credit card
programs. Credit card transactions are processed for the Bank by an outside
service provider.
Management believes that cross-selling of the Bank's products and services
to its existing customers is vital to expanding account relationships,
generating additional opportunities and increasing fee income.
LOAN POLICY
As a routine part of the Bank's business, the Bank makes loans to
individuals and businesses located within the Bank's market area. The loan
policy of the Bank states that the function of the lending operation is twofold:
to provide a means for the investment of funds at a profitable rate of return
with an acceptable degree of risk, and to meet the credit needs of the
creditworthy business and individual customers of the Bank. However, the Board
of Directors of the Bank recognizes that in the normal business of lending, some
losses on loans will be inevitable and should be considered a part of the normal
cost of doing business.
The Bank's loan policy anticipates that priorities in extending loans will
change from time to time as interest rates, market conditions and competitive
factors change. The policy sets forth guidelines on a nondiscriminatory basis
for lending in accordance with applicable laws and regulations. The policy
describes various criteria in granting loans, including the ability to pay; the
character of the customer; evidence of financial
45
<PAGE> 49
responsibility; purpose of the loan; knowledge of collateral and its value;
terms of repayment; source of repayment; payment history; and economic
conditions.
Mercantile's Board of Directors has delegated significant lending authority
to officers of the Bank. The Board of Directors believes this empowerment makes
the Bank more responsive to its customers. The loan policy specifies lending
authority for certain officers up to $1 million, and $1.5 million for the
Chairman of the Board and President. Loan requests exceeding $1.5 million, up to
the legal lending limit of approximately $6.70 million, require approval by the
Board of Directors. Generally, the Bank applies an in-house lending limit that
is less than the legal lending limit. Following the completion of the offering,
the Bank's legal lending limit will increase to approximately $10 million.
The loan policy also limits the amount of funds that may be loaned against
specified types of collateral. For certain loans secured by real estate, the
policy requires an appraisal of the property offered as collateral by a state
certified independent appraiser. The policy also provides general guidelines for
loan to value limits for other types of collateral. In addition, the loan policy
provides general guidelines as to collateral, provides for environmental policy
review, contains specific limitations with respect to loans to employees,
executive officers and directors, provides for problem loan identification,
establishes a policy for the maintenance of a loan loss reserve, provides for
loan reviews and sets forth policies for mortgage lending and other matters
relating to the Bank's lending practices.
LENDING ACTIVITY
COMMERCIAL LOANS. The Bank's commercial lending group originates
commercial loans primarily in the Kent and Ottawa County areas of western
Michigan. Commercial loans are originated by seven lenders, including the
President and the Chairman. The lending group has over 90 years of combined
commercial lending experience. Loans are originated for general business
purposes, including working capital, accounts receivable financing, machinery
and equipment acquisition, and commercial real estate financing including new
construction and land development.
Working capital loans are often structured as a line of credit and are
reviewed periodically in connection with the borrower's year end financial
reporting. These loans generally are secured by all of the assets of the
borrower, and have an interest rate tied to the national prime rate. Loans for
machinery and equipment purposes typically have a maturity of five to seven
years and are fully amortizing. Commercial real estate loans are usually written
with a five year maturity and amortized over a 15 year period.
Commercial real estate loans may have an interest rate that is fixed to
maturity or float with a margin over the prime rate or an U.S. Treasury Index.
The Bank evaluates many aspects of a commercial loan transaction in order
to minimize credit and interest rate risk. Underwriting includes an assessment
of management, products, markets, cash flow, capital, income and collateral. The
analysis includes a review of historical and projected financial results.
Appraisals are required by certified independent appraisers who are well known
to the Bank on certain transactions where real estate is the primary collateral,
and in some cases, where equipment is the primary collateral. In certain
situations, for creditworthy customers, the Bank may accept title reports
instead of requiring lenders' policies of title insurance.
46
<PAGE> 50
Commercial real estate lending involves more risk than residential lending
because loan balances are greater and repayment is dependent upon the borrower's
operation. The Bank attempts to minimize risk associated with these transactions
by generally limiting its exposure to owner operated properties of well-known
customers or new customers with an established profitable history. In many
cases, risk is further reduced by (1) limiting the amount of credit to any one
borrower to an amount less than the Bank's legal lending limit, and (2) avoiding
certain types of commercial real estate financings.
SINGLE-FAMILY RESIDENTIAL REAL ESTATE LOANS. The Bank originates
residential real estate loans in its market area according to secondary market
underwriting standards. These loans provide borrowers with a fixed or adjustable
interest rate with terms up to 30 years. Loans are sold on a servicing released
basis in the secondary market with all interest rate risk and credit risk passed
to the purchaser. The Bank from time to time may elect to underwrite certain
residential real estate loans, generally with maturities of five years or less,
to be held in its own loan portfolio.
CONSUMER LOANS. The Bank originates consumer loans for a variety of
personal financial needs. Consumer loans include home equity lines of credit,
new and used automobiles, boat loans, credit cards and overdraft protection for
checking account customers.
Consumer loans generally have shorter terms and higher interest rates than
residential mortgage loans and, except for home equity lines of credit, usually
involve more credit risk than mortgage loans because of the type and nature of
the collateral. While the Bank does not utilize a formal credit scoring system,
the Bank believes its loans are underwritten carefully, with a strong emphasis
on the amount of the down payment, credit quality, employment stability and
monthly income. These loans are generally repaid on a monthly repayment schedule
with the source of repayment tied to the borrower's periodic income. In
addition, consumer lending collections are dependent on the borrower's
continuing financial stability, and are thus likely to be adversely affected by
job loss, illness and personal bankruptcy. In many cases, repossessed collateral
for a defaulted consumer loan will not provide an adequate source of repayment
of the outstanding loan balance because of depreciation of the underlying
collateral. The Bank believes that the generally higher yields earned on
consumer loans compensate for the increased credit risk associated with such
loans and that consumer loans are important to its efforts to serve the credit
needs of the communities and customers that it serves.
INVESTMENTS
The principal investment of Mercantile is its investment in the common
stock of the Bank. Funds retained by Mercantile 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 or agency 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 Mercantile 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, Mercantile has no present plans to
47
<PAGE> 51
do so. Mercantile's Board of Directors may alter Mercantile'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. At
June 30, 1999, the Bank's investment portfolio consisted of U.S. Government
Agency guaranteed mortgage-backed securities, U.S. Government Agency bonds, U.S.
Treasury Notes and municipal bonds. 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 do this. Real estate acquired by the Bank in satisfaction of or
foreclosure upon loans may be held by the Bank, subject to a determination by a
majority of the Bank's Board of Directors at least annually of the advisability
of retaining the property, for a period not exceeding 60 months after the date
of acquisition, or such longer period as the Commissioner of the Financial
Institutions Bureau of the Michigan Department of Consumer & Industry Services
("FIB") 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 real
estate that is necessary for the convenient transaction of its business. Other
than the Bank's recent investment in its Alpine Township branch and operations
facility, it has no present plans to make any investment of this type. The
Bank's Board of Directors may alter the Bank's investment policy without
shareholder approval.
COMPETITION
Mercantile and the Bank 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 service organizations with which the Bank competes are not subject to
the same degree of regulation as the Bank. Many of the financial institutions
and financial service organizations aggressively compete for business in the
Bank's market area. Most of these competitors have been in business for many
years, have customer bases, deposits and lending limits that are substantially
larger than those of the Bank, and are able to offer certain services that the
Bank does not currently provide, including extensive branch networks, trust
services and international banking services. In addition, most of these entities
have greater capital resources than the Bank, which, among other things, may
allow them to price their services at levels more favorable to the customer and
to provide larger credit facilities than could the Bank. Additionally, recently
effective legislation regarding interstate branching and banking may increase
competition in the future from out-of-state banks.
LEGAL PROCEEDINGS
From time to time, Mercantile and the Bank may be involved in various legal
proceedings that are incidental to their business. In the opinion of management,
neither Mercantile nor the Bank is a party to any current legal proceedings that
are material to their financial condition, either individually or in the
aggregate.
48
<PAGE> 52
EMPLOYEES
As of June 30, 1999, the Bank had 43 full-time and 10 part-time employees,
including 18 officers and 35 customer service, operations and other support
persons. Mercantile expects to add additional employees during the next year.
Management believes that the Bank's relations with its employees are good.
BANK PREMISES
The Bank leases a one story building in downtown Grand Rapids, Michigan for
use as the Bank's main office and Mercantile's headquarters. This building is of
masonry construction and has approximately 11,000 square feet of usable space
with on-site parking. The lease for the Bank's office, which commenced in 1997,
has an initial term of ten years and the Bank has four, five-year renewal
options.
The Bank designed and constructed a full service branch and operations
facility in Alpine Township, a suburb of Grand Rapids, that opened in July of
1999. The facility is one story, of masonry construction, and has approximately
8,000 square feet of usable space. The land and building is owned by the Bank.
The facility has multiple drive-through lanes and ample parking space.
The Bank's main office and Mercantile's headquarters are located at 216
North Division Avenue between Lyon Street and Michigan Street in downtown Grand
Rapids, Michigan. The Alpine Township branch and operations center is located at
4613 Alpine Avenue NW, Comstock Park, Michigan.
49
<PAGE> 53
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Mercantile, their ages and
positions as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR WHEN
HAS SERVED TERM AS A
AS DIRECTOR DIRECTOR
NAME AGE POSITION SINCE EXPIRES
- ---- --- -------- ----------- ---------
<S> <C> <C> <C> <C>
Betty S. Burton......... 57 Director 1998 2002
Edward J. Clark......... 54 Director 1998 2001
Peter A. Cordes......... 58 Director 1997 2002
C. John Gill............ 65 Director 1997 2001
David M. Hecht.......... 62 Director 1997 2002
Gerald R. Johnson, 52 Chairman of the Board and 1997 2001
Jr.................... Chief Executive Officer
Susan K. Jones.......... 50 Director 1998 2000
Lawrence W. Larsen...... 59 Director 1997 2000
Calvin D. Murdock....... 60 Director 1997 2001
Michael H. Price........ 42 President, Chief 1997 2000
Operating Officer and
Director
Dale J. Visser.......... 63 Director 1997 2000
Donald Williams, Sr. ... 63 Director 1998 2001
Robert M. Wynalda....... 63 Director 1997 2002
Robert B. Kaminski...... 37 Senior Vice President and
Secretary
Charles E. Christmas.... 33 Chief Financial Officer,
Treasurer and Compliance
Officer
</TABLE>
The business experience of each of the directors and executive officers of
Mercantile for at least the past five years is summarized below:
BETTY S. BURTON (Director) Betty S. Burton is Director and Consultant of
Wonderland Business Forms, Inc. She was President and Chief Executive Officer of
Wonderland Business Forms from 1995 to 1999. She has held director positions at
First Michigan Bank-Grand Rapids and Butterworth Hospital. Prior to taking over
the family business in January of 1990, Mrs. Burton was a long time elementary
teacher in the public school system, from 1966 to 1989. She is a graduate of
Western Michigan University, Grand Valley State University, and Dartmouth
College of Minority Business Executive Program. Mrs. Burton sits on the National
Council of Steelcase Suppliers Board of Directors, and is a Trustee of both the
Grand Valley State University Foundation and the Western Michigan University
Foundation. Mrs. Burton is very involved in civic and community activities in
and around the Grand Rapids area.
EDWARD J. CLARK (Director) Mr. Clark is the President and Chief Executive
of The American Seating Company, and has held this position since 1986. American
Seating is
50
<PAGE> 54
headquartered in Grand Rapids, Michigan, and produces seating and furniture for
laboratories and offices, as well as seating for buses, rail cars, auditoriums,
stadiums and performing arts centers. Mr. Clark is a member of the Boards of
Directors of the Metropolitan YMCA and the Grand Rapids Employers' Association.
He is Vice President of the Foundation Board of Trustees and Chairman of the
Development Committee of Grand Valley State University. From 1988 through 1997
he was a member of the Board of Directors and Executive Committee of FMB-First
Michigan Bank-Grand Rapids ("FMB-Grand Rapids"). Mr. Clark has also previously
served on the Boards of Directors of the Grand Rapids Symphony Orchestra, Red
Cross of Kent County, St. Mary's Hospital and The Business and Institutional
Furniture Manufacturer's Association.
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 manufacturing of industrial automation systems
for customers in a variety of industries in the Midwest. Mr. Cordes purchased
GWI in 1991 and is now its sole owner. Mr. Cordes graduated from St. Louis
University with a degree in aeronautics. He is a native of Traverse City,
Michigan and has spent the last eighteen years in western Michigan.
C. JOHN GILL (Director) Mr. Gill is the retired Chairman of the Board and
one of the owners of Gill Industries of Grand Rapids, Michigan. Mr. Gill served
as Chairman of Gill Industries from 1994 through 1997, and served as President
of Gill Industries from 1983 through 1993. Gill Industries is a manufacturing
company involved with sheet metal stampings and assemblies for the automotive
and appliance industries.
DAVID M. HECHT (Director) Mr. Hecht has practiced law for 38 years,
including the past 26 years in Grand Rapids. Since 1993, he has been the
Chairman of the Grand Rapids law firm of Hecht & Lentz and is a founder of such
firm. Mr. Hecht is a native of Grand Rapids and a graduate of the University of
Michigan and the University of Wisconsin. He is the President of the Charles W.
Loosemore Foundation, a Trustee 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 of Mercantile and Chairman of the Board and Director of the Bank) Mr.
Johnson 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 Mercantile. Mr. Johnson served as Chairman of the Board
and Chief Executive Officer of Mercantile and the Bank from their inception
through 1998, and since the beginning of 1999 has served as Chairman of the
Board and Chief Executive Officer of Mercantile and Chairman of the Board of the
Bank. 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 Bank One
Corporation), Pacesetter Bank-Grand Rapids (now part of Old Kent) and
Manufacturers Bank (now part of Comerica Bank). He currently serves as Chairman
of the Board of the Downtown YMCA, Chairman of Residential Treatment of West
Michigan, Treasurer of Life Guidance Services and serves on the Boards of
Directors of the American Heart Association of Greater Grand Rapids, Michigan
Trails Girl Scout Council and The Recuperation Center. Mr. Johnson is also
affiliated with the Economic Development Foundation, Grand Rapids Rotary Club,
Junior League of Grand Rapids and
51
<PAGE> 55
Project Rehab. Mr. Johnson has past affiliations with Hope Network, and the
Grand Rapids Area Chamber of Commerce where he was a Board member for six years.
SUSAN K. JONES (Director) Ms. Jones is both a partner of the Callahan
Group, LLC, a marketing consulting firm, and a tenured, fulltime Professor of
Marketing at Ferris State University in Big Rapids, Michigan. She began her own
marketing consulting firm, Susan K. Jones & Associates, in 1980, and joined
Ferris State in the fall of 1990. She enjoys an active volunteer career,
currently serving as corporate sponsorship representative of the American
Marketing Association of Western Michigan, as a member of the Northwestern
Alumni Association Board, and as the West Michigan Alumni Admissions Council
Chair for Northwestern University. She is a past-president of the Junior League
of Grand Rapids, a graduate of Leadership Grand Rapids, and currently serves as
a trustee of the Chicago Association of Direct Marketing Educational Foundation
and the Direct Marketing Education Foundation.
LAWRENCE W. LARSEN (Director) Mr. Larsen is Chief Executive Officer,
President, and owner of Central Industrial Corporation of Grand Rapids,
Michigan. He began his employment with the company in 1967, and purchased it in
1975. 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 hydraulic products. Mr. Larsen is a native of Wisconsin. He has
spent the last 31 years in the Grand Rapids area. 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 Supply ("SF")
of Grand Rapids, Michigan. He has held this position since 1994. From 1992 to
1994, he served as the General Manager of SF, and in 1991, served as SF's
Controller. SF is a wholesale distributor of commercial and industrial
electronic, electrical and automation parts, supplies and services. Mr. Murdock
is a Michigan native and a graduate of Ferris State University with a degree in
accounting. Prior to joining SF, Mr. Murdock owned and operated businesses in
the manufacturing and supply of automobile wash equipment.
MICHAEL H. PRICE (President, Chief Operating Officer and Director of
Mercantile and President, Chief Executive Officer and Director of the Bank) Mr.
Price has over 17 years of commercial banking experience, most of which was with
First Michigan Bank Corporation ("FMB") and its subsidiary FMB-Grand Rapids.
Spending most of his banking career in commercial lending, Mr. Price was the
Senior Lending Officer from 1992 to 1997, and President of FMB-Grand Rapids for
several months in 1997, before joining the Bank in late 1997. Mr. Price served
as President and Chief Operating Officer of Mercantile and the Bank from
December of 1997 through 1998, and has served as President and Chief Operating
Officer of Mercantile and President and Chief Executive Officer of the Bank
since January of 1999. Mr. Price has been and continues to be very active in the
Grand Rapids community. He currently serves on the Board of Directors of Kent
County Habitat for Humanity.
DALE J. VISSER (Director) Mr. Visser is Chairman and one of the owners of
Visser Brothers Inc. of Grand Rapids, Michigan. He has served this company in
various officer positions since 1960. 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
52
<PAGE> 56
degree 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.
DONALD WILLIAMS, SR. (Director) Mr. Williams has over 30 years experience
in administration of educational programs with special emphasis on political
sensitivity and equality. He is currently Dean of Minority Affairs and Director
of the Multicultural Center of Grand Valley State University. Mr. Williams also
serves as President of the Coalition for Representative Government (CRG) and is
a member of the Rotary Club of Grand Rapids. Previously, he has served as a
member of the Board of Directors of FMB-Grand Rapids and the Grand Rapids
Advisory Board of Michigan National Bank, as Treasurer and President of the
Minority Affairs Council of Michigan Universities (MACMU), and as a member of
the Board of Directors of the Grand Rapids Area Chamber of Commerce. Mr.
Williams has been the recipient of numerous awards in the Grand Rapids and West
Michigan area for community services and job performance.
ROBERT M. WYNALDA (Director) Mr. Wynalda is the retired Chief Executive
Officer and former owner of Wynalda Litho Inc. of Rockford, Michigan. Mr.
Wynalda held the position of Chief Executive Officer from 1970 when he founded
the company until its sale in February of 1998. 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 University
of Grand Rapids, and formerly served as a director of a local financial
institution.
ROBERT B. KAMINSKI (Senior Vice President and Secretary) Mr. Kaminski
joined the bank in June 1997 and has over 14 years of commercial banking
experience. 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
served as Vice President and Manager of the commercial credit department for
three of FMB's subsidiaries. He has served as Senior Vice President and
Secretary of Mercantile and the Bank since their inception in 1997. 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.
CHARLES E. CHRISTMAS (Chief Financial Officer, Treasurer and Compliance
Officer) Mr. Christmas joined the Bank in April 1998 and served as Vice
President of Finance, Treasurer and Compliance Officer of Mercantile and the
Bank in 1998, and in 1999 was elected Chief Financial Officer, Treasurer and
Compliance Officer. Prior to joining Mercantile, he examined various financial
institutions for over ten years while serving as a bank examiner with the FDIC.
He began his tenure with the FDIC upon his graduation from Ferris State
University. Mr. Christmas holds a Bachelors of Science degree in Accountancy.
KEY EMPLOYEES
In addition to the directors and executive officers named above, Mercantile
has many experienced employees who assist the Bank in servicing its customers
and pursuing its business opportunities. These employees include, among others,
the key employees described below.
53
<PAGE> 57
MARK S. AUGUSTYN (Senior Vice President, Commercial Loan Officer), joined
the Bank in December 1997 and has over eight years of commercial banking
experience, primarily in the commercial lending area. He began his career with
FMB-Grand Rapids as Credit Analyst, and was promoted to Senior Analyst, Credit
Manager, Assistant Vice President of Commercial Lending, and finally Vice
President of Commercial Lending before joining the Bank. Mr. Augustyn is active
in the Grand Rapids/western Michigan community. He serves as a Board Member and
Chairman of the Finance Committee of Residential Treatment, and is a volunteer
for the West Side Food Drive.
HAROLD L. DRENTEN (Senior Vice President, Business Development Officer),
joined the Bank in January 1998 and has over 28 years of commercial banking
experience, all with FMB and its subsidiary, FMB-Grand Rapids. Mr. Drenten held
numerous positions at FMB-Grand Rapids, including Branch Manager, Mortgage
Department head, Commercial Loan Officer, and finally, Vice President of
Business Development before joining the Bank. Mr. Drenten is an active member of
the local community, serving 15 years as a Teaching Consultant with Junior
Achievement Project Business and serving seven years as an Ambassador for the
Grand Rapids Area Chamber of Commerce. He further participates in various
charity events in both Kent and Ottawa Counties.
MARK R. HOFFHINES (Senior Vice President, Commercial Loan Officer), joined
the Bank in January 1998 and has over 17 years of commercial banking experience,
beginning with his tenure as a Commercial Lender at Comerica Bank in 1981. In
1986, he joined Bank One as an Assistant Vice President of Commercial Loans, and
in 1988 left to take a position as Vice President of Commercial Loans at Great
Lakes National Bank. In 1991, Mr. Hoffhines accepted a position at FMB-Grand
Rapids as Vice President, Commercial Loan Department head, where he continued to
work until joining the Bank. He serves as Chairman of the Board of the Kent
County American Cancer Society and on the Parent Advisory Council of Forest
Hills Northern Schools.
GORDON L. OOSTING (Senior Vice President, Branch Administrator), joined the
Bank in December 1997 and has over 16 years of commercial banking experience,
primarily in the commercial lending area. Before working in the banking
business, he held the position of Vice President of Finance for a local
manufacturing company with annual sales of approximately $20 million. After
leaving that position in 1982, Mr. Oosting served as Vice President of
Commercial Lending at NBD Bank until 1992, when he began work with FMB-Grand
Rapids, serving as Vice President of Commercial Lending.
DEBORAH A. PARRENT (Vice President, Branch Administrator), joined the Bank
in September 1997 and has over 16 years of commercial banking experience, having
begun her career in 1981 at Great Lakes National Bank as a Residential Loan
Officer, Business Development Officer, and finally Branch District Manager. In
1994, she moved to FMB-Grand Rapids, where she was a Branch Manager until her
employment with the Bank. She holds offices in such organizations as the Junior
League of Grand Rapids and Habitat for Humanity, and serves as an Ambassador for
the Grand Rapids Area Chamber of Commerce. She has worked with many other
community organizations including: United Way, Family Services, YMCA, American
Heart Association and Kent County District Library. Ms. Parrent has also
participated in the Economic Club of Grand Rapids and Professional Women's
Network events.
LONNA L. WIERSMA (Vice President, Human Resource Director), joined the Bank
in March 1999, and has over 17 years of Human Resource experience, beginning her
career at Old Kent Bank of Holland in February of 1982. In July of 1991, she
joined FMB as Assistant Vice President, Employee Relations/Employment Manager,
then in 1993
54
<PAGE> 58
accepted the position of Vice President, Human Resource Manager for FMB-Grand
Rapids. In 1995, she was appointed to the position of Affiliate Human Resource
Manager, responsible for servicing five affiliate banks. In 1998, at the time of
the Huntington merger, she accepted the position of Vice President, Senior Human
Resource Generalist where she continued to work until joining the Bank.
SUMMARY COMPENSATION TABLE
The following table details the compensation received by the named
executive officers for the period July 15, 1997 (inception) to December 31, 1997
and during 1998:
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------------------
ANNUAL COMPENSATION SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------- ---- -------- ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Gerald R. Johnson, Jr......... 1998 $164,231 $0 7,000 $8,655(1)
Chairman of the Board and 1997 $ 83,654 $0 40,000 $ 0
Chief Executive Officer
Michael H. Price.............. 1998 $135,307 $0 7,000 $6,919(2)
President and Chief
Operating 1997 $ 14,112 $0 21,000 $ 0
Officer
</TABLE>
- -------------------------
(1) Includes a matching contribution by the Bank to Mr. Johnson's 401(k) plan
account of $6,338, and life and disability insurance premiums paid by the
Bank on policies insuring Mr. Johnson of $488 and $1,829, which policies are
in addition to the Bank's group insurance plans that are generally available
to salaried employees.
(2) Includes a matching contribution by the Bank to Mr. Price's 401(k) plan
account of $5,220, and life and disability insurance premiums paid by the
Bank on policies insuring Mr. Price of $995 and $704, which policies are in
addition to the Bank's group insurance plans that are generally available to
salaried employees.
OPTIONS GRANTED IN 1998
Under Mercantile's 1997 Employee Stock Option Plan, stock options are
granted to Mercantile's and the Bank's senior management and other key
employees. The Board of Directors of Mercantile is responsible for awarding the
stock options. These options are awarded to give senior management and key
employees an additional interest in Mercantile from a shareholder's perspective,
and enable them to participate in the future growth and profitability of
Mercantile. In making awards, the Board 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 Mercantile, and such other factors as the Board may deem
relevant. Options for up to 130,000 shares may be issued under the Plan. As of
July 1, 1999, options for 121,750 shares had been issued.
55
<PAGE> 59
The following table summarizes certain information about the options
granted in 1998 to each named executive officer:
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SHARES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE
NAME GRANTED(1) 1998 PER SHARE EXPIRATION DATE
- ---- ---------- ------------ ----------- ----------------
<S> <C> <C> <C> <C>
Gerald R. Johnson,
Jr................... 7,000 22.6% $13.63 October 21, 2008
Michael H. Price....... 7,000 22.6% $13.63 October 21, 2008
</TABLE>
- -------------------------
(1) The option granted to Mr. Johnson becomes exercisable on July 22, 2001. The
option granted to Mr. Price becomes exercisable on December 1, 2000.
AGGREGATED STOCK OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
The following table provides information on the exercise of stock options
during the year ended December 31, 1998 by the named executive officers and the
value of unexercised options at December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED 12/31/98 AT 12/31/98
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE(1)
- ---- ----------- -------- ------------- --------------------
<S> <C> <C> <C> <C>
Gerald R. Johnson, Jr. .... None N/A 20,000/27,000 $125,000/$143,340
Michael H. Price........... None N/A 14,000/14,000 $ 80,500/ $58,590
</TABLE>
- -------------------------
(1) Values are calculated by subtracting the exercise price from the fair market
value of the underlying common stock. For purposes of this table, fair
market value is deemed to be $16.25 per share, the average of the closing
bid and ask prices reported on the OTC Bulletin Board on December 31, 1998.
EMPLOYMENT AGREEMENTS
Effective December 1, 1998, the Bank and Mercantile entered into Employment
Agreements with Mr. Johnson and Mr. Price providing for their employment from
December 1, 1998 through December 31, 2001 (the, "Employment Period"), and
certain severance, confidentiality and non-compete arrangements that may
continue after the Employment Period. The Employment Agreement with Mr. Johnson
establishes an annual base salary of $180,000 for the period from December 1,
1998 through June 30, 1999, of $200,000 for the period from July 1, 1999 through
December 31, 1999, and of an amount not less than $200,000 to be determined by
the Board of Directors of the Bank for the period of January 1, 2000 through
December 31, 2001. The Employment Agreement with Mr. Price establishes an annual
base salary of $150,000 for the period from December 1, 1998 through June 30,
1999, of $170,000 for the period from July 1, 1999 through December 31, 1999,
and of an amount not less than $170,000 to be determined by the Board of
Directors of the Bank for the period of January 1, 2000 through December 31,
2001. In addition, the Employment Agreements provide for a one-time payment of
$5,000 to each of Mr. Johnson and Mr. Price to augment the salary amounts that
they received in
56
<PAGE> 60
October and November of 1998, prior to the execution of the Employment
Agreements. In addition to the annual base salary, the Employment Agreements
provide that Mr. Johnson and Mr. Price are entitled to participate in any
employee benefit and incentive compensation plans of Mercantile and the Bank,
including health insurance, life and disability insurance, stock option, profit
sharing and retirement plans. In the event that either of the officers becomes
disabled or dies during the Employment Period, he is entitled to certain
benefits under his Employment Agreement. In the event of disability, the officer
is entitled to continue to receive his then current annual base salary through
the end of the Employment Period, and any disability benefits payable under
disability plans provided by the Bank or Mercantile. The officer also is
entitled to continue to participate in life, disability, and health insurance
plans of the Bank or Mercantile, through age 65, to the extent permitted under
such plans. If the officer dies during the Employment Period, the Bank is
obligated to pay the officer's legal representative a death benefit of $250,000,
and if the Bank or Mercantile owns any life insurance insuring the life of the
officer, the proceeds of the policies are payable to the named beneficiaries.
The Employment Agreements provide severance benefits in the event that the
officer's employment is terminated by Mercantile and the Bank without "Cause" or
the officer elects to terminate his employment for "Good Reason" during the
Employment Period. In such event, the officer is entitled to receive the greater
of (1) his annual base salary through the end of the Employment Period or (2) in
the case of Mr. Johnson, $500,000, and in the case of Mr. Price $425,000; in
either case payable over 18 months in equal monthly installments. In addition,
in the case of such a termination of employment, the officer is entitled to
continue his participation in life, disability and health insurance plans
provided by the Bank or Mercantile for 18 months, to the extent permitted under
such plans, to an assignment of any assignable life insurance policies owned by
the Bank or Mercantile insuring his life, and $10,000 for out-placement, interim
office and related expenses. The Employment Agreements also provide severance
benefits in the event that after the Employment Period the officer's employment
is terminated by the Bank and Mercantile without "Cause" or the officer's annual
base salary is reduced without "Cause." In such event, the officer is entitled
to receive the same benefits as are described above for a termination during the
Employment Period, except that when determining the cash severance payable to
him over the 18 months following his termination, the alternative of receiving
his annual base salary through the end of the Employment Period does not apply,
and instead he is entitled to receive the stated dollar amount of $500,000 in
the case of Mr. Johnson, or $425,000 in the case of Mr. Price. In the event that
an officer's employment is terminated for "Cause" during the Employment Period,
the officer is not entitled to any accrued rights that he may then have under
any stock option plan of Mercantile.
Under the Employment Agreements, Mr. Johnson and Mr. Price agree not to
disclose, except as required by law, any confidential information relating to
the business or customers of the Bank or Mercantile, or use any such information
in any manner adverse to the Bank or Mercantile. In addition, each has agreed
that for 18 months following his employment with the Bank and Mercantile, he
will not be employed by, or act as a director or officer of, any business
engaged in banking within a 50 mile radius of Grand Rapids, Michigan that
solicits customers of the Bank.
57
<PAGE> 61
DIRECTORS COMPENSATION
During 1998, no compensation was paid to any directors of Mercantile or the
Bank for their services in such capacities. In January of 1999, the Board of
Directors of the Bank approved the payment of an annual retainer to each
non-employee director of the Bank in the amount of $1,200, payable on each May
1, beginning May 1, 1999. The Board of Directors of the Bank also approved a
deferred compensation plan for non-employee directors of the Bank under which
such directors may elect to defer the receipt of their annual retainer until
they are no longer serving on the Board.
58
<PAGE> 62
SECURITY OWNERSHIP
The following table presents information regarding the beneficial ownership
of Mercantile's common stock as of July 1, 1999, by Mercantile's directors and
named executive officers, and all directors and executive officers of Mercantile
as a group. To the best of Mercantile's knowledge, no person owns more than 5%
of Mercantile's outstanding common stock.
<TABLE>
<CAPTION>
AMOUNT PERCENT OF CLASS
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1) OWNED(6)
- ------------------------ ------------ ----------------
<S> <C> <C>
Betty S. Burton..................................... 1,016 *
Edward J. Clark..................................... 1,600 *
Peter A. Cordes..................................... 25,000 1.0%
C. John Gill........................................ 42,000(2) 1.7%
David M. Hecht...................................... 50,000 2.0%
Gerald R. Johnson, Jr. ............................. 81,509(3) 3.3%
Susan K. Jones...................................... 850 *
Lawrence W. Larsen.................................. 13,500 *
Calvin D. Murdock................................... 15,875 *
Michael H. Price.................................... 16,095(4) *
Dale J. Visser...................................... 90,000 3.6%
Donald Williams, Sr. ............................... 730 *
Robert M. Wynalda................................... 50,000 2.0%
All directors and executive officers as a group (15
persons).......................................... 388,175(5) 15.6%
</TABLE>
- -------------------------
* Less than one percent.
(1) Some or all of the common stock listed may be held jointly with, or for the
benefit of, spouses and children or grandchildren of, or various trusts
established by, the person indicated.
(2) Includes 14,000 shares held by Mr. Gill's spouse.
(3) Includes 30,000 shares that Mr. Johnson has the right to acquire within 60
days of July 1, 1999 pursuant to Mercantile's 1997 Employee Stock Option
Plan and 1,509 shares that Mr. Johnson owns under the Bank's 401(k) Plan.
Mr. Johnson also holds options under the Employee Stock Option Plan to
purchase an additional 17,000 shares, which have not yet vested.
(4) Includes 14,000 shares that Mr. Price has the right to acquire within 60
days of July 1, 1999, pursuant to Mercantile's 1997 Employee Stock Option
Plan and 1,395 shares that Mr. Price owns under the Bank's 401(k) Plan. Mr.
Price also holds options under the Employee Stock Option Plan to purchase an
additional 14,000 shares, which have not yet vested.
59
<PAGE> 63
(5) Includes 49,000 shares that such persons have the right to acquire within 60
days of July 1, 1999 pursuant to Mercantile's 1997 Employee Stock Option
Plan and 6,615 shares that such persons own under the Bank's 401(k) Plan.
(6) The percentages shown are based on the 2,472,500 shares of Mercantile's
common stock outstanding as of July 1, 1999, plus the number of shares that
the named person or group has the right to acquire within 60 days of July 1,
1999.
60
<PAGE> 64
RELATED PARTY TRANSACTIONS
BANK TRANSACTIONS
The Bank has had, and expects in the future to have, loan and other
financial transactions in the ordinary course of business with Mercantile's
directors, executive officers, and principal shareholders (and their associates)
on substantially the same terms as those prevailing for comparable transactions
with others. All such transactions (1) were made in the ordinary course of
business, (2) were made on substantially the same terms, including interest
rates and collateral on loans, as those prevailing at the time for comparable
transactions with other persons, and (3) in the opinion of management did not
involve more than the normal risk of collectibility or present other unfavorable
features.
As of December 31, 1998, the Bank had outstanding 44 loans to directors or
executive officers of Mercantile totaling approximately $9.1 million in
aggregate amount under commitments totaling approximately $12.8 million. As of
June 30, 1999, the Bank had outstanding 55 loans to directors or executive
officers of Mercantile totaling approximately $8.8 million in aggregate amount
under commitments totaling approximately $12.5 million.
CONTRACTS WITH COMPANY CONTROLLED BY A DIRECTOR
In November of 1998, the Bank entered into a contract with Visser Brothers,
Inc. for it to act as construction manager and perform portions of the
construction for the Bank's new operations facility and branch located in Alpine
Township, a suburb of Grand Rapids, Michigan. Dale Visser and Bruce Visser, who
are brothers, are owners of a substantial majority of Visser Brothers. Dale
Visser is a member of the Board of Directors of Mercantile and the Bank, and
both were organizers of the Bank. The contract estimated the construction costs
for the facility at not more than approximately $1.3 million. Visser Brothers
was to receive approximately 5% of this amount for its construction management
services, and be reimbursed for the wages, salaries, and related taxes and
benefits of construction workers and supervisory and administrative personnel
that it employed in connection with the construction. The payments for the
percentage amount and reimbursements totaled approximately $60,000 for the
project. In addition, when deemed appropriate by the Bank, the architect for the
project, and Visser Brothers, the Bank permitted Visser Brothers to bid as a
subcontractor for portions of the work that were to be performed on the project.
In several instances, Visser Brothers was hired as a subcontractor where its bid
was determined to be the most favorable. The Bank paid a total of approximately
$511,000 to Visser Brothers for serving as a subcontractor for the project.
In 1999, the Bank purchased from American Seating Company office furniture
for its new Alpine Township branch and operations center and paid American
Seating Company approximately $93,000 for the office furniture. Edward Clark is
a member of the Board of Directors of Mercantile and the Bank, and the
President, Chief Executive Officer, and majority shareholder of American Seating
Company.
In 1997, the Bank contracted with Visser Brothers Inc. to renovate the
building that the Bank is leasing for its main office. The contract provided for
the payment of approximately $450,000 to Visser Brothers for renovation work
that it performed under its base bid, and an additional approximately $150,000
for work that was specified in the contract to be performed by a separate
supplier. The contract was awarded to Visser Brothers after being submitted for
bids. The renovations were completed in December 1997 pursuant to specifications
provided by the Bank's architect.
61
<PAGE> 65
SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state law and regulations. Such provisions
applicable to banks 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, nature and amount of
collateral for loans, establishment of branches, mergers, consolidations and
dividends. The system of supervision and regulation applicable to Mercantile and
the Bank establishes a comprehensive framework for their respective operations
and is intended primarily for the protection of the FDIC deposit insurance
funds, the depositors of the Bank, and the public, rather than shareholders of
the Bank or Mercantile. Any change in government regulation may have a material
effect on the business of Mercantile and the Bank.
There has been significant legislative and regulatory change relating to
the financial services industry in recent years. Non-bank financial
institutions, such as securities brokerage firms, insurance companies and money
market funds, have been permitted to engage in activities that directly compete
with traditional bank business. The services that banks are permitted to provide
and the types of accounts banks may offer to depositors have been expanded.
Geographic constraints on the operations of financial institutions and their
holding companies have been relaxed.
MERCANTILE
GENERAL. Mercantile is a registered bank holding company, subject to
supervision and examination by the Federal Reserve. Mercantile is required to
make periodic reports to the Federal Reserve and to furnish such other
information as the Federal Reserve may require under the BHCA.
Federal Reserve policy requires a bank holding company such as Mercantile
to serve as a source of financial and managerial strength to its banking
subsidiaries. Under this policy, a bank holding company must use available
resources to provide adequate capital funds to a troubled banking subsidiary,
even if it is not otherwise obligated to do so. In addition, in certain
circumstances a Michigan state bank having impaired capital may be required by
the Commissioner of the FIB either to restore the bank's capital by a special
assessment upon its shareholders, or to initiate the liquidation of the bank.
INVESTMENTS AND ACTIVITIES. In general, the BHCA requires a bank holding
company to obtain prior approval of the Federal Reserve before it may merge with
or consolidate into another bank holding company, acquire substantially all the
assets of any bank or bank holding company, or acquire ownership or control of
any voting shares of any bank or bank holding company, if after such
acquisition, it would own or control, directly or indirectly, more than 5% of
the voting shares of such bank holding company or bank. In acting on such
applications, the Federal Reserve considers statutory factors, including the
financial and managerial condition of the parties, their record of performance
under the Community Reinvestment Act, and the impact upon competition in
relevant geographic and product markets.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of
62
<PAGE> 66
any company that is not a bank, and from engaging in any business other than
that of banking, managing and controlling banks or furnishing services to banks
and other permitted subsidiaries. Upon notice to the Federal Reserve, bank
holding companies may engage in, and may own shares of companies engaged in,
certain businesses found by the Federal Reserve to be so closely related to
banking or the management or control of banks as to be a proper incident
thereto. Under current Federal Reserve regulations, a holding company and its
non-bank subsidiaries are permitted to engage in financial and investment
advisory, sales and consumer finance, equipment leasing, data processing,
discount securities brokerage, mortgage banking and brokerage, and other
activities. These activities are subject to certain limitations imposed by the
regulations.
CAPITAL REQUIREMENTS. The Federal Reserve's capital guidelines establish
the following minimum regulatory capital requirements for bank holding
companies: (a) a leverage capital requirement expressed as a percentage of total
assets, (b) a qualifying capital requirement expressed as a percentage of
risk-weighted assets, (c) a Tier 1 leverage requirement expressed as a
percentage of total assets, and (d) for bank holding companies having defined
trading activities equal to 10% or more of total assets (or $1 billion,
whichever is less), a risk-based capital ratio adjusted for market risk. 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 qualifying capital
requirement consists of a minimum ratio of total qualifying capital to total
risk-weighted assets of 8%, of which at least one-half must be Tier 1 capital.
Tier 1 capital consists principally of shareholders' equity, other than goodwill
and certain amounts of other intangibles, but also includes certain amounts
attributable to minority interests in the equity account of consolidated
subsidiaries. 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. Mercantile is not currently
subject to the capital ratio requirement relative to market risk.
Each of the capital guidelines currently used by the Federal Reserve is a
minimum requirement, and higher capital levels will be required if warranted by
the particular circumstances or risk profiles of individual banking
organizations. Further, any banking organization, such as Mercantile,
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's
regulations provide that the capital guidelines will generally be applied on a
consolidated basis in the case of a bank holding company, such as Mercantile,
with more than $150 million in total consolidated assets.
THE BANK
GENERAL. The Bank is a Michigan-chartered bank, subject to supervision and
examination by the FIB. Deposit accounts with the Bank are insured by the FDIC
pursuant to the Federal Deposit Insurance Act ("FDIA") and regulations issued by
the FDIC. Federal Reserve and FDIC regulations affect many activities of the
Bank, including the permissible types and amounts of loans, investments, capital
adequacy, branching, interest payable on deposits, required reserves, and the
safety and soundness of the Bank's practices. The regulations are intended
primarily for the protection of the Bank's depositors and customers, and not the
shareholders of the Bank or Mercantile. The Bank is regulated and examined by
the FDIC, and is not a member of the Federal Reserve System.
63
<PAGE> 67
The Bank is subject to certain restrictions imposed by the Federal Reserve
Act on any extensions of credit to Mercantile or its subsidiaries, on
investments in the stock or other securities of Mercantile or its subsidiaries,
and the acceptance of the stock or other securities of Mercantile or its
subsidiaries as collateral for loans to any person. Federal law places
restrictions on the amount and nature of loans to executive officers, directors
and controlling persons of banks insured by the FDIC and holding companies
controlling such banks.
CAPITAL REQUIREMENTS. The FDIC's capital guidelines for a state chartered,
FDIC-insured non-member bank, like the Bank, include (a) a leverage measure,
consisting of a minimum ratio of Tier 1 capital to total assets of 3% for the
most highly-rated banks and a minimum requirement of not less than 4% for all
others, and (b) a risk-based capital measure consisting of a minimum ratio of
qualifying total capital to 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
such bank having defined trading activities 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 (or $1 billion, whichever is less) (1) to
measure its market risk using an internal value-at-risk model conforming to the
FDIC's capital guidelines, and (2) to maintain a commensurate amount of
additional capital to reflect the risk. The FDIC's capital guidelines establish
minimum requirements. Higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual institutions.
In addition to the foregoing, under the terms of the FDIC Order granting
the Bank deposit insurance coverage, the Bank is required to maintain a ratio of
Tier 1 capital to total assets of not less than 8% until December 15, 2000. The
regulatory capital ratios of Mercantile and the Bank, respectively, at June 30,
1999, and December 31, 1998, are set forth in Note 14 of the Notes to
Consolidated Financial Statements of Mercantile elsewhere in this Prospectus.
PROMPT CORRECTIVE ACTION. Among other things, the 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 in which a depository institution falls. The FDIA and the
implementing regulations of the Federal depository institution regulators
establish five capital categories, ranging from "well capitalized" to
"critically undercapitalized", based upon an institution's qualifying capital to
risk-based assets, Tier 1 capital to risk-based assets, and Tier 1 capital to
total assets ratios. Each depository institution is periodically assigned to a
capital category, generally on the basis of its most recent Call Report.
Depending upon the capital category in which an institution falls, 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; prohibiting the payment of principal or interest on
subordinated debt; and ultimately, appointing a receiver for the institution.
64
<PAGE> 68
BROKERED DEPOSITS. In order to fund its rapid asset growth to date,
Mercantile has relied significantly on wholesale funding sources during its
first 18 months of operations. This wholesale funding consists primarily of
short-term certificates of deposit obtained from depositors located outside
Mercantile's local market area, including varying amounts of "brokered deposits"
placed by deposit brokers for a fee. Well-capitalized institutions are not
subject to limitations on brokered deposits, while an adequately capitalized
institution is able to accept, renew or rollover brokered deposits only with a
waiver from the FDIC and subject to certain restrictions on the yield paid on
such deposits. Undercapitalized institutions are not permitted to accept
brokered deposits. The Bank is currently well-capitalized and, therefore, is
eligible under the statutory standard to accept brokered deposits without
restriction. Mercantile anticipates that as the Bank matures, it will continue
to use a combination of local deposits and wholesale funding, including such
amounts of brokered deposits as management deems appropriate from an
asset/liability management perspective.
DIVIDENDS
Mercantile is a corporation separate and distinct from the Bank. The
ability of Mercantile to obtain funds for the payment of dividends and for other
cash requirements will be dependent on the amount of dividends that may be
declared by its subsidiary, the Bank. The Bank is subject to limitations on the
dividends it may pay to Mercantile.
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 semiannual
dividends) or full year (in the case of annual dividends) has been transferred
to surplus. The Bank may, with the approval of the Commissioner of the FIB, 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 on its common stock 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.
The 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.
Further, in order to comply with the FDIC order granting it deposit insurance,
the Bank may not, prior to December 15, 2000, pay a dividend in an amount which
would cause the Bank's Tier 1 leverage ratio to be less than 8%. See, "-- The
Bank" and "Capital Requirements."
65
<PAGE> 69
It is the policy of the Federal Reserve that a bank holding company should
not pay cash dividends unless (a) the organization's net income available to
common equity for the past year is sufficient to fully fund the dividends, and
(b) the prospective rate of earnings retention appears consistent with the
organization's capital needs, asset quality, and overall financial condition.
For small bank holding companies (those with less than $150 million in assets),
the Federal Reserve's position is that such companies should not pay dividends
so long as they have a debt-to-equity ratio of 1:1 or greater. The Federal
Reserve has also expressed the view that a bank holding company should not pay
cash dividends that can only be funded in ways that weaken the bank holding
company's financial health, such as by borrowing.
Additionally, the Federal Reserve possesses enforcement powers over bank
holding companies and their nonbank 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. The "prompt
corrective action" provisions of the FDIA 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, the Michigan
Business Corporation Act imposes certain restrictions on the declaration and
payment of dividends by Michigan corporations such as Mercantile. Under Michigan
law, dividends may be legally declared or paid by Mercantile only if after the
distribution Mercantile can pay its debts as they come due in the usual course
of business and Mercantile's total assets equal or exceed the sum of its
liabilities plus the amount that would be needed to satisfy the preferential
rights upon dissolution of any holders of preferred stock then outstanding whose
preferential rights are superior to those receiving the distribution.
66
<PAGE> 70
DESCRIPTION OF THE PREFERRED SECURITIES
The preferred securities and the common securities will be issued under the
terms of the trust agreement of MBWM Trust. The trust agreement will be
qualified as an indenture under the Trust Indenture Act. Initially, Wilmington
Trust Company will be the property trustee and will act as trustee for the
purpose of complying with the Trust Indenture Act. The terms of the preferred
securities will include those stated in the trust agreement of MBWM Trust and
those made part of the trust agreement by the Trust Indenture Act. The following
is a summary of the material terms and provisions of the preferred securities
and the trust agreement. Prospective investors in the preferred securities are
urged to read all the provisions of the trust agreement, including the
definitions in the trust agreement, and the Trust Indenture Act. The form of the
trust agreement has been filed as an exhibit to the Registration Statement of
which this prospectus is a part.
GENERAL OVERVIEW
Under the terms of the trust agreement of MBWM Trust, the administrative
trustees will issue the preferred securities and the common securities,
collectively, the trust securities. The preferred securities will represent
preferred undivided beneficial interests in the assets of MBWM Trust and the
holders of the preferred securities will be entitled to a preference in most
circumstances regarding distributions and amounts payable on redemption or
liquidation over the common securities of MBWM Trust, as well as other benefits
as described in the trust agreement.
The preferred securities will rank pari passu, and payments will be made
thereon pro rata, with the common securities of MBWM Trust except as described
under "Subordination of Common Securities of MBWM Trust Held by Mercantile"
below.
Legal title to the junior subordinated debentures will be held by the
property trustee in trust for the benefit of the holders of the trust
securities. The preferred securities guarantee executed by Mercantile for the
benefit of the holders of the preferred securities will be a guarantee on a
subordinated basis and will not guarantee payment of distributions or amounts
payable on redemption or liquidation of the preferred securities if MBWM Trust
does not have funds on hand available to make the payments. See "Description of
Preferred Securities Guarantee." If an event of default under the indenture has
occurred and is continuing and the default is attributable to Mercantile's
failure to pay interest or principal on the junior subordinated debentures on
the due date, a holder of preferred securities may institute a legal proceeding
directly against Mercantile for payment of principal and interest on the junior
subordinated debentures having a principal amount equal to the aggregate
liquidation amount of the preferred securities of the holder. This action is
referred to in this discussion as a direct action. See "Description of Junior
Subordinated Debentures -- Enforcement of Rights by Holders of Preferred
Securities" and "Relationship Among the Preferred Securities, the Junior
Subordinated Debentures and the Preferred Securities Guarantee."
QUARTERLY DISTRIBUTION PAYMENTS AND EXTENSIONS ON DISTRIBUTION PAYMENTS
PAYMENT OF DISTRIBUTIONS. Distributions on the preferred securities will
be payable at the annual rate of % of the stated liquidation amount of $10,
payable quarterly in arrears on the 15th day of October, January, April and July
in each year, beginning
67
<PAGE> 71
October 15, 1999. The amount of each distribution due will include amounts
accrued and unpaid through the date the distribution is due. Distributions on
the preferred securities will be payable to the holders as they appear on the
register of MBWM Trust on the relevant record date. Until the preferred
securities do not remain in book-entry form, the relevant record date will be
one business day prior to the relevant distribution date and, in the event the
preferred securities are not in book-entry form, the relevant record date will
be the first day of the month in which the relevant distribution date occurs.
The right to receive distributions will be cumulative from the date of original
issuance of the preferred securities.
The amount of distributions payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. In the event that any payment
date is not a business day, the distribution will be made on the next business
day, and without any interest or other payment regarding any delay. As used in
this prospectus, a business day means any day other than a Saturday or a Sunday,
or a day on which banking institutions in Michigan are authorized or required by
law or executive order to remain closed or a day on which the corporate trust
office of the property trustee or the indenture trustee is closed for business.
The only funds of MBWM Trust available for distribution to its preferred
securities holders will be payments by Mercantile under the junior subordinated
debentures. See "Description of Junior Subordinated Debentures." If Mercantile
does not make interest payments on the junior subordinated debentures, the
property trustee will not have funds available to pay distributions on the
preferred securities. The payment of distributions, if and to the extent MBWM
Trust has legally available funds and cash sufficient to make payments, is
guaranteed by Mercantile. For further information, see "Description of Preferred
Securities Guarantee."
EXTENSION PERIOD. Unless a debenture event of default has occurred and is
continuing, Mercantile has the right under the indenture to defer interest
payments on the junior subordinated debentures at any time for a period not
exceeding 20 consecutive quarters regarding each extension period. However, no
extension period may extend beyond the stated maturity of the junior
subordinated debentures. As a consequence of any extension election by
Mercantile, quarterly distributions on the preferred securities will be deferred
by MBWM Trust during any extension period. Distributions to which holders of
preferred securities are entitled will accumulate additional amounts at the rate
per year of % thereof, compounded quarterly from the relevant distribution
date. The term distributions as used in this prospectus includes any additional
accumulated amounts.
During any extension period, Mercantile may not (1) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment regarding, any of its capital stock which includes common
and preferred stock, or (2) make any payment of principal, interest or premium,
if any, on or repay, repurchase or redeem any debt securities of Mercantile that
rank pari passu with or junior in interest to the junior subordinated debentures
or make any preferred securities guarantee payments regarding any preferred
securities guarantee by Mercantile of the debt securities of any subsidiary of
68
<PAGE> 72
Mercantile if the preferred securities guarantee ranks pari passu with or junior
in interest to the junior subordinated debentures. These restrictions do not
apply to:
- dividends or distributions in common stock of Mercantile;
- any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any plan of
this type in the future, or the redemption or repurchase of any rights
pursuant to this type of plan;
- payments under the preferred securities guarantee of Mercantile; or
- purchases of common stock for issuance under any future benefit plans for
its directors, officers or employees.
Prior to the termination of any extension period, Mercantile may further
extend the extension period, provided that the extension does not cause the
extension period to exceed 20 consecutive quarters or extend beyond the stated
maturity of the junior subordinated debentures. Upon the termination of any
extension period and the payment of all amounts then due, and subject to the
above limitations, Mercantile may elect to begin a new extension period. There
is no limitation on the number of times that Mercantile may elect to begin an
extension period.
Mercantile has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the junior
subordinated debentures.
REDEMPTION -- MANDATORY AND OPTIONAL RIGHTS OF MERCANTILE
MANDATORY REDEMPTION OF PREFERRED SECURITIES. Upon the repayment or
redemption at any time, in whole or in part, of any junior subordinated
debentures, the proceeds from the repayment or redemption will be applied by the
property trustee to redeem a like amount of the trust securities at the
redemption price, as defined below. For more information, see "Description of
Junior Subordinated Debentures -- Redemption." If less than all of the junior
subordinated debentures are to be repaid or redeemed on a redemption date, then
the proceeds will be allocated to the redemption of the preferred securities and
common securities pro rata.
OPTIONAL REDEMPTION OF JUNIOR SUBORDINATED DEBENTURES. Mercantile will
have the right to redeem the junior subordinated debentures (1) beginning on
, 2004, in whole at any time or in part from time to time at a
redemption price equal to the accrued and unpaid interest on the junior
subordinated debentures redeemed to the date fixed for redemption, plus 100% of
the principal amount of the junior subordinated debentures, or (2) at any time,
in whole, but not in part, upon a tax event, an investment company event or a
capital treatment event as defined in the following paragraph. The redemption
price will be equal to the accrued and unpaid interest on the redeemed junior
subordinated debentures, plus 100% of the principal amount. These payments will
be subject to receipt of prior approval by the Federal Reserve if then required
under applicable capital guidelines or policies of the Federal Reserve. See
"Description of Junior Subordinated Debentures -- Redemption."
TAX EVENT REDEMPTION, INVESTMENT COMPANY EVENT REDEMPTION, CAPITAL
TREATMENT EVENT REDEMPTION OR DISTRIBUTION OF JUNIOR SUBORDINATED
DEBENTURES. If a tax event, an investment company event or a capital treatment
event occurs after original issuance of the preferred securities and is
continuing, Mercantile has the right to redeem the junior
69
<PAGE> 73
subordinated debentures in whole. If a redemption of the junior subordinated
debentures occurs, Mercantile would also cause a mandatory redemption of the
preferred securities and common securities in whole at the redemption price, as
defined below, within 90 days following the occurrence of any of these events.
In each case the redemption would be subject to receipt of prior approval by the
Federal Reserve if then required under its applicable capital guidelines or
policies. If any of these events has occurred and is continuing, and Mercantile
does not elect to redeem the junior subordinated debentures and cause a
mandatory redemption of the trust securities or to liquidate MBWM Trust and
cause the junior subordinated debentures to be distributed to holders of the
trust securities in liquidation of MBWM Trust, the trust securities will remain
outstanding. Also, additional sums, as defined below, may be payable on the
junior subordinated debentures.
A tax event requires the receipt by Mercantile and MBWM Trust of a legal
opinion to the effect that, as a result of any amendment to, including any
announced prospective change in, the laws or regulations of the United States or
any political subdivision or taxing authority of the United States, or as a
result of any official administrative pronouncement or judicial decision
interpreting or applying the tax laws or regulations, there is more than an
insubstantial risk that:
- MBWM Trust is, or will be within 90 days of the date of the opinion,
subject to United States federal income tax regarding income received or
accrued on the junior subordinated debentures;
- interest payable by Mercantile on the junior subordinated debentures is
not, or within 90 days of the opinion, will not be, deductible by
Mercantile, in whole or in part, for United States federal income tax
purposes; or
- MBWM Trust is, or will be within 90 days of the date of the opinion,
subject to more than a de minimis amount of other taxes, duties,
assessments or other governmental charges.
An investment company event requires the receipt by Mercantile and MBWM
Trust of a legal opinion to the effect that, as a result of any change in law or
regulation or a change in interpretation or application of law or regulation by
any legislative body, court, governmental agency or regulatory authority, MBWM
Trust is or will be considered an investment company required to be registered
under the Investment Company Act.
A capital treatment event requires the receipt by Mercantile and MBWM Trust
of a legal opinion to the effect that, as a result of any amendment to,
including any proposed change in, the laws or regulations of the United States
or any of its political subdivisions, or as a result of any official action or
judicial decision interpreting the laws or regulations, there is more than an
insubstantial risk that Mercantile's ability to treat the preferred securities
as core capital or its equivalent for purposes of the Federal Reserve capital
adequacy guidelines, is impaired.
Additional sums means the additional amounts as may be necessary to be paid
by Mercantile on the junior subordinated debentures so that the amount of
distributions payable by MBWM Trust on the outstanding trust securities will not
be reduced as a result of any additional taxes, duties, assessments and other
governmental charges to which MBWM Trust has become subject.
70
<PAGE> 74
Like amount means (1) regarding a redemption of trust securities, trust
securities having a liquidation amount, as defined below, equal to that portion
of the principal amount of junior subordinated debentures to be
contemporaneously redeemed in accordance with the indenture, allocated to the
common securities and to the preferred securities based upon the relative
liquidation amounts of these classes and the proceeds of which will be used to
pay the redemption price of the trust securities, and (2) regarding a
distribution of junior subordinated debentures to holders of trust securities in
connection with a dissolution or liquidation of MBWM Trust, junior subordinated
debentures having a principal amount equal to the liquidation amount of the
trust securities of the holder to whom the junior subordinated debentures are
distributed.
Liquidation amount means the stated amount of $10 per trust security.
Redemption price means, regarding any trust security, the liquidation
amount of the trust security, plus accumulated and unpaid distributions to the
redemption date, allocated on a pro rata basis, based on liquidation amounts,
among the trust securities.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
Subject to Mercantile's having received prior approval of the Federal
Reserve, Mercantile will have the right at any time to liquidate MBWM Trust and,
after satisfaction of the liabilities of creditors of MBWM Trust as provided by
applicable law, cause the junior subordinated debentures to be distributed to
the holders of trust securities in liquidation of MBWM Trust. After the
liquidation date fixed for any distribution of junior subordinated debentures
for preferred securities:
- the preferred securities will no longer be deemed to be outstanding;
- the depositary or its nominee, as the record holder of the preferred
securities, will receive a registered global certificate or certificates
representing the junior subordinated debentures to be delivered upon the
distribution; and
- any certificates representing preferred securities not held by the
depositary or its nominee will be deemed to represent the junior
subordinated debentures having a principal amount equal to the
liquidation amount of the preferred securities, and bearing interest
equal to the accrued and unpaid distributions on the preferred
securities, until the certificates are presented to the administrative
trustees or their agent for reissuance.
There can be no assurance as to the market prices for the preferred
securities or the junior subordinated debentures that may be distributed in
exchange for the preferred securities if a dissolution and liquidation of MBWM
Trust were to occur. Accordingly, the preferred securities that an investor may
purchase, or the junior subordinated debentures that the investor may receive on
dissolution and liquidation of MBWM Trust, may trade at a discount to the price
that the investor paid to purchase the preferred securities. If the junior
subordinated debentures are distributed, Mercantile will use reasonable efforts
to list them on a national securities exchange or quotation system.
REDEMPTION PROCEDURES
Preferred securities redeemed on each redemption date will be redeemed at
the redemption price with the proceeds from the contemporaneous redemption of
the junior subordinated debentures. Redemptions of the preferred securities will
be made and the
71
<PAGE> 75
redemption price will be payable on each redemption date only to the extent that
MBWM Trust has funds on hand available for the payment of the redemption price.
See "-- Subordination of Common Securities of MBWM Trust Held by Mercantile" and
"Description of Preferred Securities Guarantee."
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of trust securities at the
holder's registered address. Unless MBWM Trust defaults in payment of the
applicable redemption price, on and after the redemption date, distributions
will cease to accrue on the preferred securities called for redemption.
If MBWM Trust gives a notice of redemption regarding the preferred
securities, then, by 12:00 noon, Detroit, Michigan time, on the redemption date,
the property trustee will pay the redemption price to the depositary, as the
record holder of the preferred securities. The depositary thereafter will credit
the redemption price to the participants for whom it holds the preferred
securities. See "Book-Entry Issuance." If the preferred securities are no longer
in book-entry form, the property trustee, to the extent funds are available,
will deposit with the paying agent for the preferred securities funds sufficient
to pay the aggregate redemption price. The property trustee will give the paying
agent irrevocable instructions and authority to pay the redemption price upon
surrender of certificates evidencing the preferred securities. Notwithstanding
the foregoing, distributions payable on or prior to the redemption date will be
payable to the holders of the preferred securities on the relevant record dates
for the related distribution dates. If notice of redemption has been given and
funds deposited as required, then upon the date of the deposit, all rights of
the holders of the preferred securities will cease, except the right of the
holders of the preferred securities to receive the redemption price, but without
interest on the redemption price, and the preferred securities will cease to be
outstanding. If any date fixed for redemption of the preferred securities is not
a business day, then payment of the redemption price payable on the date will be
made on the next business day and without any interest or other payment for the
delay. If, however, the business day falls in the next calendar year, the
payment will be made on the immediately preceding business day. If payment of
the redemption price in respect of preferred securities called for redemption is
improperly withheld or refused and not paid either by MBWM Trust or by
Mercantile under the preferred securities guarantee, distributions on the
preferred securities will continue to accrue at the then applicable rate, from
the redemption date originally established by MBWM Trust for the preferred
securities to the date the redemption price is actually paid. In this case the
actual payment date will be the date fixed for redemption for purposes of
calculating the redemption price. See "Description of Preferred Securities
Guarantee."
Subject to applicable law, including, without limitation, federal
securities laws, Mercantile may at any time and from time to time purchase
outstanding preferred securities by tender, in the open market or by private
agreement.
Payment of the redemption price on the preferred securities and any
distribution of junior subordinated debentures to holders of preferred
securities will be made to the applicable record holders as they appear on the
register of the preferred securities on the relevant record date, which date
will be one business day prior to the relevant redemption date; provided,
however, that if any preferred securities are not in book-entry form, the
relevant record date for them will be a date at least 15 days prior to the
redemption date. In the case of a liquidation, the record date will be
established by the property trustee and be no more than 45 days before the
liquidation date.
72
<PAGE> 76
If less than all of the trust securities are to be redeemed on a redemption
date, then the aggregate redemption price for the trust securities to be
redeemed will be allocated pro rata to the preferred securities and common
securities based upon the relative liquidation amounts of these classes. The
particular outstanding preferred securities to be redeemed will be selected by
any method as the property trustee deems fair and appropriate. This method may
provide for the selection for redemption of portions equal to $10 or an integral
multiple of $10 of the liquidation amount of preferred securities. The property
trustee will promptly notify the trust securities registrar in writing of the
preferred securities selected for redemption and, in the case of any preferred
securities selected for partial redemption, the liquidation amount thereof to be
redeemed. For all purposes of the trust agreement, unless the context otherwise
requires, all provisions relating to the redemption of preferred securities will
relate to the portion of the aggregate liquidation amount of preferred
securities which has been or is to be redeemed.
SUBORDINATION OF COMMON SECURITIES OF MBWM TRUST HELD BY MERCANTILE
Payment of distributions on, and the redemption price of, the preferred
securities and common securities will be made pro rata based on the liquidation
amounts of these securities. However, if on any distribution date or redemption
date a debenture event of default has occurred and is continuing, no
distributions on or redemption of the common securities will be made. Further,
no other payment on account of the redemption, liquidation or other acquisition
of the common securities will be made unless payment in full in cash of all
distributions payable on all of the outstanding preferred securities are made,
or in the case of redemption the full redemption price on all of the outstanding
preferred securities then called for redemption, has been made or provided for.
All funds available to the property trustee will first be applied to the payment
in full in cash of all distributions on, or redemption price of, the preferred
securities then due and payable.
In the case of any event of default under the trust agreement resulting
from a debenture event of default, Mercantile as holder of the common securities
will be deemed to have waived any right to act regarding any event of default
until the effects of all events of default have been cured, waived or otherwise
eliminated. Until any events of default have been so cured, waived or otherwise
eliminated, the property trustee will act solely on behalf of the holders of the
preferred securities and not on behalf of Mercantile as holder of the common
securities, and only the holders of the preferred securities will have the right
to direct the property trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
Mercantile will have the right at any time to terminate MBWM Trust and
cause the junior subordinated debentures to be distributed to the holders of the
preferred securities. This right is subject to Mercantile having received prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. See "Distribution of Junior
Subordinated Debentures" above.
In addition, under the trust agreement, MBWM Trust will automatically
terminate upon expiration of its term and will earlier terminate on the first to
occur of: (1) events of bankruptcy, dissolution or liquidation of Mercantile;
(2) delivery by Mercantile of written direction to the property trustee to
terminate MBWM Trust, which direction is optional and wholly within the
discretion of Mercantile; (3) redemption of all of the preferred securities as
described under "-- Redemption -- Mandatory and Optional Rights of
73
<PAGE> 77
Mercantile;" and (4) the entry of an order for the dissolution of MBWM Trust by
a court of competent jurisdiction.
If an early termination occurs as described in clause (1), (2) or (4) above
or upon the expiration of the term of MBWM Trust, it will be liquidated by the
trustees as expeditiously as the trustees determine to be possible. The
liquidation will be made after satisfaction of liabilities to creditors of MBWM
Trust as provided by applicable law. In the liquidation, holders of the trust
securities will receive a like amount of the junior subordinated debentures,
unless this distribution is determined by the property trustee not to be
practical. If the property trustee determines that a distribution of the junior
subordinated debentures is not practical, then the holders of preferred
securities will be entitled to receive an amount equal to the liquidation amount
of $10 per trust security plus accrued and unpaid distributions thereon to the
date of payment. This amount, payable out of the assets of MBWM Trust available
for distribution, is referred to as the liquidation distribution. If the
liquidation distribution can be paid only in part because MBWM Trust has
insufficient assets available to pay the full aggregate liquidation
distribution, then the amounts payable directly by MBWM Trust on the preferred
securities will be paid on a pro rata basis. The holders of the common
securities will be entitled to receive distributions upon a liquidation pro rata
with the holders of the preferred securities, except that if a debenture event
of default has occurred and is continuing, the preferred securities will have a
priority over the common securities.
Under current United States federal income tax law and interpretations and
assuming, as expected, MBWM Trust is treated as a grantor trust, a distribution
of the junior subordinated debentures should not be a taxable event to holders
of the preferred securities. Should there be a change in law, a change in legal
interpretation, a tax event or other circumstances, however, the distribution
could be a taxable event to holders of the preferred securities. See "Material
Federal Income Tax Consequences." If Mercantile elects neither to redeem the
junior subordinated debentures prior to maturity nor to liquidate MBWM Trust and
distribute the junior subordinated debentures to holders of the preferred
securities, the preferred securities will remain outstanding until the repayment
of the junior subordinated debentures.
If Mercantile elects to liquidate MBWM Trust and cause the junior
subordinated debentures to be distributed to holders of the preferred securities
in liquidation of MBWM Trust, Mercantile will continue to have the right to
shorten the maturity of the junior subordinated debentures under most
circumstances. See "Description of Junior Subordinated Debentures -- General
Overview."
EVENTS OF DEFAULT; NOTICE
Any one of the following events that has occurred and is continuing
constitutes an event of default under the trust agreement:
- the occurrence of a debenture event of default under the indenture, see
"Description of Junior Subordinated Debentures -- Indenture Events of
Default"; or
- default by MBWM Trust in the payment of any distribution when it becomes
due and payable, and continuation of the default for a period of 30 days;
or
- default by MBWM Trust in the payment of any redemption price of any trust
security when it becomes due and payable; or
74
<PAGE> 78
- default in the performance, or breach, in any material respect, of any
covenant or warranty of the property trustee in the trust agreement,
other than a default or breach in the performance of a covenant or
warranty which is addressed in the previous two points above, and
continuation of the default or breach, for a period of 60 days after
there has been given, by registered or certified mail, to the property
trustee by the holders of at least 25% in aggregate liquidation amount of
the outstanding preferred securities, a written notice specifying the
default or breach and requiring it to be remedied and stating that the
notice is a "Notice of Default" under the trust agreement; or
- the occurrence of events of bankruptcy or insolvency regarding the
property trustee and the failure by Mercantile to appoint a successor
property trustee within 60 days thereof.
Within five business days after the occurrence of any event of default
actually known to the property trustee, the property trustee is required to
transmit notice of the event of default to the holders of the preferred
securities, the administrative trustees and Mercantile, unless the event of
default has been cured or waived. Mercantile and the administrative trustees are
required to file annually with the property trustee a certificate as to whether
they are in compliance with all the conditions and covenants applicable to them
under the trust agreement.
If a debenture event of default has occurred and is continuing, the
preferred securities will have a preference over the common securities upon
termination of MBWM Trust as described above. See "-- Liquidation Distribution
Upon Termination." Upon a debenture event of default, unless the principal of
all the junior subordinated debentures has already become due and payable,
either the property trustee or the holders of not less than 25% in aggregate
principal amount of outstanding junior subordinated debentures may declare all
of the junior subordinated debentures to be due and payable immediately. Written
notice must be given to Mercantile, and to the property trustee, if given by
holders of the junior subordinated debentures. If the property trustee or the
holders of the junior subordinated debentures fail to declare the principal of
all of the junior subordinated debentures due and payable upon a debenture event
of default, the holders of at least 25% in liquidation amount of the preferred
securities then outstanding will have the right to declare the junior
subordinated debentures immediately due and payable. In either event, payment of
principal and interest on the junior subordinated debentures will remain
subordinated to the extent provided in the indenture. In addition, holders of
the preferred securities have to bring a direct action as discussed below. See
"Description of Junior Subordinated Debentures -- Enforcement of Rights by
Holders of Preferred Securities."
REMOVAL OF TRUSTEES
Unless a debenture event of default has occurred and is continuing, any
trustee may be removed at any time by the holder of the common securities of
MBWM Trust. If a debenture event of default has occurred and is continuing, the
property trustee, Delaware trustee or both may be removed by the holders of a
majority in liquidation amount of the outstanding preferred securities. In no
event will the holders of the preferred securities have the right to vote to
appoint, remove or replace the administrative trustees, which voting rights are
vested exclusively in Mercantile as the holder of the common securities. No
resignation or removal of a trustee and no appointment of a successor trustee
will be
75
<PAGE> 79
effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the trust agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an event of default has occurred and is continuing, at any time, for
the purpose of meeting the legal requirements of the Trust Indenture Act or of
any jurisdiction in which any part of trust property may at the time be located,
the holders of the common securities and the administrative trustees have power
to appoint one or more persons either to act as (1) a co-trustee, jointly with
the property trustee, of all or any part of the trust property, or (2) to act as
separate trustee of any such property. In either case these trustees will have
the powers which may be provided in the instrument of appointment, and will have
vested in them any property, title, right or power deemed necessary or
desirable, subject to the provisions of the trust agreement. In case a debenture
event of default has occurred and is continuing, the property trustee alone will
have power to make the appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Generally, any person or successor to any of the trustees of MBWM Trust may
be a successor trustee to any of the trustees, including a successor resulting
from a merger or consolidation. However, any successor trustee must meet all of
the qualifications and eligibility standards to act as a trustee to MBWM Trust.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF MBWM TRUST
MBWM Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any trust or other person, except as described
below. MBWM Trust may, at the request of Mercantile, with the consent of the
administrative trustees and without the consent of the holders of the preferred
securities, the property trustee or the Delaware trustee, undertake the
transactions described above; provided, that:
- the successor entity either (a) expressly assumes all of the obligations
of MBWM Trust regarding the preferred securities or (b) substitutes for
the preferred securities other securities having substantially the same
terms as the preferred securities, so long as the successor securities
rank the same as the preferred securities rank in priority regarding
distributions and payments upon liquidation, redemption and otherwise;
- Mercantile expressly appoints a trustee of the successor entity
possessing substantially the same powers and duties as the property
trustee as the holder of the junior subordinated debentures;
- any transaction of this kind does not adversely affect the rights,
preferences and privileges of the holders of the preferred securities,
including any successor securities, in any material respect;
- the successor entity has a purpose identical to that of MBWM Trust;
- the successor securities will be listed or traded on any national
securities exchange or other organization on which the preferred
securities may then be listed;
76
<PAGE> 80
- prior to the transaction, Mercantile has received a legal opinion from
independent counsel to MBWM Trust experienced in such matters to the
effect that (a) the transaction does not adversely affect the rights,
preferences and privileges of the holders of the preferred securities,
including any successor securities, in any material respect, and (b)
following any transaction of this kind, neither MBWM Trust nor the
successor entity will be required to register as an investment company
under the Investment Company Act; and
- Mercantile or any permitted successor or designee owns all of the common
securities of the successor entity and guarantees the obligations of the
successor entity under the successor securities at least to the extent
provided by the preferred securities guarantee. Notwithstanding the
foregoing, MBWM Trust will not, except with the consent of holders of
100% in liquidation amount of the preferred securities, enter into any
transaction of this kind, or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it, if the transaction would
cause MBWM Trust or the successor entity to be classified as other than a
grantor trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except in certain limited circumstance described below and under
"Description of Preferred Securities Guarantee -- Amendments and Assignment", in
general, the holders of the preferred securities will have no voting rights.
The trust agreement may be amended from time to time by Mercantile and the
trustees, without the consent of the holders of the trust securities:
- to cure any ambiguity, correct or supplement any provisions in the trust
agreement that may be inconsistent with any other provision, or to make
any other provisions regarding matters or questions arising under the
trust agreement, which are not inconsistent with the other provisions of
the trust agreement; or
- to modify, eliminate or add to any provisions of the trust agreement to
the extent that is necessary to ensure that MBWM Trust will be classified
for United States federal income tax purposes as a grantor trust at all
times that any trust securities are outstanding or to ensure that MBWM
Trust will not be required to register as an investment company under the
Investment Company Act.
Provided, however, that in the case of the first point above, this action
will not adversely affect in any material respect the interests of any holder of
trust securities, and any amendments of the trust agreement will become
effective when notice is given to the holders of the trust securities.
The trust agreement may be amended by the trustees and Mercantile (1) with
the consent of holders representing not less than a majority of the aggregate
liquidation amount of the outstanding trust securities, and (2) upon receipt by
the trustees of an opinion of counsel to the effect that the amendment or the
exercise of any power granted to the trustees in accordance with the amendment
will not affect MBWM Trust's status as a grantor trust for United States federal
income tax purposes or MBWM Trust's exemption from status as an investment
company under the Investment Company Act. However, without the consent of each
holder of trust securities, the trust agreement may not be amended to (1) change
the amount or timing of any distribution on the trust securities or otherwise
adversely affect the amount of any distribution required to be made
77
<PAGE> 81
in respect of the trust securities as of a specified date or (2) restrict the
right of a holder of trust securities to institute suit for the enforcement of
any payment of distributions afterwards.
For the time that any junior subordinated debentures are held by the
property trustee, the trustees will not:
- direct the time, method and place of conducting any proceeding for any
remedy available to the indenture trustee, or executing any trust or
power conferred on the indenture trustee regarding the junior
subordinated debentures;
- waive any past default that is waivable under the indenture;
- exercise any right to rescind or annul a declaration that the principal
of all the junior subordinated debentures will be due and payable; or
- consent to any amendment, modification or termination of the indenture or
the junior subordinated debentures, where this consent is required,
without, in each case, obtaining the prior approval of the holders of a
majority in aggregate liquidation amount of all outstanding preferred
securities. However, where a consent under the indenture would require
the consent of each affected holder of junior subordinated debentures,
this consent may not be given by the property trustee without the prior
consent of each holder of the preferred securities. The trustees will not
revoke any action previously authorized or approved by a vote of the
holders of the preferred securities except by subsequent vote of the
holders of the preferred securities. The property trustee will notify
each holder of the preferred securities of any notice of default
regarding the junior subordinated debentures. In addition to obtaining
these approvals of the holders of the preferred securities, prior to
taking any of the above actions, the trustees will obtain an opinion of
counsel stating that MBWM Trust will not, as a consequence of the
proposed action by the property trustee, cease to be classified as a
grantor trust and will not be classified as an association taxable as a
corporation for United States federal income tax purposes on account of
the action.
Any required approval of holders of the preferred securities may be given
at a meeting of holders of preferred securities convened for this purpose or
under written consent. The property trustee will cause a notice of any meeting
at which holders of the preferred securities are entitled to vote, or of any
matter upon which action by written consent of the holders is to be taken, to be
given to each holder of record of the preferred securities in the manner set
forth in the trust agreement.
No vote or consent of the holders of the preferred securities will be
required for MBWM Trust to redeem and cancel the preferred securities in
accordance with the trust agreement.
Any of the preferred securities that are owned by Mercantile, the trustees
or any affiliate of Mercantile or any trustees, will, for purposes of the vote
or consent, be treated as if they were not outstanding.
GLOBAL PREFERRED SECURITIES
The preferred securities will be represented by one or more global
certificates registered in the name of the depositary or its nominee. Beneficial
interests in the preferred
78
<PAGE> 82
securities will be shown on, and transfers will be effected only through,
records maintained by participants in the depositary. Except as described below,
preferred securities in certificated form will not be issued in exchange for the
global certificates. See "Book-Entry Issuance."
A global security will be exchangeable for preferred securities registered
in the names of persons other than the depositary or its nominee only if:
- the depositary notifies Mercantile that it is unwilling or unable to
continue as a depositary for the global security and no successor
depositary has been appointed, or if at any time the depositary ceases to
be a clearing agency registered under the Securities Exchange Act of
1934, at a time when the depositary is required to be so registered to
act as a depositary;
- Mercantile in its sole discretion determines that the global security
will be so exchangeable; or
- there has occurred and is continuing an event of default under the
indenture. Any global security that is exchangeable under the preceding
sentence will be exchangeable for definitive certificates registered in
the names which the depositary directs. It is expected that the
instructions will be based upon directions received by the depositary
regarding ownership of beneficial interests in the global security. In
the event that preferred securities are issued in certificated form, they
will be in denominations of $10 or integral multiples of $10 and may be
transferred or exchanged at the offices described below.
Unless and until it is exchanged in whole or in part for the individual
preferred securities, the global preferred security may not be transferred
except (1) as a whole by the depositary to a nominee of the depositary or by a
nominee of the depositary to the depositary or (2) another nominee of the
depositary or (3) by the depositary or any nominee to a successor depositary or
any nominee of the successor.
Payments on preferred securities represented by a global security will be
made to the depositary, as the depositary for the preferred securities. In the
event the preferred securities are issued in certificated form, distributions
will be payable, the transfer of the preferred securities will be registrable,
and preferred securities will be exchangeable for preferred securities of other
denominations of a like aggregate liquidation amount, at the corporate office of
the property trustee, or at the offices of any paying agent or transfer agent
appointed by the administrative trustees. However, payment of any distribution
may be made at the option of the administrative trustees by check mailed to the
address of the persons entitled to payments or by wire transfer. In addition, if
the preferred securities are issued in definitive form, the record dates for
payment of distributions will be the first day of the month in which the
relevant distribution date occurs. For a description of the terms of the
depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see "Book-Entry Issuance."
Upon the issuance of a global preferred security, and the deposit of the
global preferred security with or on behalf of the depositary, the depositary
will credit, on its book-entry registration and transfer system, the respective
aggregate liquidation amounts of the individual preferred securities represented
by the global preferred security to persons that have accounts with the
depositary. The accounts will be designated by the dealers, underwriters or
agents regarding the preferred securities. Ownership of beneficial interests in
a global preferred security will be limited to participants or persons that may
hold
79
<PAGE> 83
interests through participants. Ownership of beneficial interests in the global
preferred security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the depositary or its nominee and
the records of participants regarding interests of persons who hold through
participants. The laws of some states require that some purchasers of securities
in those states take physical delivery of the securities in certificated form.
The limits, under these laws, may impair the ability to transfer beneficial
interests in a global preferred security.
For the time that the depositary for a global preferred security, or its
nominee, is the registered owner of the global preferred security, this
registered owner will be considered the sole owner or holder of the preferred
securities represented by the global preferred security for all purposes under
the trust agreement of MBWM Trust. Except as provided below, owners of
beneficial interests in a global preferred security will not be entitled to have
any of the individual preferred securities represented by the global preferred
security registered in their names, will not receive or be entitled to receive
physical delivery of any the preferred securities in certificated form and will
not be considered the owners or holders thereof.
None of Mercantile, the property trustee, any paying agent, or the
securities registrar for the preferred securities will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the global preferred security or
for maintaining, supervising or reviewing any records relating to the beneficial
ownership interests.
Mercantile expects that the depositary, upon receipt of any payment of the
liquidation amount or distributions in respect of a permanent global preferred
security, immediately will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interest in the aggregate
liquidation amount of the global preferred security as shown on the records of
the depositary or its nominee. Mercantile also expects that payments by
participants to owners of beneficial interests in the global preferred security
held through the participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in street name. The payments will be the
responsibility of the participants.
If the depositary for the preferred securities is at any time unwilling,
unable or ineligible to continue as depositary and a successor depositary is not
appointed by Mercantile within 90 days, MBWM Trust will issue individual
preferred securities in exchange for the global preferred security. In addition,
MBWM Trust may at any time in its sole discretion, subject to any limitations
described in this prospectus relating to the preferred securities, determine not
to have any preferred securities represented by one or more global preferred
securities. In this event, Mercantile will issue individual preferred securities
in exchange for the global preferred security or securities representing the
preferred securities. Further, if MBWM Trust specifies, an owner of a beneficial
interest in a global preferred security representing preferred securities may
receive individual preferred securities in exchange for the beneficial
interests, subject to any limitations described in this prospectus. In any such
instance, a beneficial interest owner in a global preferred security will be
entitled to physical delivery of individual preferred securities represented by
the global preferred security equal in liquidation amount to the beneficial
interest, and to have the preferred securities registered in its name.
Individual preferred securities issued will be issued in denominations, unless
otherwise specified by MBWM Trust, of $10 and integral multiples of $10.
80
<PAGE> 84
PAYMENT AND PAYING AGENCY
Payments in respect of the preferred securities will be made to the
depositary, which will credit the relevant accounts at the depositary on the
applicable distribution dates. However, if any of the preferred securities are
not held by the depositary, the payments will be made by check mailed to the
address of the holder as the address appears on the register. The paying agent
will initially be the property trustee and any co-paying agent chosen by the
property trustee and acceptable to the administrative trustees and Mercantile.
The paying agent will be permitted to resign as paying agent upon 30 days'
written notice to the property trustee and Mercantile. In the event that the
property trustee is no longer the paying agent, the administrative trustees will
appoint a successor paying agent, which will be a bank or trust company
acceptable to the administrative trustees and Mercantile.
REGISTRAR AND TRANSFER AGENT
The property trustee will act as registrar and transfer agent for the
preferred securities. Registration of transfers of the preferred securities will
be effected without charge by or on behalf of MBWM Trust, but the registrar may
require payment to cover any tax or other governmental charges that may be
imposed in connection with any transfer or exchange. MBWM Trust will not be
required to register or cause to be registered the transfer of the preferred
securities after the preferred securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee, other than upon the occurrence and during the
continuance of an event of default, undertakes to perform only the duties which
are specifically set forth in the trust agreement. After an event of default,
the property trustee must exercise the same degree of care and skill as a
prudent person would exercise or use in the conduct of his or her own affairs.
Subject to this provision, the property trustee is under no obligation to
exercise any of the powers vested in it by the trust agreement at the request of
any holder of preferred securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred. If no event
of default has occurred and is continuing and the property trustee is required
to decide between alternative causes of action, construe ambiguous provisions in
the trust agreement or is unsure of the application of any provision of the
trust agreement, and the matter is not one on which holders of the preferred
securities are entitled under the trust agreement to vote, then the property
trustee will take action as directed by Mercantile. If the property trustee is
not so directed, it will take action as it deems advisable and in the best
interests of the holders of the trust securities and will have no liability
under the trust agreement except for its own bad faith, negligence or willful
misconduct.
MISCELLANEOUS
The administrative trustees are authorized and directed to conduct the
affairs of and to operate MBWM Trust in such a way that MBWM Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and so that the junior
subordinated debentures will be treated as indebtedness of Mercantile for United
States federal income tax purposes. In this regard, Mercantile and the
administrative trustees are authorized to take any lawful action not
inconsistent with
81
<PAGE> 85
the certificate of trust of MBWM Trust or the trust agreement, that they
determine in their discretion to be necessary or desirable for these purposes,
as long as the action does not materially adversely affect the interests of the
holders of the related preferred securities. Holders of the preferred securities
have no preemptive or similar rights.
MBWM Trust may not borrow money or issue debt or mortgage or pledge any of
its assets.
82
<PAGE> 86
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The junior subordinated debentures will be issued under a subordinated
indenture, dated as of , 1999, between Mercantile and Wilmington
Trust Company, as the indenture trustee. The following is a summary of the
material terms and provisions of the junior subordinated debentures and the
indenture. Prospective investors are urged to read the indenture, which has been
filed as an exhibit to the Registration Statement of which this prospectus forms
a part. Wherever particular defined terms of the indenture are referred to but
not defined herein, such defined terms have the same meaning as that in the
indenture. The indenture is qualified under the Trust Indenture Act.
Concurrently with the issuance of the preferred securities, MBWM Trust will
invest the proceeds from the sale of the preferred securities, together with the
consideration paid by Mercantile for the common securities, in junior
subordinated debentures issued by Mercantile. The junior subordinated debentures
will be issued as unsecured debt under the indenture.
GENERAL OVERVIEW
The junior subordinated debentures will bear interest at the rate of %
per year of their principal amount, payable quarterly in arrears on the 15th day
of October, January, April and July of each year, beginning October 15, 1999, to
the person in whose name each junior subordinated debenture is registered,
subject to minor exceptions, at the close of business on the business day next
preceding the interest payment date. Notwithstanding the above, in the event
that either (1) the junior subordinated debentures are held by the property
trustee and the preferred securities are no longer in book-entry only form or
(2) the junior subordinated debentures are not represented by a global
subordinated debenture, the record date for the interest payment will be the
first day of the month in which the payment is made. The amount of each interest
payment due regarding the junior subordinated debentures will include amounts
accrued and unpaid through the date the interest payment is due. It is
anticipated that, until the liquidation, if any, of MBWM Trust, each junior
subordinated debenture will be held in the name of the property trustee in trust
for the benefit of the holders of the preferred securities. The amount of
interest payable for any period will be computed on the basis of a 360-day year
of twelve 30-day months. In the event that any date on which interest is payable
on the junior subordinated debentures is not a business day, then payment of the
interest payable on that date will be made on the next business day. Accrued
interest that is not paid on the applicable interest payment date will bear
additional interest at the rate per year of % compounded quarterly. The
term interest as used in this prospectus includes quarterly interest payments,
interest on quarterly interest payments not paid on the applicable interest
payment date and additional sums, as defined below, as applicable.
The junior subordinated debentures will mature on , 2029. This
date, as it may be shortened as described below, is the stated maturity. This
date may be shortened once at any time by Mercantile before the day which is 90
days before the scheduled maturity date to any date not earlier than
, 2004, subject to Mercantile having received prior approval of the
Federal Reserve if then required under applicable capital guidelines or policies
of the Federal Reserve. In the event that Mercantile elects to shorten the
stated maturity of the junior subordinated debentures, it will give at least 90
days prior notice to the registered holders of the junior subordinated
debentures, the property trustee and the indenture trustee. The property trustee
must give notice to the holders of the trust securities of the shortening of the
stated maturity.
83
<PAGE> 87
The junior subordinated debentures will be unsecured and will rank junior
and be subordinate in right of payment to all senior and subordinated debt (as
defined in the indenture) of Mercantile. Because Mercantile is a holding
company, the right of Mercantile to participate in any distribution of assets of
Bank, or upon the Bank's liquidation or reorganization or otherwise, and thus
the ability of holders of the junior subordinated debentures to benefit
indirectly from the distribution, is subject to the prior claims of creditors of
that subsidiary, except to the extent that Mercantile may itself be recognized
as a creditor of that subsidiary. Accordingly, the junior subordinated
debentures will be effectively subordinated to all existing and future
liabilities of Mercantile's subsidiaries, and holders of junior subordinated
debentures should look only to the assets of Mercantile for payments on the
junior subordinated debentures. The indenture does not limit the incurrence or
issuance of other secured or unsecured debt of Mercantile, including senior and
subordinated debt, whether under the indenture or any existing or other
indenture that Mercantile may enter into in the future or otherwise. See
"Subordination" below.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
If no debenture event of default has occurred and is continuing, Mercantile
has the right under the indenture at any time during the term of the junior
subordinated debentures to defer interest payments at any time for a period not
exceeding 20 consecutive quarters. However, no extension period may extend
beyond the stated maturity of the junior subordinated debentures. At the end of
an extension period, Mercantile must pay all interest then accrued and unpaid,
together with interest at the rate of % per year, compounded quarterly.
During an extension period, interest will continue to accrue and holders of
junior subordinated debentures will be required to accrue interest income for
United States federal income tax purposes. See "Material Federal Income Tax
Consequences -- Interest Income and Original Issue Discount."
During any extension period, Mercantile may not (1) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment regarding, any of Mercantile's capital stock or (2) make any
payment of principal, interest or premium, if any, on or repay, repurchase or
redeem any debt securities of Mercantile, including other junior subordinated
debentures, that rank pari passu with or junior in interest to the junior
subordinated debentures or make any preferred securities guarantee payments
regarding any preferred securities guarantee by Mercantile of the debt
securities of any subsidiary of Mercantile if the preferred securities guarantee
ranks pari passu with or junior in interest to the junior subordinated
debentures. These restrictions do not apply to:
- dividends or distributions in common stock of Mercantile;
- any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any plan in the
future, or the redemption or repurchase of any rights pursuant to this
type of plan;
- payments under the preferred securities guarantee; or
- purchases of common stock related to the issuance of common stock or
rights under any of Mercantile's benefit plans for its directors,
officers or employees.
Prior to the termination of any extension period, Mercantile may further extend
the extension period, provided that the extension does not cause the extension
period to exceed
84
<PAGE> 88
20 consecutive quarters or extend beyond the stated maturity of the junior
subordinated debentures. Upon the termination of any extension period and the
payment of all amounts then due on any interest payment date, Mercantile may
elect to begin a new extension period subject to the above requirements. No
interest will be due and payable during an extension period, except at the end
of the extension period.
If the property trustee is the only registered holder of the junior
subordinated debentures, Mercantile must give the property trustee, the
administrative trustees and the indenture trustee notice of its election of any
extension period at least one business day prior to the earlier of (1) the date
the distributions on the preferred securities would have been payable except for
the election to begin or extend the extension period or (2) the date the
administrative trustees are required to give notice to the holders of the
preferred securities of the record date or the date the distributions are
payable, but in any event not less than one business day prior to the record
date. The indenture trustee will give notice of Mercantile's election to begin
or extend a new extension period to the administrative trustees who, in turn,
will give notice to the holders of the preferred securities. There is no
limitation on the number of times that Mercantile may elect to begin an
extension period.
ADDITIONAL SUMS TO BE PAID AS A RESULT OF ADDITIONAL TAXES
If MBWM Trust or the property trustee is required to pay any additional
taxes, duties, assessments or other governmental charges as a result of a tax
event, Mercantile will pay as additional amounts on the junior subordinated
debentures any amounts which will be required so that the distributions payable
by MBWM Trust will not be reduced as a result of any additional taxes, duties or
other governmental charges. See "Description of the Preferred
Securities -- Redemption -- Mandatory and Optional Rights of Mercantile" for a
definition of tax event.
REDEMPTION
Subject to Mercantile's having received prior approval of the Federal
Reserve, if then required under applicable capital guidelines or policies of the
Federal Reserve the junior subordinated debentures are redeemable prior to
maturity at the option of Mercantile (1) beginning , 2004, in whole
at any time or in part from time to time, or (2) at any time in whole, but not
in part, upon the occurrence and during the continuance of a tax event, an
investment company event or a capital treatment event, in each case at a
redemption price equal to the accrued and unpaid interest on the junior
subordinated debentures redeemed to the date fixed for redemption, plus 100% of
the principal amount of the junior subordinated debentures. See "Description of
the Preferred Securities -- Redemption -- Mandatory and Optional Rights of
Mercantile" for definitions of tax event, investment company event and capital
treatment event.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of junior subordinated
debentures to be redeemed at the holder's registered address. Unless Mercantile
defaults in payment of the redemption price, on and after the redemption date
interest will cease to accrue on the junior subordinated debentures or portions
of the junior subordinated debentures called for redemption.
The junior subordinated debentures will not be subject to any sinking fund.
85
<PAGE> 89
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Preferred Securities -- Liquidation
Distribution Upon Termination," under circumstances involving the termination of
MBWM Trust, the junior subordinated debentures may be distributed to the holders
of the preferred securities and common securities in liquidation of MBWM Trust
after satisfaction of liabilities to creditors of MBWM Trust. If distributed to
holders of the preferred securities in liquidation, the junior subordinated
debentures will initially be issued in the form of one or more global securities
and the depositary, or any successor depositary for the preferred securities,
will act as depositary for the junior subordinated debentures. It is anticipated
that the depositary arrangements for the junior subordinated debentures would be
substantially identical to those in effect for the preferred securities. If the
junior subordinated debentures are distributed to the holders of preferred
securities upon the liquidation of MBWM Trust, there can be no assurance as to
the market price of any junior subordinated debentures that may be distributed
to the holders of preferred securities. If the junior subordinated debentures
are distributed, Mercantile will use reasonable efforts to list them on a
national securities exchange or quotation system.
RESTRICTIONS ON PAYMENTS
Mercantile has restrictions on paying dividends or making payments
regarding pari passu or junior debt if:
- there has occurred any event of which Mercantile has actual knowledge
that (a) with the giving of notice or the lapse of time, or both, would
constitute a debenture event of default and (b) in respect of which
Mercantile shall not have taken reasonable steps to cure;
- Mercantile has given notice of its election of an extension period as
provided in the indenture regarding the junior subordinated debentures
and has not rescinded the notice, or the extension period, or any
extension thereof, is continuing; or
- while the junior subordinated debentures are held by MBWM Trust,
Mercantile is in default regarding its payment of any obligation under
the preferred securities guarantee.
If any of the events above have occurred, Mercantile will not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment regarding, any of Mercantile's
capital stock; or
- make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of Mercantile, including other
junior subordinated debt, that rank pari passu with or junior in interest
to the junior subordinated debentures or make any preferred securities
guarantee payments regarding any preferred securities guarantee by
Mercantile of the debt securities of any subsidiary of Mercantile if the
preferred securities guarantee ranks pari passu or junior in interest to
the junior subordinated debentures.
Provided, however, Mercantile may (a) declare and pay dividends or
distributions in common stock, (b) make any declaration of a dividend in
connection with the implementation of a stockholders' rights plan, or the
issuance of stock under this type of plan in the future or the redemption or
repurchase of any rights under such plan,
86
<PAGE> 90
(c) make payments under the preferred securities guarantee and (d) make
purchases of common stock related to the issuance of common stock or rights
under any of Mercantile's benefit plans for its directors, officers or
employees.
SUBORDINATION OF JUNIOR SUBORDINATED DEBENTURES TO SENIOR AND SUBORDINATED DEBT
OF MERCANTILE
In the indenture, Mercantile has agreed that any junior subordinated
debentures will be subordinate and junior in right of payment to all senior and
subordinated debt to the extent provided in the indenture. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution, winding
up, reorganization or any bankruptcy, or similar proceedings in connection with
any insolvency or bankruptcy proceeding of Mercantile, the holders of senior and
subordinated debt will first be entitled to receive payment in full of
principal, interest and premium, if any, on the senior and subordinated debt
before the holders of junior subordinated debentures will be entitled to receive
principal or interest payments on the junior subordinated debentures.
In the event of the acceleration of the maturity of any junior subordinated
debentures, the holders of all senior and subordinated debt outstanding upon
acceleration will first be entitled to receive payment in full of all amounts
due to them, including any amounts due upon acceleration, before the holders of
junior subordinated debentures will be entitled to receive any principal or
interest payments on the junior subordinated debentures. However, holders of
subordinated debt will not be entitled to receive payment of any of these
amounts to the extent that the subordinated debt is by its terms subordinated to
trade creditors.
No principal or interest payments on the junior subordinated debentures may
be made if there has occurred and is continuing a default in any payment
regarding senior and subordinated debt or an event of default regarding any
senior and subordinated debt resulting in the acceleration of the maturity of
senior and subordinated debt, or if any judicial proceeding is pending regarding
any of this type of default.
Debt as used in this discussion means regarding any person, whether
recourse is to all or a portion of the assets of the person and whether or not
contingent:
- every obligation of the person for money borrowed;
- every obligation of the person evidenced by bonds, debentures, notes or
other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses;
- every reimbursement obligation of the person regarding letters of credit,
bankers' acceptances or similar facilities issued for the account of the
person;
- every obligation of the person issued or assumed as the deferred purchase
price of property or services, but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business;
- every capital lease obligation of the person; and
- every obligation of the type referred to in all of the points immediately
above of another person and all dividends of another person the payment
of which, in either case, the person has guaranteed or is responsible or
liable, directly or indirectly, as obligor or otherwise.
87
<PAGE> 91
Senior and subordinated debt means the principal of and premium, if any,
and interest, if any, on debt of Mercantile, including interest accruing at the
time of the filing of any petition in bankruptcy or for reorganization relating
to Mercantile, whether incurred on or prior to the date of the indenture or
thereafter incurred, unless, in the instrument creating or evidencing the debt
or under which the debt is outstanding, it is provided that the obligations are
not superior in right of payment to the junior subordinated debentures or to
other debt which is pari passu with, or subordinated to, the junior subordinated
debentures.
However, senior and subordinated debt will not be deemed to include:
- any debt of Mercantile which when incurred and without respect to any
election under section 1111(b) of the United States Bankruptcy Code was
without recourse to Mercantile;
- any debt of Mercantile to any of its subsidiaries;
- any debt to any employee of Mercantile;
- any debt which by its terms is subordinated to trade accounts payable or
accrued liabilities arising in the ordinary course of business to the
extent that payments made to the holders of the debt by the holders of
the junior subordinated debentures as a result of the subordination
provisions of the indenture would be greater than they otherwise would
have been as a result of any obligation of the holders to pay amounts
over to the obligees on the trade accounts payable or accrued liabilities
arising in the ordinary course of business as a result of subordination
provisions to which the debt is subject;
- the preferred securities guarantee; and
- any other debt securities issued under the indenture.
The indenture places no limitation on the amount of additional senior and
subordinated debt that may be incurred by Mercantile. Mercantile expects from
time to time to incur additional indebtedness constituting senior and
subordinated debt.
DENOMINATIONS, REGISTRATION AND TRANSFER
It is anticipated that, until the liquidation, if any, of MBWM Trust, each
junior subordinated debenture will be held in the name of the property trustee
in trust for the benefit of the holders of the preferred securities. However, in
the event of either a tax event, investment company event or capital treatment
event, the junior subordinated debentures in certificated form may be exchanged
and represented by global certificates registered in the name of the depositary
or its nominee. In the event of such an exchange, beneficial interests in the
junior subordinated debentures will be shown on, and transfers thereof will be
effected only through, records maintained by the depositary. Except as described
below, junior subordinated debentures in certificated form will not be issued in
exchange for the global certificates. See "Book-Entry Issuance."
Unless and until a global subordinated debenture is exchanged in whole or
in part for the individual junior subordinated debentures, it may not be
transferred except (1) as a whole by the depositary for the global subordinated
debenture to a nominee of the depositary or (2) by the depositary to a successor
depositary selected or approved by Mercantile or (3) to any nominee of the
successor.
88
<PAGE> 92
A global security will be exchangeable for junior subordinated debentures
registered in the names of persons other than the depositary or its nominee only
if (1) the depositary notifies Mercantile that it is unwilling or unable to
continue as a depositary for the global security and no successor depositary has
been appointed, or if at any time the depositary ceases to be a clearing agency
registered under the Securities Exchange Act of 1934
at a time when the depositary is required to be so registered to act as a
depositary or (2) Mercantile in its sole discretion determines that the global
security will be so exchangeable. Any global security that is exchangeable under
the preceding sentence will be exchangeable for definitive certificates
registered in the names which the depositary directs. It is expected that the
instructions will be based upon directions received by the depositary from its
participants regarding ownership of beneficial interests in the global security.
In the event that junior subordinated debentures are issued in definitive form,
the junior subordinated debentures will be in denominations of $10 and integral
multiples of $10 and may be transferred or exchanged at the offices described
below.
Payments on junior subordinated debentures represented by a global security
will be made to the depositary for the junior subordinated debentures. In the
event junior subordinated debentures are issued in definitive form, principal
and interest will be payable, the transfer of the junior subordinated debentures
will be registrable, and junior subordinated debentures will be exchangeable for
junior subordinated debentures of other denominations of a like aggregate
principal amount, at the corporate office of the indenture trustee, or at the
offices of any paying agent or transfer agent appointed by Mercantile. However,
interest payments may be made at the option of Mercantile by check mailed to the
address of the persons entitled to payments or by wire transfer. In addition, if
the junior subordinated debentures are issued in certificated form, the record
dates for interest payments will be the first day of the month in which the
payment is to be made. For a description of the depositary and the terms of the
depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see "Book-Entry Issuance."
Mercantile will appoint the indenture trustee as securities registrar under
the indenture. Junior subordinated debentures may be presented for exchange as
provided above, and may be presented for registration of transfer with the form
of transfer endorsed, or a satisfactory written instrument of transfer, duly
executed, at the office of the securities registrar. Mercantile may at any time
rescind the designation of any registrar or approve a change in the location
through which any registrar acts, provided that Mercantile maintains a registrar
in the place of payment. Mercantile may at any time designate additional
registrars regarding the junior subordinated debentures.
In the event of any redemption of less than all of the junior subordinated
debentures, neither Mercantile nor the indenture trustee will be required to
issue, exchange or register the transfer of less than all of the junior
subordinated debentures during a period beginning at the opening of business 15
days before the day of mailing of a notice of redemption selecting for
redemption less than all of the junior subordinated debentures and ending at the
close of business on the day of mailing of the relevant notice of redemption.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the junior subordinated
debentures will be made at the office of the indenture trustee, except that at
the option of Mercantile payment of any interest may be made, except in the case
of a global subordinated
89
<PAGE> 93
debenture, by check mailed to the address of the person entitled to payment as
the person's address appears in the securities register. Payment of any interest
on junior subordinated debentures will be made to the person in whose name the
junior subordinated debenture is registered at the close of business on the
regular record date for the interest payment. Mercantile may at any time
designate additional paying agents or rescind the designation of any paying
agent; however, Mercantile will at all times be required to maintain a paying
agent in each place of payment for the junior subordinated debentures.
Any moneys deposited with the indenture trustee or any paying agent, or
then held by Mercantile in trust, for the payment of the principal of or
interest on the junior subordinated debentures that are not applied and remain
unclaimed for two years after the principal or interest has become due and
payable will, at the request of Mercantile, be repaid to Mercantile. Thereafter,
the holder of the junior subordinated debenture will look, as a general
unsecured creditor, only to Mercantile for payment.
MODIFICATION OF INDENTURE
From time to time Mercantile and the indenture trustee may, without the
consent of the holders of the junior subordinated debentures, amend, waive or
supplement the indenture for specified purposes. These purposes may include,
among other things, curing ambiguities, defects or inconsistencies, provided
that this action does not materially adversely affect the interests of the
holders of the junior subordinated debentures or the preferred securities while
they remain outstanding, and qualifying, or maintaining the qualification of,
the indenture under the Trust Indenture Act. The indenture contains provisions
permitting Mercantile and the indenture trustee, with the consent of the holders
of not less than a majority in aggregate principal amount of the outstanding
junior subordinated debentures, to modify the indenture in a manner affecting
the rights of the holders of the junior subordinated debentures; provided, that,
the modification may not, without the consent of the holder of each outstanding
junior subordinated debenture:
- change the stated maturity of the junior subordinated debentures or
extend the time of payment of interest on them, except as described under
"Description of Junior Subordinated Debentures -- General Overview" and
"-- Option to Extend Interest Payment Period," or reduce the principal
amount thereof or the rate of interest thereon; or
- reduce the percentage of principal amount of junior subordinated
debentures, the holders of which are required to consent to any such
modification of the indenture. However, while any of the preferred
securities remain outstanding, (1) no modification may be made that
adversely affects the holders of the preferred securities in any material
respect, (2) no termination of the indenture may occur, and (3) no waiver
of any debenture event of default or compliance with any covenant under
the indenture may be effective, without the prior consent of the holders
of at least a majority of the aggregate liquidation amount of the
preferred securities, until the principal and interest of the junior
subordinated debentures have been paid in full and other conditions are
satisfied.
90
<PAGE> 94
INDENTURE EVENTS OF DEFAULT
The indenture provides that any one or more of the following described
events regarding the junior subordinated debentures that has occurred and is
continuing constitutes a debenture event of default:
- failure for 30 days to pay any interest on the junior subordinated
debentures, when due, subject to the deferral of any due date in the case
of an extension period;
- failure to pay any principal on the junior subordinated debentures when
due whether at maturity, upon redemption, by declaration or otherwise,
provided however that a valid extension of any interest payment period by
Mercantile according to the terms of the indenture shall not constitute a
debenture event of default;
- failure by Mercantile to observe or perform in any material respect any
of its other covenants or agreements contained in the indenture for 90
days after written notice to Mercantile from the indenture trustee or to
Mercantile and the indenture trustee by the holders of at least 25% in
aggregate outstanding principal amount of the junior subordinated
debentures; or
- events in bankruptcy, insolvency or reorganization of Mercantile,
including the voluntary commencement of bankruptcy proceedings, entry of
an order for relief against Mercantile in a bankruptcy proceeding,
appointment of a custodian over substantially all of Mercantile's
property, a general assignment for the benefit of creditors, or a court
order for liquidation of Mercantile.
The holders of a majority in aggregate outstanding principal amount of the
junior subordinated debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the indenture
trustee. The indenture trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the junior subordinated debentures may declare
the principal due and payable immediately upon a debenture event of default. The
holders of a majority in aggregate outstanding principal amount of the junior
subordinated debentures may rescind and annul the declaration and waive the
default if the default, other than the non-payment of the principal of the
junior subordinated debentures which has become due solely by the acceleration,
has been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
indenture trustee. Should the holders of the junior subordinated debentures fail
to annul the declaration and waive the default, the holders of a majority in
aggregate liquidation amount of the preferred securities will have the right to
do so. In case a debenture event of default occurs and is continuing, the
property trustee will have the right to declare the principal of and the
interest on the junior subordinated debentures, and any other amounts payable
under the indenture, to be due and payable and to enforce its other rights as a
creditor.
Mercantile is required to file annually with the indenture trustee a
certificate as to whether Mercantile is in compliance with all the conditions
and covenants applicable to it under the indenture.
ENFORCEMENT OF RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If an event of default under the indenture has occurred and is continuing
and the default is attributable to Mercantile's failure to pay interest or
principal on the junior
91
<PAGE> 95
subordinated debentures on the due date, a holder of preferred securities may
institute a legal proceeding directly against Mercantile for payment of
principal and interest on the junior subordinated debentures having a principal
amount equal to the aggregate liquidation amount of the preferred securities of
the holder. This action is referred to in this discussion as a direct action. If
the right to bring a direct action is removed, MBWM Trust may become subject to
the reporting obligations under the Securities Exchange Act of 1934. Mercantile
will have the right under the indenture to set-off any payment made to the
holder of preferred securities by Mercantile in connection with a direct action.
The holders of the preferred securities would not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the junior subordinated debentures unless there has
been an event of default under the trust agreement. See "Description of the
Preferred Securities -- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The indenture provides that Mercantile will not consolidate with or merge
into any other person or convey, transfer or lease its properties and assets
substantially as an entirety to any person, and no person will consolidate with
or merge into Mercantile or convey, transfer or lease its properties and assets
substantially as an entirety to Mercantile, unless:
- in case Mercantile consolidates with or merges into another person or
conveys or transfers its properties and assets substantially as an
entirety to any person, the successor person is organized under the laws
of the United States or any state or the District of Columbia, and the
successor person expressly assumes Mercantile's obligations on the junior
subordinated debentures issued under the indenture;
- immediately after giving effect to this type of transaction, no debenture
event of default, and no event which, after notice or lapse of time or
both, would become a debenture event of default, has occurred and is
continuing; and
- other conditions as prescribed in the indenture are met.
The provisions of the indenture do not afford holders of the junior
subordinated debentures protection in the event of a highly leveraged or other
transaction involving Mercantile that may adversely affect holders of the junior
subordinated debentures.
SATISFACTION AND DISCHARGE
Under the indenture, Mercantile will have satisfied and discharged the
indenture when all junior subordinated debentures not previously delivered to
the indenture trustee for cancellation (1) have become due and payable or (2)
will become due and payable at their stated maturity within one year, and
Mercantile deposits in trust with the indenture trustee sufficient funds to pay
and discharge the entire indebtedness on the junior subordinated debentures to
the deposit date or to the stated maturity, as the case may be. This
satisfaction and discharge will not apply to Mercantile's obligations to pay all
other sums due under the indenture and to provide the officers' certificates and
opinions of counsel described in the indenture.
92
<PAGE> 96
GOVERNING LAW
The indenture and the junior subordinated debentures will be governed by
and construed in accordance with the laws of the State of Michigan.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The indenture trustee will have and be subject to all the duties and
responsibilities specified for an indenture trustee under the Trust Indenture
Act. Subject to these provisions, the indenture trustee is under no obligation
to exercise any of the powers vested in it by the indenture at the request of
any holder of junior subordinated debentures, unless offered reasonable
indemnity by the holder against the costs, expenses and liabilities which might
be incurred. The indenture trustee is not required to expend or risk its own
funds or otherwise incur personal financial liability in the performance of its
duties if the indenture trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
COVENANTS OF MERCANTILE
Mercantile will covenant in the indenture, as to the junior subordinated
debentures, that during the time that (1) MBWM Trust is the holder of all junior
subordinated debentures, (2) a tax event in respect of MBWM Trust has occurred
and is continuing and (3) Mercantile has elected, and has not revoked the
election, to pay additional sums, as defined under "Description of the Preferred
Securities -- Redemption -- Mandatory and Optional Rights of Mercantile," in
respect of the preferred securities, Mercantile will pay to MBWM Trust these
additional sums. Mercantile will also covenant, as to the junior subordinated
debentures:
- to maintain directly or indirectly 100% ownership of the common
securities of MBWM Trust to which junior subordinated debentures have
been issued, provided that successors which are permitted under the
indenture may succeed to Mercantile's ownership of the common securities;
- to not voluntarily terminate, wind up or liquidate MBWM Trust, except
upon approval of the Federal Reserve if then so required, and to use its
reasonable efforts to cause MBWM Trust to remain a business trust, except
(a) in connection with a distribution of junior subordinated debentures
to the holders of the preferred securities in liquidation of MBWM Trust,
(b) the redemption of all of the trust securities or (c) in connection
with mergers, consolidations, or amalgamations permitted by the trust
agreement; and
- to use its reasonable efforts to cause each holder of trust securities to
be treated as owning an individual beneficial interest in the junior
subordinated debentures.
93
<PAGE> 97
BOOK-ENTRY ISSUANCE
Depository Trust Company ("DTC") will act as securities depositary for all
of the preferred securities and, in the event of the distribution of the junior
subordinated debentures to holders of the preferred securities, may act as
securities depositary for all of the junior subordinated debentures. The
preferred securities and the junior subordinated debentures will be issued only
as fully-registered securities registered in the name of Cede & Co., DTC's
nominee. One or more fully-registered global certificates will be issued for the
preferred securities and deposited with DTC. In the event of the distribution of
the junior subordinated debentures to holders of the preferred securities, one
or more fully-registered global certificates may be issued for the junior
subordinated debentures and may be deposited with DTC.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered under the provisions of Section 17A of the Securities Exchange Act of
1934. DTC holds securities that its participants deposit with DTC. DTC also
facilitates the settlement among participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and other organizations. DTC is owned by a number of its direct
participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the depositary system is also available to others such as securities brokers
and dealers, banks and trust companies that clear through or maintain custodial
relationships with direct participants, either directly or indirectly. The rules
applicable to DTC and its participants are on file with the Securities and
Exchange Commission.
Purchases of preferred securities or junior subordinated debentures within
the depositary system must be made by or through direct participants, which will
receive a credit for the preferred securities or junior subordinated debentures
on DTC's records. The ownership interest of each actual purchaser of each
preferred security or junior subordinated debenture is in turn to be recorded on
the direct and indirect participants' records. Beneficial owners will not
receive written confirmation from the DTC of their purchases, but beneficial
owners are expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the direct
or indirect participants through which the beneficial owners purchased preferred
securities or junior subordinated debentures. Transfers of ownership interests
in the preferred securities or junior subordinated debentures are to be
accomplished by entries made on the books of participants acting on behalf of
beneficial owners. Beneficial owners will not receive certificates representing
their ownership interests in preferred securities or junior subordinated
debentures, except in the event that use of the book-entry system for the
preferred securities or junior subordinated debentures is discontinued.
DTC has no knowledge of the actual beneficial owners of the preferred
securities or the junior subordinated debentures. DTC's records reflect only the
identity of the direct participants to whose accounts the preferred securities
or junior subordinated debentures are credited, which may or may not be the
beneficial owners. The participants will remain responsible for keeping account
of their holdings on behalf of their customers.
94
<PAGE> 98
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners and the voting
rights of direct participants, indirect participants and beneficial owners will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the preferred securities or junior subordinated debentures. If less than all of
the preferred securities or the junior subordinated debentures are being
redeemed, DTC will determine the amount to be redeemed, in accordance with the
terms of the trust agreement.
Although voting regarding the preferred securities or the junior
subordinated debentures is limited to the holders of record of the preferred
securities or the junior subordinated debentures, in those instances in which a
vote is required, neither DTC nor Cede & Co. will itself consent or vote
regarding preferred securities or the junior subordinated debentures. Under its
usual procedures, DTC would mail an omnibus proxy to the property trustee as
soon as possible after the record date. The omnibus proxy assigns Cede & Co.'s
consenting or voting rights to those direct participants to whose accounts the
preferred securities or junior subordinated debentures are credited on the
record date and which are used and identified in a listing attached to the
omnibus proxy.
Distribution payments on the preferred securities or the junior
subordinated debentures will be made by the property trustee to DTC. DTC's
practice is to credit direct participants' accounts on the relevant payment date
in accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on the payment date.
Payments by participants to beneficial owners will be governed by standing
instructions and customary practices. Payments will be the responsibility of the
participant and not of DTC, the relevant trustee, MBWM Trust or Mercantile,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of distributions to DTC is the responsibility of the
property trustee, disbursement of the payments to direct participants is the
responsibility of DTC, and disbursements of the payments to the beneficial
owners is the responsibility of direct and indirect participants.
DTC may discontinue providing its services as securities depositary
regarding any of the preferred securities or the junior subordinated debentures
at any time by giving reasonable notice to the property trustee and Mercantile.
In the event that a successor securities depositary is not obtained, definitive
preferred securities or subordinated debenture certificates representing the
preferred securities or junior subordinated debentures are required to be
printed and delivered. Mercantile, at its option, may, at any time, decide to
discontinue use of the system of book-entry transfers through DTC, or any
successor depositary. After a debenture event of default, the holders of a
majority in liquidation preference of preferred securities or aggregate
principal amount of junior subordinated debentures may determine to discontinue
the system of book-entry transfers through DTC. In this event, definitive
certificates for the preferred securities or junior subordinated debentures will
be printed and delivered.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that MBWM Trust and Mercantile believe to be
accurate, but MBWM Trust and Mercantile assume no responsibility for the
accuracy thereof. Neither MBWM Trust nor Mercantile has any responsibility for
the performance by DTC or its participants of their respective obligations as
described in this prospectus or under the rules and procedures governing their
respective operations.
95
<PAGE> 99
DESCRIPTION OF PREFERRED SECURITIES GUARANTEE
The preferred securities guarantee agreement will be executed and delivered
by Mercantile and Wilmington Trust Company concurrently with the issuance of the
preferred securities. The preferred securities guarantee will be for the benefit
of the holders of the preferred securities. Wilmington Trust Company will act as
trustee under the preferred securities guarantee for the purposes of compliance
with the Trust Indenture Act, and the preferred securities guarantee will be
qualified under the Trust Indenture Act. The following is a summary of the
material provisions of the preferred securities guarantee. Prospective investors
are urged to read the form of the preferred securities guarantee which has been
filed as an exhibit to the registration statement of which this prospectus forms
a part. The guarantee trustee will hold the preferred securities guarantee for
the benefit of the holders of the preferred securities.
GENERAL OVERVIEW
The preferred securities guarantee is an irrevocable guarantee on a
subordinated basis of all of MBWM Trust's obligations to make payments under the
preferred securities, but will apply only to the extent that MBWM Trust has
funds sufficient to make the payments, and is not a guarantee of collection.
Mercantile will irrevocably and unconditionally agree to pay in full on a
subordinated basis, to the extent set forth in this prospectus, the preferred
securities guarantee payments, as defined below, to the holders of the preferred
securities, as and when due, regardless of any defense, right of set-off or
counterclaim that MBWM Trust may have or assert other than the defense of
payment. The following payments regarding the preferred securities, to the
extent not paid by or on behalf of MBWM Trust, will be subject to the preferred
securities guarantee of Mercantile:
- any accrued and unpaid distributions required to be paid on the preferred
securities, to the extent that MBWM Trust has available funds on hand at
the time;
- the redemption price regarding any preferred securities called for
redemption to the extent that MBWM Trust has available funds on hand at
the time; and
- upon a voluntary or involuntary dissolution, winding up or liquidation of
MBWM Trust, unless the junior subordinated debentures are distributed to
holders of the preferred securities.
The amount of the preferred securities guarantee will be the lesser of (a)
the liquidation distribution and (b) the amount of assets of MBWM Trust
remaining available for distribution to holders of preferred securities.
Mercantile's obligation to make a preferred securities guarantee payment may be
satisfied by direct payment of the required amounts by Mercantile to the holders
of the preferred securities or by causing MBWM Trust to pay these amounts to the
holders.
If Mercantile does not make interest payments on the junior subordinated
debentures held by MBWM Trust, MBWM Trust will not be able to pay distributions
on the preferred securities and will not have funds legally available to pay
distributions. The preferred securities guarantee will rank subordinate and
junior in right of payment to all senior and subordinated debt of Mercantile.
See "Status of the Preferred Securities Guarantee" below. Because Mercantile is
a holding company, the right of Mercantile to participate in any distribution of
assets of any subsidiary upon the subsidiary's liquidation
96
<PAGE> 100
or reorganization or otherwise, is subject to the prior claims of creditors of
that subsidiary, except to the extent Mercantile may itself be recognized as a
creditor of that subsidiary. Accordingly, Mercantile's obligations under the
preferred securities guarantee will be effectively subordinated to all existing
and future liabilities of Mercantile's subsidiaries, and claimants should look
only to the assets of Mercantile for payments under the preferred securities
guarantee. Except as otherwise described in this prospectus, the preferred
securities guarantee does not limit the incurrence or issuance of other secured
or unsecured debt of Mercantile, including senior and subordinated debt whether
under the indenture, any other indenture that Mercantile may enter into in the
future, or otherwise.
Mercantile has, through the preferred securities guarantee, the trust
agreement, the junior subordinated debentures, the indenture and the expense
agreement relating to MBWM Trust, taken together, fully, irrevocably and
unconditionally guaranteed on a subordinated basis all of MBWM Trust's
obligations under the preferred securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents constitutes
this preferred securities guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and unconditional
guarantee on a subordinated basis of all of MBWM Trust's obligations under the
preferred securities. See "Relationship Among the Preferred Securities, the
Junior Subordinated Debentures and the Preferred Securities Guarantee."
STATUS OF THE PREFERRED SECURITIES GUARANTEE
The preferred securities guarantee will constitute an unsecured obligation
of Mercantile and will rank subordinate and junior in right of payment to all
senior and subordinated debt in the same manner as the junior subordinated
debentures.
The preferred securities guarantee will constitute a guarantee of payment
and not of collection. The guaranteed party may institute a legal proceeding
directly against Mercantile to enforce its rights under the preferred securities
guarantee without first instituting a legal proceeding against any other person
or entity. The preferred securities guarantee will be held for the benefit of
the holders of the preferred securities. The preferred securities guarantee does
not place a limitation on the amount of additional senior and subordinated debt
that may be incurred by Mercantile. Mercantile expects from time to time to
incur additional indebtedness constituting senior and subordinated debt.
AMENDMENTS AND ASSIGNMENT
Except regarding any changes which do not adversely affect the rights of
holders of the preferred securities in a material manner, in which case no
consent will be required, the preferred securities guarantee may not be amended
without the prior approval of the holders of not less than a majority of the
aggregate liquidation amount of the outstanding preferred securities. See
"Description of the Preferred Securities -- Voting Rights; Amendment of the
Trust Agreement." All guarantees and agreements contained in the preferred
securities guarantee will bind the successors, assigns, receivers, trustees and
representatives of Mercantile and will inure to the benefit of the holders of
the preferred securities then outstanding.
97
<PAGE> 101
EVENTS OF DEFAULT
An event of default under the preferred securities guarantee will occur
upon the failure of Mercantile to perform any of its payment or other
obligations under the preferred securities guarantee. The holders of not less
than a majority in aggregate liquidation amount of the preferred securities have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the guarantee trustee regarding the preferred securities
guarantee or to direct the exercise of any trust or power conferred upon the
guarantee trustee under the preferred securities guarantee.
Any holder of preferred securities may institute a legal proceeding
directly against Mercantile to enforce the holder's rights under the preferred
securities guarantee without first instituting a legal proceeding against MBWM
Trust, the guarantee trustee or any other person or entity.
Mercantile, as guarantor, is required to file annually with the guarantee
trustee a certificate as to whether Mercantile is in compliance with all the
conditions and covenants applicable to it under the preferred securities
guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The guarantee trustee, other than during the occurrence and continuance of
a default by Mercantile in performance of the preferred securities guarantee,
undertakes to perform only the duties which are specifically set forth in the
preferred securities guarantee. After default regarding the preferred securities
guarantee, the guarantee trustee must exercise the same degree of care and skill
as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the guarantee trustee is under no obligation
to exercise any of the rights or powers vested in it by the preferred securities
guarantee at the request or direction of any holder of the preferred securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred.
TERMINATION OF THE PREFERRED SECURITIES GUARANTEE
The preferred securities guarantee will terminate and be of no further
force and effect upon full payment of the redemption price of the preferred
securities, upon full payment of the amounts payable upon liquidation of MBWM
Trust or upon distribution of junior subordinated debentures to the holders of
the preferred securities. The preferred securities guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of the preferred securities must restore payment of any sums paid under the
preferred securities or the preferred securities guarantee.
GOVERNING LAW
The preferred securities guarantee will be governed by and construed in
accordance with the laws of the State of Michigan.
THE EXPENSE AGREEMENT
Under the agreement as to expenses and liabilities entered into by
Mercantile under the trust agreement, Mercantile will irrevocably and
unconditionally guarantee to each person or entity to whom MBWM Trust becomes
indebted or liable, the full payment of
98
<PAGE> 102
any costs, expenses or liabilities of MBWM Trust, other than obligations of MBWM
Trust to pay to the holders of the preferred securities or other similar
interests in MBWM Trust of the amounts due the holders under the terms of the
preferred securities or the other similar interests, as the case may be.
99
<PAGE> 103
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR SUBORDINATED
DEBENTURES AND THE PREFERRED SECURITIES GUARANTEE
FULL AND UNCONDITIONAL PREFERRED SECURITIES GUARANTEE ON A SUBORDINATED BASIS
Payments of distributions and other amounts due on the preferred
securities, to the extent MBWM Trust has funds available for the payment of the
distributions, are irrevocably guaranteed by Mercantile as and to the extent set
forth under "Description of Preferred Securities Guarantee." Taken together,
Mercantile's obligations under the junior subordinated debentures, the
indenture, the trust agreement, the expense agreement and the preferred
securities guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee on a subordinated basis of payments of distributions and
other amounts due on the preferred securities. No single document standing alone
or operating in conjunction with fewer than all of the other documents
constitutes the preferred securities guarantee. It is only the combined
operation of those documents that has the effect of providing a full,
irrevocable and unconditional guarantee on a subordinated basis of MBWM Trust's
obligations under the preferred securities. If and to the extent that Mercantile
does not make payments on the junior subordinated debentures, MBWM Trust will
not pay distributions or other amounts due on the preferred securities. The
preferred securities guarantee does not cover payment of distributions when MBWM
Trust does not have sufficient funds to pay the distributions. In this event,
the remedy of a holder of the preferred securities is to institute a legal
proceeding directly against Mercantile for enforcement of payment of the
distributions to the holder. The obligations of Mercantile under the preferred
securities guarantee are subordinate and junior in right of payment to all
senior and subordinated debt.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
junior subordinated debentures, the payments will be sufficient to cover
distributions and other payments due on the preferred securities, primarily
because: (1) the aggregate principal amount of the junior subordinated
debentures will be equal to the sum of the aggregate liquidation amount of the
preferred securities and common securities; (2) the interest rate and interest
and other payment dates on the junior subordinated debentures will match the
distribution rate and distribution and other payment dates for the preferred
securities; (3) Mercantile will pay for any and all costs, expenses and
liabilities of MBWM Trust except MBWM Trust's obligations to holders of
preferred securities; and (4) the trust agreement further provides that MBWM
Trust will not engage in any activity that is not consistent with the limited
purposes of MBWM Trust.
Notwithstanding anything to the contrary in the indenture, Mercantile may
satisfy any payment it is otherwise required to make to the trust under the
indenture, by and to the extent that it has made, or is concurrently on the date
of the payment required by the indenture making, a payment under the preferred
securities guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF THE PREFERRED SECURITIES UNDER THE PREFERRED
SECURITIES GUARANTEE
A holder of any of the preferred securities may institute a legal
proceeding directly against Mercantile to enforce its rights under the preferred
securities guarantee without
100
<PAGE> 104
first instituting a legal proceeding against the guarantee trustee, MBWM Trust
or any other person or entity.
A default or event of default under any senior and subordinated debt would
not constitute an event of default. However, in the event of payment defaults
under, or acceleration of, senior and subordinated debt, the subordination
provisions of the indenture provide that no payments may be made in respect of
the junior subordinated debentures until the senior and subordinated debt has
been paid in full or any payment default thereunder has been cured or waived.
Failure to make required payments on junior subordinated debentures would
constitute an event of default.
LIMITED PURPOSE OF MBWM TRUST
The preferred securities evidence a beneficial interest in MBWM Trust, and
MBWM Trust exists for the sole purpose of issuing the trust securities and
investing the proceeds from the sale of the trust securities in the junior
subordinated debentures. A principal difference between the rights of a holder
of the preferred securities and a holder of a junior subordinated debenture is
that a holder of a junior subordinated debenture is entitled to receive from
Mercantile the principal amount of and interest accrued on junior subordinated
debentures held, while a holder of the preferred securities is entitled to
receive distributions from MBWM Trust, or from Mercantile under the preferred
securities guarantee, if and to the extent MBWM Trust has funds available for
the payment of the distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
MBWM Trust involving the liquidation of the junior subordinated debentures, the
holders of preferred securities will be entitled to receive, out of assets held
by MBWM Trust, the liquidation distribution in cash. See "Description of the
Preferred Securities -- Liquidation Distribution Upon Termination." Upon any
voluntary or involuntary liquidation or bankruptcy of Mercantile, the property
trustee, as holder of the junior subordinated debentures, would be a
subordinated creditor of Mercantile, subordinated in right of payment to all
senior and subordinated debt as set forth in the indenture, but entitled to
receive payment in full of principal and interest, before any shareholders of
Mercantile receive payments or distributions. Since Mercantile is the guarantor
under the preferred securities guarantee and has agreed to pay for all costs,
expenses and liabilities of MBWM Trust, other than MBWM Trust's obligations to
the holders of its preferred securities, the positions of a holder of the
preferred securities and a holder of junior subordinated debentures relative to
other creditors and to shareholders of Mercantile in the event of liquidation or
bankruptcy of Mercantile are expected to be substantially the same.
101
<PAGE> 105
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Dickinson Wright PLLC, special counsel to Mercantile, the
following are the material United States federal income tax consequences to the
purchase, ownership and disposition of preferred securities. Unless otherwise
stated, this discussion deals only with preferred securities held as capital
assets by United States persons, defined below, who are the beneficial holders
of the preferred securities upon original issuance at their original offering
price. As used in this prospectus, a United States person means a person that is
(1) a citizen or resident of the United States, (2) a corporation, partnership
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, (3) an estate the income of which is
subject to United States federal income taxation regardless of its source, or
(4) any trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.
The tax treatment of holders may vary depending on their particular situation.
This discussion does not address all the tax consequences that may be relevant
to a particular holder or to holders who may be subject to special tax
treatment, such as financial institutions, banks, real estate investment trusts,
regulated investment companies, insurance companies, dealers in securities or
currencies, tax-exempt investors, individual retirement and certain tax deferred
accounts, foreign investors, persons that will hold the preferred securities as
part of a position in a "straddle" or as part of a "hedging" or other integrated
transaction, or persons whose functional currency is not the United States
dollar. In addition, this discussion does not include any description of any
alternative minimum tax consequences or other collateral tax consequences under
United States federal income tax laws, or the tax laws of any state, local or
foreign government that may be applicable to a holder of preferred securities.
This discussion is based on the Internal Revenue Code of 1986, as amended, the
Treasury regulations promulgated thereunder and administrative and judicial
interpretations of those authorities, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis. Any change of this nature
could cause the tax consequences to vary substantially from the consequences
described below, possibly adversely affecting an owner of preferred securities.
The following discussion does not discuss the tax consequences that might
be relevant to persons that are not United States persons. Non-United States
persons should consult their own tax advisors as to the specific United States
federal income tax consequences of the purchase, ownership and disposition of
preferred securities.
The authorities on which this discussion is based are subject to various
interpretations and the opinions of counsel are not binding on the Internal
Revenue Service ("IRS") or the courts, either of which could take a contrary
position. Moreover, no rulings have been or will be sought from the IRS
regarding the transactions described in this prospectus. Accordingly, there can
be no assurance that the IRS will not challenge the opinions expressed in this
discussion or that a court would not sustain this type of challenge. It is
therefore possible that the federal income tax treatment of the purchase,
ownership and disposition of preferred securities may differ from the treatment
described below.
SECURITYHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
PARTICULAR PERSONAL TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
UNITED STATES FEDERAL OR OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE
REDEMPTION OF THE PREFERRED SECURITIES IF A TAX EVENT
102
<PAGE> 106
OCCURS, SEE "DESCRIPTION OF THE PREFERRED SECURITIES -- REDEMPTION -- MANDATORY
AND OPTIONAL RIGHTS OF MERCANTILE."
CLASSIFICATION OF MBWM TRUST
In connection with the issuance of the preferred securities, counsel is of
the opinion that, under current law and assuming full compliance with the terms
of the trust agreement, and based on the facts and assumptions contained in the
opinion, MBWM Trust will be classified as a grantor trust and not as an
association taxable as a corporation for United States federal income tax
purposes. As a result, each beneficial owner of the preferred securities, a
securityholder, will be treated as owning an undivided beneficial interest in
the junior subordinated debentures. Accordingly, each securityholder will be
required to include in its gross income its pro rata share of the interest
income or original issue discount that is paid or accrued on the junior
subordinated debentures. See "-- Interest Income and Original Issue Discount."
No amount included in income regarding the preferred securities will be eligible
for the dividends received deduction.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
Under current law, the junior subordinated debentures are expected to be
classified for United States federal income tax purposes as indebtedness of
Mercantile and, by acceptance of a preferred security, each holder covenants to
treat the junior subordinated debentures (if distributed) as indebtedness and
the preferred securities as evidence of an indirect beneficial ownership
interest in the junior subordinated debentures. No assurance can be given,
however, that this classification will not be challenged by the IRS or, if
challenged, that such a challenge will not be successful. The remainder of this
discussion assumes that the junior subordinated debentures will be classified
for United States federal income tax purposes as indebtedness of Mercantile. See
"Risk Factors -- You are subject to prepayment risk because possible tax law
changes could result in a redemption of the preferred securities."
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Except as set forth below, stated interest on the junior subordinated
debentures generally will be included in income by a securityholder at the time
the interest income is paid or accrued in accordance with the securityholder's
regular method of tax accounting.
If Mercantile exercises its right to defer payments of interest on the
junior subordinated debentures, the junior subordinated debentures will become
original issue discount instruments, and the amount of original issue discount
would be equal to the aggregate of all future payments of interest on the junior
subordinated debentures. In this event, all securityholders would be required to
include those amounts treated as original issue discount on the junior
subordinated debentures as a consequence of such reclassification in income on a
daily economic accrual basis during the extension period, even though Mercantile
would not be expected to pay the interest until the end of the extension period,
and even though some securityholders may use the cash method of tax accounting.
Moreover, thereafter the junior subordinated debentures would continue to be
taxed as original issue discount instruments for as long as they remained
outstanding. Thus, even after the end of the extension period, all
securityholders would be required to continue to include those amounts treated
as original issue discount on the junior subordinated debentures in income on a
daily economic accrual basis, regardless of their
103
<PAGE> 107
method of tax accounting and in advance of receipt of the cash attributable to
this interest income. In this event, actual cash payments of interest on the
junior subordinated debentures would not be reported separately as taxable
income.
In addition, Mercantile's option to defer the payment of interest on the
junior subordinated debentures during an extension period might cause the junior
subordinated debentures to be considered initially issued with original issue
discount or treated as contingent payment debt instruments. Mercantile believes,
and will take the position, that this result will not arise because of an
exception in the treasury regulations that applies when there is only a remote
likelihood that a contingency, such as election to defer, will occur. However,
the Treasury regulations described above have not yet been addressed in any
rulings or other definitive interpretations by the IRS. It is possible that the
IRS could take a contrary position. If the IRS were to assert successfully that
the junior subordinated debentures were issued with original issue discount
regardless of whether Mercantile exercises its right to defer payments of
interest on the debentures, all securityholders, including those utilizing the
cash method of accounting, would be required to include the stated interest
thereon in income on a daily economic accrual basis as described above.
Mercantile does not anticipate that additional sums, as defined in the
indenture, will be paid. However, if additional sums are paid, they will be
taxable to the securityholder as ordinary income, generally as interest income.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF PREFERRED
SECURITIES
Under current law, a distribution by MBWM Trust of the junior subordinated
debentures as described under the caption "Description of the Preferred
Securities -- Liquidation and Distribution Upon Termination" will be non-taxable
and will result in the securityholder receiving directly its pro rata share of
the junior subordinated debentures previously held indirectly through MBWM
Trust, with a holding period and aggregate tax basis equal to the holding period
and aggregate tax basis the securityholder had in its preferred securities
before the distribution. If, however, the liquidation of MBWM Trust were to
occur because MBWM Trust is subject to United States federal income tax
regarding income accrued or received on the junior subordinated debentures as a
result of a tax event or otherwise, the distribution of junior subordinated
debentures to securityholders by MBWM Trust would be a taxable event to MBWM
Trust and each securityholder, and a securityholder would recognize gain or loss
as if the securityholder had sold or exchanged its preferred securities for the
junior subordinated debentures it received upon the liquidation of MBWM Trust.
See "-- Sales or Redemption of Preferred Securities." A securityholder would
recognize interest income in respect of junior subordinated debentures received
from MBWM Trust in the manner described above under "-- Interest Income and
Original Issue Discount."
SALES OR REDEMPTION OF PREFERRED SECURITIES
Gain or loss will be recognized by a securityholder on a sale or other
taxable disposition of preferred securities, including a redemption for cash, in
an amount equal to the difference between the amount realized, which for this
purpose will exclude amounts attributable to accrued interest or original issue
discount not previously included in income, and the securityholder's adjusted
tax basis in the preferred securities sold or so redeemed. A securityholder's
adjusted tax basis will be its initial purchase price, increased by any accrued
original issue discount previously included in the securityholder's gross income
to
104
<PAGE> 108
the date of disposition, and decreased by payments, other than stated interest
on the junior subordinated debentures that does not constitute original issue
discount, received on the preferred securities. Any gain or loss on the sale,
exchange or retirement of the preferred securities generally will be treated as
capital gain or loss. In general, amounts attributable to accrued interest
regarding a securityholder's pro rata share of the junior subordinated
debentures not previously included in income and which are excluded from the
amount realized on a sale of preferred securities and therefore not part of the
calculation of gain or loss, will be taxable as ordinary income. However,
because there is conflicting authority regarding whether or not a cash basis
taxpayer is required to include in income accrued interest in the event the
preferred securities are sold for less than their principal amount, investors
are advised to consult their own tax advisors in such circumstances. For
taxpayers other than corporations, net capital gain, which is defined as net
long-term capital gain over net short-term capital loss for the taxable year,
realized from property, with limited exceptions, is subject to a maximum
marginal stated tax rate of 20%, or 10% in the case of taxpayers in the lowest
tax bracket. Capital gain or loss is long-term if the holding period for the
asset is more than one year, and is short-term if the holding period for the
asset is one year or less. Capital gains realized from assets held for one year
or less are taxed at the same rates as ordinary income. Subject to limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
Should Mercantile exercise its option to defer any payment of interest on
the junior subordinated debentures, the preferred securities may trade at a
price that does not fully reflect the value of accrued but unpaid interest on
the underlying junior subordinated debentures. In the event of a deferral under
the option, a securityholder that disposes of its preferred securities between
record dates for payments of distributions, and consequently does not receive a
distribution from MBWM Trust for the period prior to the disposition, will
nevertheless be required to include in income accrued original issue discount on
the junior subordinated debentures through the date of disposition and will add
this amount to its adjusted tax basis in its preferred securities. The
securityholder will recognize a capital loss on the disposition of its preferred
securities to the extent the selling price, which may not fully reflect the
value of accrued but unpaid original issue discount, is less than the
securityholder's adjusted tax basis in the preferred securities, which will
include accrued but unpaid original issue discount that has been included in
income. As stated previously, subject to limited exceptions, capital losses
cannot be applied to offset ordinary income for United States federal income tax
purposes.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest paid or original issue discount accrued, if any, on
the junior subordinated debentures, beneficial ownership of which is reflected
in the preferred securities held of record by United States persons, other than
corporations and other exempt securityholders, will be reported to the Service.
Generally, income on the preferred securities will be reported to
securityholders on Form 1099, which form should be mailed to securityholders by
January 31 following each calendar year. Backup withholding at a rate of 31%
will apply to payments of interest to non-exempt United States persons unless
the securityholder furnishes its taxpayer identification number in the manner
prescribed in applicable Treasury regulations, certifies that the number is
correct, certifies as to no loss of exemption from backup withholding and meets
other conditions. Any amounts withheld from a securityholder under the backup
withholding rules will be allowed as a refund or a credit against the
securityholder's United States federal income tax liability, provided the
required information is furnished to the Service. Payment of the proceeds from
the
105
<PAGE> 109
disposition of preferred securities to or through the United States office of a
broker is subject to information reporting and backup withholding unless the
securityholder or beneficial owner establishes an exemption from information
reporting and backup withholding.
TAX LAW UNCERTAINTIES AND POSSIBLE TAX LAW CHANGES AFFECTING PREFERRED
SECURITIES
The combined tax effects of the trust's purchase of debt instruments such
as the Junior Subordinated Debentures and simultaneous issuance of equity
interests such as the Preferred Securities has not been addressed in any
Treasury Regulations or court decision and has not been approved or disapproved
by the IRS in any published ruling or notice. The IRS proposed disallowance in a
recent audit of the deduction of the interest expense claimed by a corporation
on subordinated debt instruments issued by such corporation and sold to a
related trust. Although the IRS agreed to dismissal of the relevant adjustments
in that case prior to litigation, it is not precluded from asserting similar
adjustments against other taxpayers. A variation of the structure described in
this Prospectus involving an intermediate limited life company rather than a
trust was accepted by the IRS as creating debt giving rise to deductible
interest in Private Letter Ruling 1999-10046. However, taxpayers (other than the
taxpayer to whom a Private Letter Ruling is addressed) are not entitled to rely
on IRS holdings in Private Letter Rulings.
Legislative proposals have previously been made by the current
administration, which if enacted, could have adversely affected the ability of
Mercantile to deduct interest paid on the junior subordinated debentures.
Although these proposals were not enacted, there can be no assurance that future
legislative proposals or final legislation will not affect the ability of
Mercantile to deduct interest on the junior subordinated debentures or otherwise
adversely affect the tax treatment of the transactions described in this
prospectus. Although the IRS agreed to dismissal of the adjustments in the
litigation described above, it could assert similar adjustments against other
taxpayers. It if were to do so and the issue was litigated to a conclusion in
which the IRS's position on this matter was sustained, such a judicial
determination could constitute a tax event which could result in an early
redemption of the preferred securities. Similarly, if legislative proposals of
the type described above were to be enacted, a change of this nature could give
rise to a tax event, which may permit Mercantile to cause a redemption of the
Trust preferred securities. See "Risk Factors -- You are subject to prepayment
risk because possible tax law changes could result in a redemption of the
preferred securities," "Description of the Preferred
Securities -- Redemption -- Mandatory and Optional Rights of Mercantile" and
"Description of Junior Subordinated Debentures -- Redemption."
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement Income
Security Act of 1974, as amended (ERISA), or Section 4975 of the Code, generally
may purchase preferred securities subject to the investing fiduciary's
determination that the investment in preferred securities satisfies ERISA's
fiduciary standards and other requirements applicable to investments by the
Plan.
However, Mercantile and any of its affiliates may be considered a party in
interest, within the meaning of Section 3(14) of ERISA, or a disqualified
person, within the meaning of Section 4975 of the Code, regarding plans
maintained or sponsored by, or
106
<PAGE> 110
contributed to by, Mercantile or an affiliate, or regarding which Mercantile or
an affiliate is a fiduciary, or plans for which Mercantile or an affiliate
provide services. The acquisition and ownership of preferred securities by an
individual retirement arrangement or other Plan described in Section 4975(e)(1)
of the Code, regarding which Mercantile or any of its affiliates is considered a
party in interest or a disqualified person, may constitute or result in a
prohibited transaction under ERISA or Section 4975 of the Code, which could give
rise to the imposition of substantial taxes unless the preferred securities are
acquired under and in accordance with an applicable exemption.
As a result, plans regarding which Mercantile and/or any of its affiliates
is a party in interest or a disqualified person should not acquire preferred
securities unless the preferred securities are acquired under and in accordance
with an applicable exemption. Any plans or entities whose assets include Plan
assets subject to ERISA or Section 4975 of the Code proposing to acquire
preferred securities should consult with their own counsel.
INDEMNIFICATION
Mercantile's Articles of Incorporation provide that Mercantile 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.
Mercantile's Bylaws contain indemnification provisions concerning third
party actions as well as actions in the right of Mercantile. The Bylaws provide
that Mercantile 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 Mercantile) by reason of the fact
that he or she is or was a director or officer of Mercantile, or while serving
as such a director or officer, is or was serving at the request of Mercantile 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 Mercantile or its
shareholders, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
FDIC regulations impose limitations on indemnification payments which could
restrict, in certain circumstances, payments by Mercantile or the Bank to their
respective directors or officers otherwise permitted under the Michigan Business
Corporation Act or the Michigan Banking Code, respectively.
With respect to derivative actions, the Bylaws provide that Mercantile
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 Mercantile to procure a judgment in its favor by reason of the fact
that he or she is or was a director or officer of Mercantile, or, while serving
as such a director or officer, is or was serving at the request of Mercantile as
a director, officer, partner, trustee, employee or agent of another foreign or
domestic company, 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
107
<PAGE> 111
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of Mercantile 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 Mercantile 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.
The Trust Agreement provides that Mercantile shall indemnify each of the
Trustees or any predecessor Trustee for, and hold the Trustees harmless against,
any loss, damage, claim, liability, penalty or expense incurred without
negligence or bad faith on its part, arising out of or in connection with the
acceptance or administration of the trust agreement, including the cost and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties, except any cost or
expense as may be attributable to the trustee's negligence, bad faith or willful
misconduct.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Mercantile or MBWM Trust pursuant to the provisions discussed above or
otherwise, Mercantile and MBWM Trust have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
Mercantile has purchased directors' and officers' liability insurance for
directors and officers of Mercantile and the Bank.
LIMITATION OF DIRECTOR LIABILITY
The Michigan Business Corporation Act permits corporations to limit the
personal liability of their directors in certain circumstances. Mercantile's
Articles of Incorporation provide that a director of Mercantile shall not be
personally liable to Mercantile 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 Michigan
Business Corporation Act, currently including, without limitation, the
following: (1) breach of the director's duty of loyalty to Mercantile 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 Michigan Business Corporation Act; and (4) transactions from which
the director derived an improper personal benefit.
108
<PAGE> 112
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement among
Mercantile, MBWM Trust and the underwriters named below, for whom Stifel,
Nicolaus & Company, Incorporated and Tucker Anthony Cleary Gull are acting as
representatives (the "Representatives"), the underwriters have severally agreed
to purchase from MBWM Trust, and MBWM Trust has agreed to sell to them, an
aggregate of 1,400,000 preferred securities in the amounts set forth below
opposite their respective names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS PREFERRED SECURITIES
- ------------ --------------------
<S> <C>
Stifel, Nicolaus & Company, Incorporated..............
Tucker Anthony Cleary Gull............................
---------
Total............................................ 1,400,000
=========
</TABLE>
In the underwriting agreement, the obligations of the underwriters are
subject to approval of certain legal matters by their counsel and to various
other conditions. Under the terms and conditions of the underwriting agreement,
the underwriters are committed to accept and pay for all of the preferred
securities, if any are taken.
The underwriters propose to offer the preferred securities directly to the
public at the public offering price set forth on the cover page of this
prospectus, and to certain securities dealers (who may include the underwriters)
at this price, less a concession not in excess of $ per preferred
security. The underwriters may allow, and the selected dealers may reallow, a
concession not in excess of $ per preferred security to certain brokers
and dealers. After the preferred securities are released for sale to the public,
the offering price and other selling terms may from time to time be changed by
the underwriters.
MBWM Trust has granted to the underwriters an option, exercisable within 30
days after the date of this prospectus, to purchase up to 200,000 additional
preferred securities at the same price per preferred security to be paid by the
underwriters for the other preferred securities being offered. If the
underwriters purchase any of the additional preferred securities under this
option, each underwriter will be committed to purchase the additional shares in
approximately the same proportion allocated to them in the table above. The
underwriters may exercise the option only for the purpose of covering over-
allotments, if any, made in connection with the distribution of the preferred
securities being offered.
If the underwriters exercise their option to purchase additional preferred
securities, MBWM Trust will issue and sell to Mercantile additional common
securities and Mercantile will issue and sell to MBWM Trust junior subordinated
debentures in an aggregate principal amount equal to the total aggregate
liquidation amount of the additional preferred securities being purchased under
the option and the additional common securities sold to Mercantile.
109
<PAGE> 113
The table below shows the price and proceeds on a per security and
aggregate basis. The proceeds to be received by MBWM Trust as shown in the table
below do not reflect estimated expenses of $ ,000 payable by Mercantile.
<TABLE>
<CAPTION>
PER PREFERRED
SECURITY TOTAL
---------------------- -----------
<S> <C> <C>
Public Offering Price................... $10.00 $14,000,000
Proceeds to MBWM Trust.................. $10.00 $14,000,000
</TABLE>
In view of the fact that the proceeds of the sale of the preferred
securities will be used by MBWM Trust to purchase the junior subordinated
debentures from Mercantile, Mercantile has agreed to pay the underwriters $0.
per preferred security, or a total of $ ,000, as compensation for
arranging the investment in the junior subordinated debentures. Should the
underwriters exercise the over-allotment option, an aggregate of $ ,000
will be paid to the underwriters for arranging the investment in the junior
subordinated debentures.
During a period of 30 days from the date of this prospectus, neither MBWM
Trust nor Mercantile will, subject to certain exceptions, without the prior
written consent of the Representatives, directly or indirectly, sell, offer to
sell, grant any option for sale of, or otherwise dispose of, any preferred
securities, any security convertible into or exchangeable for preferred
securities or junior subordinated debentures or any debt securities
substantially similar to the junior subordinated debentures or equity securities
substantially similar to the preferred securities (except for junior
subordinated debentures and the preferred securities being offered).
The offering of the preferred securities is made for delivery when, as and
if accepted by the underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offering without notice. The underwriters
reserve the right to reject any order for the purchase of the preferred
securities.
Mercantile and MBWM Trust have agreed to indemnify the several underwriters
against several liabilities, including liabilities under the Securities Act of
1933.
Application has been made to have the preferred securities approved for
quotation on the Nasdaq National Market. The Representatives have advised MBWM
Trust that they presently intend to make a market in the preferred securities
after the commencement of trading on Nasdaq, but no assurances can be made as to
the liquidity of the preferred securities or that an active and liquid market
will develop or, if developed, that the market will continue. The offering price
and distribution rate have been determined by negotiations among representatives
of Mercantile and the underwriters, and the offering price of the preferred
securities may not be indicative of the market price following the offering. The
Representatives will have no obligation to make a market in the preferred
securities, however, and may cease market-making activities, if commenced, at
any time.
In connection with the offering, the underwriters may engage in
transactions that are intended to stabilize, maintain or otherwise affect the
price of the preferred securities during and after the offering, such as the
following:
- the underwriters may over-allot or otherwise create a short position in
the preferred securities for their own account by selling more preferred
securities than have been sold to them;
110
<PAGE> 114
- the underwriters may elect to cover any short position by purchasing
preferred securities in the open market or by exercising the
over-allotment option;
- the underwriters may stabilize or maintain the price of the preferred
securities by bidding;
- the underwriters may engage in passive market making transactions; and
- the underwriters may impose penalty bids, under which selling concessions
allowed to syndicate members or other broker-dealers participating in
this offering are reclaimed if preferred securities previously
distributed in the offering are repurchased in connection with
stabilization transactions or otherwise.
The effect of these transactions may be to stabilize or maintain the market
price at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of the preferred
securities to the extent that it discourages resales. No representation is made
as to the magnitude or effect of any such stabilization or other transactions.
Such transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
Because the NASD may view the preferred securities as interests in a direct
participation program, the offer and sale of the preferred securities is being
made in compliance with the provisions of Rule 2810 under the NASD Conduct
Rules.
WHERE YOU CAN FIND MORE INFORMATION
Mercantile is a reporting company under the Securities Exchange Act of 1934
and files annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy,
upon payment of a fee set by the Commission, any document that Mercantile files
with the Commission at its public reference rooms at 450 Fifth Street, N.W.,
Washington, D.C. 20549; Seven World Trade Center, 13th Floor, Suite 1300, New
York, New York 10048; and Citicorp Center, 500 West Madison Street, 14th Floor,
Suite 1400, Chicago, Illinois 60661. You may also call the Commission at
1-800-SEC-0330 for more information on the public reference rooms. Mercantile's
filings are also available to the public on the Internet, through the
Commission's EDGAR database. You may access the EDGAR database at the
Commission's web site at http://www.sec.gov.
You may also obtain a copy of these filings from Mercantile at no cost upon
your written or oral request. Please direct your requests to Mercantile's
Secretary, Robert Kaminski, Mercantile Bank Corporation, 216 North Division
Avenue, Grand Rapids, Michigan 49503, or by calling 616-242-9000. To obtain
timely delivery, you must request the information no later than five business
days prior to the date you decide to invest in the preferred securities.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the preferred
securities, the enforceability of the trust agreement and the formation of MBWM
Trust will be passed upon by Richards, Layton & Finger, P.A., Wilmington,
Delaware, special Delaware counsel to Mercantile and MBWM Trust. The validity of
the preferred securities guarantee and the junior subordinated debentures will
be passed upon for Mercantile by Dickinson Wright PLLC, Detroit, Michigan,
counsel to Mercantile and MBWM Trust. Certain legal
111
<PAGE> 115
matters in connection with this offering will be passed upon for the
underwriters by Vedder, Price, Kaufman & Kammholz, Chicago, Illinois. Dickinson
Wright PLLC and Vedder, Price, Kaufman & Kammholz will rely on the opinions of
Richards, Layton & Finger, P.A., as to matters of Delaware law. Certain matters
relating to United States federal income tax consequences will be passed upon
for Mercantile and MBWM Trust by Dickinson Wright PLLC. As of July 1, 1999,
members of Dickinson Wright PLLC who perform services for Mercantile owned
approximately 7,300 shares of Mercantile's common stock.
EXPERTS
The consolidated financial statements of Mercantile as of December 31, 1998
and for each of the years in the two-year period ended December 31, 1998 have
been included in this prospectus in reliance upon the report of Crowe, Chizek &
Company LLP, independent certified public accountants, appearing elsewhere in
this prospectus, and upon their authority as experts in accounting and auditing.
112
<PAGE> 116
MERCANTILE BANK CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED), DECEMBER 31, 1998 AND
DECEMBER 31, 1997
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Financial Statements
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Income........................... F-4
Consolidated Statements of Comprehensive Income............. F-5
Consolidated Statements of Changes in Shareholders'
Equity.................................................... F-6
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 117
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Mercantile Bank Corporation
Grand Rapids, Michigan
We have audited the accompanying consolidated balance sheets of Mercantile
Bank Corporation as of December 31, 1998 and 1997 and the related consolidated
statements of income, comprehensive income, changes in shareholders' equity and
cash flows for the years ended December 31, 1998 and the period from July 15,
1997 (date of inception) through December 31, 1997. These financial statements
are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mercantile
Bank Corporation as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the year ended December 31, 1998, and the
period from July 15, 1997 (date of inception) through December 31, 1997 in
conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
January 20, 1999
F-2
<PAGE> 118
MERCANTILE BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks................................... $ 7,304,576 $ 5,940,713 $ 153,300
Short term investments.................................... 536,285 515,283 3,250,000
Federal funds sold........................................ 5,100,000 0 3,700,000
------------ ------------ -----------
Total cash and cash equivalents......................... 12,940,861 6,455,996 7,103,300
Securities available for sale............................. 28,387,567 24,160,247 2,997,500
Securities held to maturity............................... 433,248 0 0
Federal Home Loan Bank stock.............................. 784,900
Total loans............................................... 246,724,786 184,744,602 12,886,763
Allowance for loan losses................................. (3,701,000) (2,765,100) (193,300)
------------ ------------ -----------
Total loans, net........................................ 243,023,786 181,979,502 12,693,463
Premises and equipment -- net............................. 3,214,138 1,857,805 953,982
Organizational costs -- net............................... 0 64,210 74,871
Accrued interest receivable............................... 1,437,276 1,147,832 52,811
Other assets.............................................. 1,713,118 571,265 233,258
------------ ------------ -----------
Total assets............................................ $291,934,894 $216,236,857 $24,109,185
============ ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing..................................... $ 16,331,118 $ 14,319,290 $ 7,207,482
Interest-bearing........................................ 229,480,131 157,678,729 2,480,782
------------ ------------ -----------
Total.............................................. 245,811,249 171,998,019 9,688,264
Securities sold under agreements to repurchase............ 17,865,592 17,037,601 655,447
Other borrowed money...................................... 13,325 0 0
Accrued expenses and other liabilities.................... 1,184,289 500,721 292,204
------------ ------------ -----------
Total liabilities....................................... 264,874,455 189,536,341 10,635,915
Shareholders' equity
Preferred stock, no par value; 1,000,000 shares
authorized, none issued
Common stock, no par value; 9,000,000 shares authorized;
2,472,500 shares outstanding at June 30, 1999 and
December 31, 1998, and 1,495,000 shares outstanding at
December 31, 1997....................................... 28,181,798 28,181,798 13,880,972
Retained earnings (deficit)............................... (657,955) (1,513,118) (404,071)
Accumulated other comprehensive income.................... (463,404) 31,836 (3,631)
------------ ------------ -----------
Total shareholders' equity.............................. 27,060,439 26,700,516 13,473,270
------------ ------------ -----------
Total liabilities and shareholders' equity.............. $291,934,894 $216,236,857 $24,109,185
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 119
MERCANTILE BANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
------------------------- ---------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest income
Loans, including fees............................. $8,757,526 $ 3,000,610 $ 9,007,668 $ 25,761
Investment securities............................. 811,697 256,363 880,639 7,661
Federal funds sold................................ 161,492 116,791 256,422 18,728
Interest-bearing balances......................... 12,924 9,914 23,487 101,479
---------- ----------- ----------- ---------
Total interest income.......................... 9,743,639 3,383,678 10,168,216 153,629
Interest expense
Deposits.......................................... 5,196,684 1,746,196 5,140,788 5,760
Short term borrowings............................. 352,463 132,259 488,430 7,894
---------- ----------- ----------- ---------
Total interest expense......................... 5,549,147 1,878,455 5,629,218 13,654
Net interest income................................. 4,194,492 1,505,223 4,538,998 139,975
Provision for loan losses........................... 935,900 1,471,800 2,571,800 193,300
---------- ----------- ----------- ---------
Net interest income (loss) after provision for loan
losses............................................ 3,258,592 33,423 1,967,198 (53,325)
Noninterest income
Service charges on accounts....................... 89,666 8,540 82,170 45
Gain on sale of securities........................ 0 0 128 0
Mortgage loan referral fees....................... 112,404 42,247 209,667 0
Letter of credit fees............................. 125,895 32,862 159,064 0
Other income...................................... 87,593 3,614 37,149 0
---------- ----------- ----------- ---------
Total noninterest income....................... 415,558 87,263 488,178 45
Noninterest expense
Salaries and benefits............................. 1,435,369 818,267 1,891,264 254,771
Occupancy......................................... 182,280 138,925 304,231 39,101
Furniture and equipment........................... 131,970 71,741 176,756 5,907
Data processing................................... 144,464 64,800 170,990 0
Loan processing cost.............................. 38,482 105,428 153,835 421
Advertising....................................... 94,000 38,457 110,431 0
Other expense..................................... 616,212 319,269 756,916 50,591
---------- ----------- ----------- ---------
Total noninterest expenses..................... 2,642,777 1,556,887 3,564,423 350,791
Income (loss) before federal income tax............. 1,031,373 (1,436,201) (1,109,047) (404,071)
Federal income tax expense.......................... 134,000 0 0 0
---------- ----------- ----------- ---------
Income (loss) before cumulative effect of change in
accounting principle.............................. 897,373 (1,436,201) (1,109,047) (404,071)
Cumulative effect of change in accounting principle
(net of applicable income taxes).................. 42,210 0 0 0
---------- ----------- ----------- ---------
Net income (loss)................................... $ 855,163 $(1,436,201) $(1,109,047) $(404,071)
========== =========== =========== =========
Basic and diluted income (loss) per share........... $ 0.35 $ (0.96) $ (0.58) $ (0.27)
========== =========== =========== =========
Average shares outstanding.......................... 2,472,500 1,495,000 1,907,658 1,495,000
========== =========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 120
MERCANTILE BANK CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
-------------------------- ----------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss)......... $ 855,163 $(1,436,201) $(1,109,047) $(404,071)
Other comprehensive income
(loss), net of tax:
Change in unrealized
gains (losses) on
securities available
for sale............. (495,240) 1,259 35,467 (3,631)
--------- ----------- ----------- ---------
Comprehensive income
(loss).................. $ 359,923 $(1,434,942) $(1,073,580) $(407,702)
========= =========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 121
MERCANTILE BANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS) ON
RETAINED SECURITIES TOTAL
COMMON EARNINGS AVAILABLE SHAREHOLDERS'
STOCK (DEFICIT) FOR SALE EQUITY
----------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
BALANCE, JULY 15, 1997 (DATE
OF INCEPTION).............. $ 0 $ 0 $ 0 $ 0
Common stock sale, October
23, 1997................... 13,880,972 13,880,972
Net income (loss) for the
period from July 15, 1997
(date of inception) through
December 31, 1997.......... (404,071) (404,071)
Net unrealized gain (loss) on
securities available for
sale, net of tax effect.... (3,631) (3,631)
----------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1997... 13,880,972 (404,071) (3,631) 13,473,270
Common stock sale, July 31,
1998....................... 14,300,826 14,300,826
Net income (loss)............ (1,109,047) (1,109,047)
Change in net unrealized gain
(loss) on securities
available for sale, net of
tax effect................. 35,467 35,467
----------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1998... 28,181,798 (1,513,118) 31,836 26,700,516
Net income (Unaudited)....... 855,163 855,163
Change in net unrealized gain
(loss) on securities
available for sale, net of
tax effect (Unaudited)..... (495,240) (495,240)
----------- ----------- --------- -----------
BALANCE, JUNE 30, 1999
(UNAUDITED)................ $28,181,798 $ (657,955) $(463,404) $27,060,439
=========== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 122
MERCANTILE BANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
---------------------------- ----------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997
------------ ------------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)....................................... $ 855,163 $ (1,436,201) $ (1,109,047) $ (404,071)
Adjustments to reconcile net income (loss)to net cash
from operating activities
Depreciation and amortization......................... 200,128 111,105 274,374 119
Provision for loan losses............................. 935,900 1,471,800 2,571,800 193,300
Gain on sale of securities............................ 0 0 (128) 0
Net change in:
Accrued interest receivable......................... (289,444) (668,239) (1,095,021) (74,871)
Other assets........................................ (886,730) (224,922) (432,695) (286,069)
Accrued expenses and other liabilities.............. 683,568 15,564 208,517 292,204
------------ ------------- ------------- ------------
Net cash from operating activities............... 1,498,585 (730,893) 417,790 (279,388)
Cash flows from investing activities
Net increase in loans................................... (61,980,184) (100,519,645) (171,857,839) (12,886,763)
Purchase of:
Federal Home Loan Bank stock.......................... (784,900) 0 0 0
Securities available for sale......................... (7,904,574) (13,528,853) (28,320,575) (3,001,250)
Securities held to maturity........................... (433,227) 0 0 0
Premises and equipment, net........................... (1,479,818) (513,267) (1,082,815) (953,982)
Proceeds from:
Sales of available for sale securities................ 0 0 1,000,313 0
Maturities and repayments of available for sale
securities.......................................... 2,914,437 2,000,000 6,203,087 0
------------ ------------- ------------- ------------
Net cash from investing activities.................. (69,668,266) (112,561,765) (194,057,829) (16,841,995)
Cash flows from financing activities
Proceeds from sale of common stock...................... 0 0 14,300,826 13,880,972
Net increase in deposits................................ 73,813,230 107,002,922 162,309,755 9,688,264
Net increase in other borrowed money.................... 13,325 0 0 0
Net increase in securities sold under agreements to
repurchase............................................ 827,991 9,899,848 16,382,154 655,447
------------ ------------- ------------- ------------
Net cash from financing activities.................. 74,654,546 116,902,770 192,992,735 24,224,683
------------ ------------- ------------- ------------
Net change in cash and cash equivalents................... 6,484,865 3,610,112 (647,304) 7,103,300
Cash and cash equivalents at beginning of period.......... 6,455,996 7,103,300 7,103,300 0
------------ ------------- ------------- ------------
Cash and cash equivalents at end of period................ $ 12,940,861 $ 10,713,412 $ 6,455,996 $ 7,103,300
============ ============= ============= ============
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest.............................................. $ 5,248,375 $ 1,616,566 $ 5,237,738 $ 1,391
Federal income tax.................................... 730,773 0 165,000 0
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 123
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED), DECEMBER 31, 1998 AND
DECEMBER 31, 1997
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Mercantile Bank Corporation and its wholly-owned subsidiary,
Mercantile Bank of West Michigan, after elimination of significant intercompany
transactions and accounts.
NATURE OF OPERATIONS: Mercantile Bank Corporation ("Mercantile") was
incorporated on July 15, 1997 as a bank holding company to establish and own
Mercantile Bank of West Michigan ("Bank") based in Grand Rapids, Michigan. The
Bank is a community-based financial institution. The Bank's primary deposit
products are checking, savings, and term certificate accounts, and its primary
lending products are commercial, residential mortgage, and installment loans.
Substantially all loans are secured by specific items of collateral including
business assets, consumer assets and real estate. Commercial loans are expected
to be repaid from cash flow from operations of businesses. Real estate loans are
secured by both residential and commercial real estate. The Bank's loan accounts
are primarily with customers located in western Michigan, within Kent County.
The Bank's retail deposits are also to customers located in western Michigan. As
an alternative source of funds, the Bank has also issued certificates to
depositors outside of the Bank's primary market area. Commercial real estate
loans to lessors of real property comprise 13.7% and 19.5% of the Bank's total
loans at June 30, 1999 (Unaudited) and December 31, 1998. Commercial loans to
holding and other investment offices comprise 18.8% and 28.6% of the Bank's
total loans at June 30, 1999 (Unaudited) and December 31, 1998. The Bank began
operations on December 15, 1997, after several months of work by incorporators
and employees in preparing applications with the various regulatory agencies and
obtaining insurance and building space.
USE OF ESTIMATES: To prepare financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions based on available information. These estimates and assumptions
affect the amounts reported in the financial statements and the disclosures
provided, and future results could differ. The allowance for loan losses and the
fair values of financial instruments are particularly subject to change.
CASH FLOW REPORTING: Cash and cash equivalents include cash on hand,
demand deposits with other financial institutions, short-term investments
(securities with daily put provisions) and federal funds sold. Cash flows are
reported net for customer loan and deposit transactions, interest-bearing time
deposits with other financial institutions and short-term borrowings with
maturities of 90 days or less.
SECURITIES: Securities available for sale consist of those securities
which might be sold prior to maturity due to changes in interest rates,
prepayment risks, yield and availability of alternative investments, liquidity
needs or other factors. Securities classified as available for sale are reported
at their fair value and the related unrealized holding gain or loss is reported,
net of related income tax effects, as a separate component of shareholders'
equity, until realized.
F-8
<PAGE> 124
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Premiums and discounts on securities are recognized in interest income
using the interest method over the estimated life of the security. Gains and
losses on the sale of securities available for sale are determined based upon
amortized cost of the specific security sold.
LOANS: Loans are reported at the principal balance outstanding, net of
deferred loan fees and costs. Interest income is reported on the interest method
and includes amortization of net deferred loan fees and costs over the loan
term.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and recoveries, and
decreased by charge-offs. Management estimates the allowance balance required
based on past industry loan loss experience, known and inherent risks in similar
portfolios, and economic conditions. Allocations of the allowance may be made
for specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in aggregate for smaller-balance loans of
similar nature such as residential mortgage, consumer and credit card loans, and
on an individual loan basis for other loans. If a loan is impaired, a portion of
the allowance is allocated so that the loan is reported, net, at the present
value of estimated future cash flows using the loan's existing rate. Loans are
evaluated for impairment when payments are delayed, typically 90 days or more,
or when the internal grading system indicates a doubtful classification.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using both straight-line and
accelerated methods over the estimated useful lives of the respective assets.
Maintenance, repairs and minor alterations are charged to current operations as
expenditures occur and major improvements are capitalized. These assets are
reviewed for impairment under SFAS No. 121 when events indicate the carrying
amount may not be recoverable.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE: In 1998, the
Accounting Standards Executive Committee (AcSEC) of the American Institute of
Certified Public Accountants promulgated Statement of Position (SOP) 98-5. This
SOP provides guidance on the financial reporting of start-up costs and
organization costs. It requires cost of start-up activities and organization
costs to be expensed as incurred. Initial application of this SOP should be
reported as a cumulative effect of a change in accounting principle. Mercantile
elected to adopt the provisions of SOP 98-5 on January 1, 1999. Included in the
June 30, 1999 Consolidated Statement of Income is a charge to operations of
$42,210 reported as a cumulative effect of change in accounting principle.
STOCK OPTIONS: No expense for stock options is recorded, as the grant
price equals the market price of the stock at grant date. Pro-forma disclosures
show the effect on income and earnings per share had the options' fair value
been recorded using an option pricing model. The pro-forma effect is expected to
increase in the future as more options are granted.
INCOME TAXES: Income tax expense is the sum of the current or refundable
and the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the
F-9
<PAGE> 125
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expected future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities, computed using enacted tax
rates. A valuation allowance has been established to the extent of net deferred
tax assets due to a lack of operating performance to ensure that it is more
likely than not it would be recovered.
FAIR VALUES OF FINANCIAL INSTRUMENTS: Fair values of financial instruments
are estimated using relevant market information and other assumptions, as more
fully disclosed separately. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates. The fair value estimates of existing on-and
off-balance sheet financial instruments does not include the value of
anticipated future business or the values of assets and liabilities not
considered financial instruments.
SEGMENTS. Mercantile and the Bank, provide a broad range of financial
services to individuals and companies in western Michigan. These services
include demand, time and savings deposits; lending; and cash management. While
Mercantile's chief decision makers monitor the revenue streams of its various
products and services, operations are managed and financial performance is
evaluated on a company-wide basis. Accordingly, all of Mercantile's banking
operations are considered by management to be aggregated in one reportable
operating segment.
DIVIDEND RESTRICTION: Mercantile and the Bank are subject to banking
regulations which require the maintenance of certain capital levels and positive
retained earnings, which will prevent payment of dividends until positive
retained earnings are achieved and may limit the amount of dividends thereafter.
EARNINGS (LOSS) PER SHARE: Basic earnings (loss) per share is based on
weighted average common shares outstanding. Diluted earnings (loss) per share
further assumes issue of any dilutive potential common shares.
F-10
<PAGE> 126
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- INVESTMENT SECURITIES
The amortized cost and fair values of investment securities were as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUES
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
June 30, 1999 (Unaudited)
U.S. Treasury
securities................ $ 3,001,181 $ 3,349 $ 0 $ 3,004,530
U.S. Government agency
debt obligations....... 12,003,093 0 256,223 11,746,870
Mortgage-backed
securities............. 14,081,697 0 445,530 13,636,167
----------- ------- -------- -----------
Totals................. $29,085,971 $ 3,349 $701,753 $28,387,567
=========== ======= ======== ===========
December 31, 1998
U.S. Treasury
securities............. $ 4,506,744 $16,376 $ 0 $ 4,523,120
U.S. Government agency
debt obligations....... 12,015,020 45,207 29,437 12,030,790
Mortgage-backed
securities............. 7,590,648 21,104 5,415 7,606,337
----------- ------- -------- -----------
Totals................. $24,112,412 $82,687 $ 34,852 $24,160,247
=========== ======= ======== ===========
December 31, 1997
U.S. Treasury
securities............. $ 3,001,131 $ 0 $ 3,631 $ 2,997,500
=========== ======= ======== ===========
HELD TO MATURITY
June 30, 1999 (Unaudited)
Municipal general
obligation bonds....... $ 224,540 $ 0 $ 1 $ 224,539
Municipal revenue bonds... 208,708 0 11,728 196,980
----------- ------- -------- -----------
Totals................. $ 433,248 $ 0 $ 11,729 $ 421,519
=========== ======= ======== ===========
</TABLE>
F-11
<PAGE> 127
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and fair values of debt investment securities by
contractual maturity, are shown below. The contractual maturity is utilized
below for U.S. Treasury and U.S. Government agency debt obligations. Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties. Securities not due at a single maturity date, mortgage backed
securities, are shown separately.
<TABLE>
<CAPTION>
WEIGHTED AMORTIZED FAIR
AVERAGE YIELD COST VALUES
------------- ----------- -----------
<S> <C> <C> <C>
June 30, 1999 (Unaudited)
Debt securities, excluding
mortgage-backed securities:
Due in one year or less............. 5.49% $ 3,001,181 $ 3,004,530
Due after one year through five
years............................ 6.03 9,988,469 9,826,090
Due after five years through 15
years............................ 5.42 2,447,872 2,342,299
----------- -----------
15,437,522 15,172,919
Mortgage-backed securities............ 6.08 14,081,697 13,636,167
----------- -----------
Total debt investment securities.... $29,519,219 $28,809,086
=========== ===========
December 31, 1998
Debt securities, excluding
mortgage-backed securities:
Due in one year or less............. 5.61% $ 4,506,744 $ 4,523,120
Due after one year through five
years............................ 6.07 9,987,547 10,028,140
Due after five years through 15
years............................ 6.13 2,027,473 2,002,650
----------- -----------
16,521,764 16,553,910
Mortgage-backed securities............ 6.29 7,590,648 7,606,337
----------- -----------
Total debt investment securities.... $24,112,412 $24,160,247
=========== ===========
</TABLE>
The sale of an investment security for the year ended December 31, 1998
resulted in a realized gain of $128. There were no sales of securities during
1997 or during the first six months of 1999.
The carrying value of investment securities that are pledged to secure
securities sold under agreements to repurchase and other deposits was
$24,058,947, $24,160,247, and $2,997,500 at June 30, 1999 (Unaudited), December
31, 1998, and December 31, 1997, respectively.
F-12
<PAGE> 128
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999
(UNAUDITED) DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- -------------------- -------------------
BALANCE % BALANCE % BALANCE %
------------ ----- ------------ ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Real Estate:
Construction and
land
development...... $ 22,466,493 9.1% $ 13,656,284 7.4% $ 0 0.0%
Secured by 1-4
family
properties....... 15,577,437 6.3 10,655,703 5.8 171,872 1.3
Secured by multi-
family
properties....... 2,547,966 1.0 2,520,747 1.4 0 0.0
Secured by nonfarm
nonresidential
properties....... 139,199,347 56.4 100,742,487 54.5 5,421,302 42.1
Commercial............ 64,437,050 26.1 55,071,347 29.8 7,278,664 56.5
Consumer.............. 2,496,493 1.1 2,098,034 1.1 14,925 0.1
------------ ----- ------------ ----- ----------- -----
Total Loans........... $246,724,786 100.0% $184,744,602 100.0% $12,886,763 100.0%
============ ===== ============ ===== =========== =====
</TABLE>
Activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1999 1998 DECEMBER 31, DECEMBER 31,
(UNAUDITED) (UNAUDITED) 1998 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Beginning balance......... $2,765,100 $ 193,300 $ 193,300 $ 0
Provision charged to
operating expense....... 935,900 1,471,800 2,571,800 193,300
---------- ---------- ---------- --------
Ending balance....... $3,701,000 $1,665,100 $2,765,100 $193,300
========== ========== ========== ========
</TABLE>
There were no loans classified as impaired at June 30, 1999, December 31,
1998, or December 31, 1997 or during the periods then ended.
F-13
<PAGE> 129
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- PREMISES AND EQUIPMENT -- NET
Premises and equipment are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Land and improvements.................. $ 315,020 $ 315,020 $ 0
Buildings and leasehold improvements... 1,992,790 759,942 545,401
Construction in process................ 0 100,638 0
Furniture and equipment................ 1,216,803 869,195 408,581
---------- ---------- --------
3,524,613 2,044,795 953,982
Less: accumulated depreciation......... 310,475 186,990 0
---------- ---------- --------
$3,214,138 $1,857,805 $953,982
========== ========== ========
</TABLE>
F-14
<PAGE> 130
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999
(UNAUDITED) DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- -------------------- ------------------
BALANCE % BALANCE % BALANCE %
------------ ----- ------------ ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand............. $ 16,331,118 6.6% $ 14,319,290 8.3% $7,207,482 74.4%
Interest-bearing
checking........... 9,415,224 3.8 7,765,703 4.5 213,218 2.2
Money market......... 4,813,760 2.0 3,822,019 2.2 0 0.0
Savings.............. 41,798,368 17.0 28,796,603 16.8 2,089,539 21.6
Time, under
$100,000........... 4,047,872 1.6 3,305,504 1.9 178,025 1.8
Time, $100,000 and
over............... 19,832,561 8.2 16,718,705 9.7 0 0.0
------------ ----- ------------ ----- ---------- -----
96,238,903 39.2 74,727,824 43.4 9,688,264 100.0
Out-of-area time,
under $100,000..... 97,045,443 39.4 77,847,412 45.3 0 0.0
Out-of-area time,
$100,000 and
over............... 52,526,903 21.4 19,422,783 11.3 0 0.0
------------ ----- ------------ ----- ---------- -----
149,572,346 60.8 97,270,195 56.6 0 0.0
------------ ----- ------------ ----- ---------- -----
Total Deposits....... $245,811,249 100.0% $171,998,019 100.0% $9,688,264 100.0%
============ ===== ============ ===== ========== =====
</TABLE>
Out-of-area certificates of deposit consist of certificates obtained from
depositors outside of the primary market area. As of June 30, 1999 (Unaudited)
and December 31, 1998, out-of-area certificates of deposit totaling $130,539,074
and $83,404,629 were obtained through deposit brokers, with the remaining
$19,033,272 and $13,865,566 obtained directly from the depositors, respectively.
F-15
<PAGE> 131
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table depicts the maturity distribution for certificates of
deposit.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
1999...................................... $154,023,757 $ 89,659,963
2000...................................... 16,247,964 22,649,689
2001...................................... 1,691,058 4,194,752
2002 and thereafter....................... 1,490,000 1,390,000
------------ ------------
$173,452,779 $117,294,404
============ ============
</TABLE>
NOTE 6 -- SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Information relating to securities sold under agreements to repurchase, is
summarized below:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Outstanding balance at end of
period.............................. $17,865,592 $17,037,601 $655,447
Average interest rate at end of
period.............................. 4.12% 4.20% 4.70%
Average balance during the period..... 17,230,642 10,305,728 3,853
Average interest rate during the
period.............................. 4.12% 4.72% 4.70%
Maximum month end balance during the
period.............................. 17,865,592 18,498,833 655,447
</TABLE>
Securities sold under agreements to repurchase (repurchase agreements)
generally have original maturities of less than one year. Repurchase agreements
are treated as financings and the obligations to repurchase securities sold are
reflected as liabilities. Securities involved with the repurchase agreements are
recorded as assets of the Bank and are primarily held in safekeeping by
correspondent banks. Repurchase agreements are offered principally to certain
large deposit customers as deposit equivalent investments.
F-16
<PAGE> 132
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- FEDERAL INCOME TAXES
The provision (benefit) for federal taxes consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1999
-----------
(UNAUDITED)
<S> <C>
Current income tax........................................ $ 694,203
Deferred income tax....................................... (353,216)
Change in valuation allowance for deferred tax assets..... (206,987)
$ 134,000
</TABLE>
The net deferred tax asset recorded includes the following amounts of
deferred tax assets and liabilities:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets
Provision for loan losses.............. $1,105,628 $787,422 $ 65,722
Start-up/pre-opening expenses.......... 86,258 76,713 97,811
Deferred loan fees..................... 62,360 52,273
Depreciation........................... 11,248 8,146
---------- -------- --------
$1,504,217 $924,554 $163,533
========== ======== ========
Deferred tax liabilities
Unrealized gain on securities available
for sale............................ $ 16,400
Miscellaneous expenses................. 13,600
Accretion.............................. $ 3,500 2,176
---------- -------- --------
$ 3,500 $ 32,176 $163,533
========== ======== ========
</TABLE>
A valuation allowance related to deferred tax assets is required when it is
considered more likely than not that all or part of the benefits related to such
assets will not be realized. Management has determined that an allowance of
$892,378 and $163,533 is required for 1998 and 1997.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Net deferred tax asset before valuation
allowance.............................. $1,500,717 $892,378 $163,533
Valuation allowance for deferred tax
assets................................. (685,391) (892,378) (163,533)
---------- -------- --------
$ 815,326 $ 0 $ 0
========== ======== ========
</TABLE>
F-17
<PAGE> 133
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- STOCK OPTION PLAN
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Stock options outstanding
Beginning................................ 121,750 77,750 0
Granted.................................. 0 44,000 77,750
--------- ----------- ---------
Ending................................ 121,750 121,750 77,750
========= =========== =========
Options exercisable at end of period..... 54,500 50,166 22,918
--------- ----------- ---------
Minimum exercise price................... $ 10.00 $ 10.00 $ 10.00
Maximum exercise price................... 13.63 13.63 11.75
Average exercise price................... 11.50 11.50 10.75
Average remaining option term............ 8.9 years 9.0 years 9.8 years
Estimated fair value of stock options
granted.................................. $ 0 $ 172,510 $ 340,863
Assumptions used:
Risk-free interest rate............... -- 4.56% 6.01%
Expected option life.................. -- 7 years 7 years
Expected stock volatility............. -- 11% 25%
Expected dividends.................... -- 0% 0%
Pro-forma income (loss), assuming SFAS 123
fair value method was used for stock
options:
Net income (loss)........................ $ 778,187 $(1,299,991) $(539,585)
Basic and diluted income (loss) per
share................................. 0.31 (0.68) (0.36)
</TABLE>
NOTE 9 -- RELATED PARTIES
Certain directors and executive officers of Mercantile, including their
immediate families and companies in which they are principal owners, were loan
customers of the Bank. At June 30, 1999 (Unaudited), December 31, 1998, and
December 31, 1997, the Bank had approximately $12,516,000, $12,815,000 and
$5,940,000 in loan commitments to directors and executive officers, of which
approximately $8,753,000, $9,095,000 and
F-18
<PAGE> 134
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$2,147,000 were outstanding at June 30, 1999 (Unaudited), December 31, 1998 and
December 31, 1997, respectively, as reflected in the following table.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Beginning balance..................... $9,095,000 $2,147,000 $ 0
New loans............................. 0 7,222,000 2,147,000
Repayments............................ (342,000) (274,000) 0
---------- ---------- ----------
Ending balance................... $8,753,000 $9,095,000 $2,147,000
========== ========== ==========
</TABLE>
Related party deposits and repurchase agreements totaled approximately
$10,252,000, $7,978,000 and $416,000 at June 30, 1999 (Unaudited), December 31,
1998 and December 31, 1997.
NOTE 10 -- COMMITMENTS AND OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Loan commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
These instruments involve, to varying degrees, elements of credit risk in
excess of the amount recognized, if any, in the balance sheet. The Bank's
maximum exposure to loan loss in the event of nonperformance by the other party
to the financial instrument for commitments to extend credit and standby letters
of credit is represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. Collateral,
such as accounts receivable, securities, inventory, property and equipment, is
generally obtained based on management's credit assessment of the borrower.
Fair value of the Bank's off-balance sheet instruments (commitments to
extend credit and standby letters of credit) is based on rates currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing. At June 30, 1999 and
December 31, 1998, the rates on existing off-balance sheet instruments were
substantially equivalent to current market rates, considering the underlying
credit standing of the counterparties.
F-19
<PAGE> 135
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Bank's maximum exposure to credit losses for loan commitments and
standby letters of credit outstanding was as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Commercial unused lines of credit....... $ 65,154,486 $ 61,600,909 $ 3,701,272
Unused lines of credit secured by 1 - 4
family residential properties......... 6,242,134 3,434,290 64,356
Credit card unused lines of credit...... 2,850,696 2,251,329 0
Other consumer unused lines of credit... 3,517,546 1,534,497 0
Commitments to make loans............... 29,065,700 21,751,900 7,198,584
Standby letters of credit............... 24,876,358 19,271,848 0
------------ ------------ -----------
$131,706,920 $109,844,773 $10,964,212
============ ============ ===========
</TABLE>
Management does not anticipate any significant losses as a result of these
commitments.
At June 30, 1999 (Unaudited), December 31, 1998 and December 31, 1997,
reserves of $216,000, $185,000 and $0 were required as deposits with the Federal
Reserve Bank of Chicago. These reserves do not earn interest.
The Bank leases the main office facility under an operating lease
agreement. Total rental expense for the lease for 1998 was $151,349. Rental
expense through June 30, 1999 (Unaudited) was $77,173. Future minimum rentals
under this lease as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
1999................................................. $ 77,172 $ 154,344
2000................................................. 154,344 154,344
2001................................................. 154,344 154,344
2002................................................. 154,344 154,344
2003................................................. 154,344 154,344
Thereafter........................................... 565,928 565,928
---------- ----------
$1,337,648 $1,337,648
========== ==========
</TABLE>
NOTE 11 -- EMPLOYEE BENEFIT PLANS
Mercantile established a 401(k) plan effective January 1, 1998, covering
substantially all of its employees. Mercantile's matching 401(k) contribution
charged to expense was $34,945, $27,167, $59,705, and $0 for each of the periods
ending June 30, 1999 (Unaudited), June 30, 1998, (Unaudited) December 31, 1998
and December 31, 1997. The percent of Mercantile's matching contributions to the
401(k) is determined annually by the Board of Directors.
F-20
<PAGE> 136
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial instruments are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------------- ------------------- ------------------
(UNAUDITED)
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUES VALUES VALUES VALUES VALUES VALUES
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Financial assets
Cash and cash
equivalents....... $ 12,941 $ 12,941 $ 6,456 $ 6,456 $ 7,103 $ 7,103
Securities........... 29,606 29,594 24,160 24,160 2,998 2,998
Loans, net........... 243,024 242,289 181,980 181,963 12,693 12,693
Accrued interest
receivable........ 1,437 1,437 1,148 1,148 53 53
Financial liabilities
Deposits............. 245,811 244,464 171,998 173,665 9,688 9,688
Securities sold under
agreements to
repurchase........... 17,866 17,866 17,038 17,038 655 655
Accrued interest
payable........... 740 740 423 423 4 4
</TABLE>
The estimated fair value approximates carrying amount for all items except
those described below. Estimated fair value for securities is based on quoted
market values for the individual securities or for equivalent securities.
Estimated fair value for loans is based on the rates charged at the end of the
period for new loans with similar maturities, applied until the loan is assumed
to reprice or be paid. Estimated fair value for IRAs, time CDs, and agreements
to repurchase is based on the rates paid at the end of the year for new deposits
or borrowings, applied until maturity. Estimated fair value for other financial
instruments and off-balance-sheet loan commitments are considered to approximate
carrying value.
NOTE 13 -- SALE OF COMMON STOCK
During 1998 Mercantile completed a secondary stock offering, selling
977,500 shares. Net of issuance expenses the common stock sale raised $14.3
million. Substantially all of the net proceeds were contributed to the Bank,
which were used to support the anticipated growth in assets, fund investments in
loans and securities, and for general corporate purposes.
F-21
<PAGE> 137
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- REGULATORY MATTERS
Mercantile and Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings, and other
factors, and the regulators can lower classifications in certain cases. Failure
to meet various capital requirements can initiate regulatory action that could
have a direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
<TABLE>
<CAPTION>
CAPITAL TO RISK-
WEIGHTED ASSETS
----------------- TIER 1 CAPITAL
TOTAL TIER 1 TO AVERAGE ASSETS
------ ------- -----------------
<S> <C> <C> <C>
Well capitalized............................... 10% 6% 5%
Adequately capitalized......................... 8 4 4
Undercapitalized............................... <8 <4 <4
</TABLE>
F-22
<PAGE> 138
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At June 30, 1999, (Unaudited) December 31, 1998 and December 31, 1997,
actual capital levels (in thousands) and minimum required levels for Mercantile
and the Bank were:
<TABLE>
<CAPTION>
MINIMUM REQUIRED
TO BE WELL
MINIMUM REQUIRED CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION REGULATIONS
---------------- ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1999 (Unaudited)
Total capital (to risk
weighted assets)
Consolidated........ $31,138 10.8% $23,124 8.0% $28,905 10.0%
Bank................ 30,311 10.5 23,120 8.0 28,900 10.0
Tier 1 capital (to risk
weighted assets)
Consolidated........ 27,524 9.5 11,566 4.0 17,348 6.0
Bank................ 26,698 9.2 11,564 4.0 17,345 6.0
Tier 1 capital (to
average assets)
Consolidated........ 27,524 10.0 10,980 4.0 13,725 5.0
Bank................ 26,698 9.7 10,974 4.0 13,717 5.0
December 31, 1998
Total capital (to risk
weighted assets)
Consolidated........ $29,434 13.0% $18,100 8.0% $22,625 10.0%
Bank................ 28,453 12.6 18,093 8.0 22,616 10.0
Tier 1 capital (to risk
weighted assets)
Consolidated........ 26,669 11.8 9,050 4.0 13,575 6.0
Bank................ 25,688 11.4 9,047 4.0 13,570 6.0
Tier 1 capital (to
average assets)
Consolidated........ 26,669 13.8 7,711 4.0 9,639 5.0
Bank................ 25,688 13.3 7,707 4.0 9,634 5.0
</TABLE>
F-23
<PAGE> 139
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
MINIMUM REQUIRED
TO BE WELL
MINIMUM REQUIRED CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION REGULATIONS
---------------- ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
Total capital (to risk
weighted assets)
Consolidated........ $13,595 78.1% $ 1,392 8.0% $ 1,740 10.0%
Bank................ 13,056 75.6 1,392 8.0 1,728 10.0
Tier 1 capital (to risk
weighted assets)
Consolidated........ 13,402 77.0 696 4.0 1,044 6.0
Bank................ 12,863 74.5 696 4.0 1,037 6.0
Tier 1 capital (to
average assets)
Consolidated........ 13,402 69.7 769 4.0 961 5.0
Bank................ 12,863 69.3 743 4.0 928 5.0
</TABLE>
The Bank was categorized as well capitalized at June 30, 1999 (Unaudited),
and December 31, 1998 and 1997.
F-24
<PAGE> 140
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- MERCANTILE BANK CORPORATION (PARENT COMPANY ONLY)
CONDENSED FINANCIAL STATEMENTS
Following are condensed parent company only financial statements.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............... $ 773,728 $ 910,068 $ 536,824
Investment in subsidiary................ 26,234,514 25,720,043 12,862,806
Other assets............................ 52,197 81,905 126,545
----------- ----------- -----------
Total assets......................... $27,060,439 $26,712,016 $13,526,175
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities............................. $ 0 $ 11,500 $ 52,905
Shareholders' equity.................... 27,060,439 26,700,516 13,473,270
----------- ----------- -----------
Total liabilities and shareholders'
equity............................. $27,060,439 $26,712,016 $13,526,175
=========== =========== ===========
</TABLE>
F-25
<PAGE> 141
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Income
Other.................. $ 16,802 $ 7,400 $ 28,868 $ 32,781
---------- ----------- ----------- ---------
Total income........ 16,802 7,400 28,868 32,781
Expenses
Other operating
expenses............ 193,350 48,267 187,797 303,289
---------- ----------- ----------- ---------
Total expenses...... 193,350 48,267 187,797 303,289
Income (loss) before
income tax and equity
in undistributed net
loss of subsidiaries... (176,548) (40,867) (158,929) (270,508)
Federal income tax
expense................ (22,000) 0 0 0
Equity in undistributed
net income (loss) of
subsidiary............. 1,009,711 (1,395,334) (950,118) (133,563)
---------- ----------- ----------- ---------
Net income (loss)........ $ 855,163 $(1,436,201) $(1,109,047) $(404,071)
========== =========== =========== =========
</TABLE>
F-26
<PAGE> 142
MERCANTILE BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss).... $ 855,163 $(1,436,201) $(1,109,047) $ (404,071)
Adjustments to
reconcile net
income (loss) to
net cash from
operating
activities
Equity in
undistributed
(income) loss of
subsidiary...... (1,009,711) 1,395,334 950,118 133,563
Change in other
assets.......... 29,708 (39,188) 44,640 (126,545)
Change in other
liabilities..... (11,500) (52,905) (41,405) 52,905
----------- ----------- ----------- ------------
Net cash from
operating
activities... (136,340) (132,960) (155,694) (344,148)
Cash flows from
financing activities
Proceeds from sale of
common stock...... 0 0 14,300,826 13,880,972
Capital investment
into Mercantile
Bank of West
Michigan.......... 0 0 (13,771,888) (13,000,000)
----------- ----------- ----------- ------------
Net cash from
financing
activities...... 0 0 528,938 880,972
----------- ----------- ----------- ------------
Net change in cash and
cash equivalents..... (136,340) (132,960) 373,244 536,824
Cash and cash
equivalents at
beginning of
period............... 910,068 536,824 536,824 0
----------- ----------- ----------- ------------
Cash and cash
equivalents at end of
period............... $ 773,728 $ 403,864 $ 910,068 $ 536,824
=========== =========== =========== ============
</TABLE>
F-27
<PAGE> 143
- ------------------------------------------------------
- ------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Special Note Regarding
Forward-Looking Statements......... i
Prospectus Summary................... 1
Risk Factors......................... 9
Use of Proceeds...................... 18
Accounting Treatment................. 20
Capitalization....................... 21
Management's Discussion and Analysis
of
Financial Condition and Results of
Operations......................... 22
Business............................. 42
Management........................... 50
Security Ownership................... 59
Related Party Transactions........... 61
Supervision and Regulation........... 62
Description of the Preferred
Securities......................... 67
Description of Junior Subordinated
Debentures......................... 83
Book-Entry Issuance.................. 94
Description of Preferred Securities
Guarantee.......................... 96
Relationship Among the Preferred
Securities, the Junior Subordinated
Debentures and the Preferred
Securities
Guarantee.......................... 100
Material Federal Income Tax
Consequences....................... 102
ERISA Considerations................. 106
Indemnification...................... 107
Underwriting......................... 109
Where You Can Find More
Information........................ 111
Legal Matters........................ 111
Experts.............................. 112
Index to Financial Statements........ F-1
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THE
INFORMATION CONTAINED IN THIS DOCUMENT MAY HAVE CHANGED SINCE THE DATE OF THIS
PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL AND IS NOT SOLICITING AN
OFFER TO BUY THE SECURITIES IN ANY STATE WHERE OFFERS OR SALES ARE NOT
PERMITTED.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,400,000 PREFERRED SECURITIES
MBWM CAPITAL TRUST I
% CUMULATIVE PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER
PREFERRED SECURITY)
FULLY, IRREVOCABLY AND
UNCONDITIONALLY GUARANTEED ON A
SUBORDINATED BASIS,
AS DESCRIBED IN THIS PROSPECTUS, BY
MERCANTILE BANK
CORPORATION
MERCANTILE LOGO
-------------------------
$14,000,000
% SUBORDINATED DEBENTURES
OF
MERCANTILE BANK
CORPORATION
-------------------------
Prospectus
, 1999
-------------------------
STIFEL, NICOLAUS & COMPANY
INCORPORATED
TUCKER ANTHONY CLEARY GULL
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 144
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Mercantile's Articles of Incorporation provide that Mercantile 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.
Mercantile's Bylaws contain indemnification provisions concerning third
party actions as well as actions in the right of Mercantile. The Bylaws provide
that Mercantile 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 Mercantile by reason of the fact
that he or she is or was a director or officer of Mercantile or is, or while
serving as such a director or officer was, serving at the request of Mercantile
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 the 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 Mercantile 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 Mercantile
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 Mercantile to procure a judgment in its favor by reason of the fact
that he or she is or was a director or officer of Mercantile or is or was
serving at the request of Mercantile 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 the 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 Mercantile or its shareholders and except that no indemnification
shall be made in respect of any claim, issue or matter as to which the person
has been found liable to Mercantile unless and only to the extent that the court
in which the action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all circumstances of the
case, the person is fairly and reasonably entitled to indemnify for the expenses
which the court shall deem proper.
Mercantile's Articles of Incorporation provide that a director of
Mercantile shall not be personally liable to Mercantile or its shareholders for
monetary damages for breach of the director's fiduciary duty. However, it does
not eliminate or limit the liability of a director for any breach of a duty, act
or omission for which the elimination or limitation of liability is not
permitted by the Michigan Business Corporation Act, currently including, without
limitations the following: (1) breach of the director's duty of loyalty to
Mercantile 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(l) of Michigan Business Corporation Act; and (4) transactions from which the
director derived an improper personal benefit.
II-1
<PAGE> 145
Mercantile has purchased directors' and officers' liability insurance for
directors and officers of Mercantile and the Bank.
The Trust Agreement provides that Mercantile shall indemnify each of the
Trustees or any predecessor Trustee for, and hold the Trustees harmless against,
any loss, damage, claim, liability, penalty or expense incurred without
negligence or bad faith on its part, arising out of or in connection with the
acceptance or administration of the trust agreement, including the cost and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties, except any cost or
expense as may be attributable to the trustee's negligence, bad faith or willful
misconduct.
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 preferred securities 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 the sale of
1,400,000 preferred securities in the offering.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 4,448
NASD filing fee............................................. $ 2,100
Printing and mailing expenses............................... $ 80,000
Fees and expenses of counsel................................ $120,000
Accounting and related expenses............................. $ 15,000
Blue Sky fees and expenses (including counsel fees)......... $ 5,000
Registrar and Transfer Agent fees........................... $ 5,000
Miscellaneous............................................... $ 48,452
Total....................................................... $280,000
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the period from July 1997 through October 1997, Mercantile borrowed
approximately $278,500 from members of its initial Board of Directors to pay
organizational and related expenses. These loans were repaid in October 1997
from the net proceeds of the Mercantile's initial public offering. To the extent
that such transactions would be deemed to involve the offer or sale of a
security, Mercantile would claim an exemption under Rule 504 of Regulation D or
Section 4(2) of the Securities Act of 1933 for such transactions. In July, 1997,
Mercantile sold one share of its common stock to Gerald R. Johnson, Jr.,
Chairman of the Board and Chief Executive Officer of Mercantile, for $10.
Mercantile claims an exemption for such sale pursuant to Rule 504 of Regulation
D or Section 4(2). During the period from July 1997 through July 1, 1999,
Mercantile granted options for 121,750 shares of its common stock to seven
employees pursuant to Mercantile's 1997 Employee Stock Option Plan. These
options have exercise prices ranging from $10 to $13 per share. Such option
grants either do not constitute a sale, or if they do, Mercantile claims an
exemption for such sales pursuant to Rule 504 of Regulation D or Section 4(2).
Mercantile established a 401(k) plan effective January 1, 1998. One of the
investment options under the plan permits employees to self-direct some or all
of the contributions to the plan. Under this option, employees may choose to
invest
II-2
<PAGE> 146
in stock of Mercantile, or other securities through the plan. In such case, the
plan purchases the common stock or other securities in the open market.
Mercantile registered the Mercantile common stock that may be purchased under
the self-directed option of the plan, and an indeterminate amount of interests
in the plan, on April 2, 1999, on a Form S-8 registration statement filed with
the SEC.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of Mercantile Bank Corporation are
incorporated by reference to Exhibit 3.1 of Mercantile's
Registration Statement on Form SB-2 (Commission File No.
333-33081) that became effective on October 23, 1997.
3.2 Bylaws of Mercantile Bank Corporation are incorporated by
reference to Exhibit 3.2 of Mercantile's Registration
Statement on Form SB-2 (Commission File No. 333-33081) which
became effective on October 23, 1997.
4.1 Form of Subordinated Indenture dated , 1999
to be entered into between Mercantile Bank Corporation and
Wilmington Trust Company as Indenture Trustee.
4.2 Form of Junior Subordinated Debenture (included as an
exhibit to Exhibit 4.1).
4.3 Form of Certificate of Trust of MBWM Trust (included as
Exhibit A to Exhibit 4.5).
4.4 Form of Trust Agreement of MBWM Trust dated as of July 23,
1999(1).
4.5 Form of Amended and Restated Trust Agreement of MBWM Trust
dated , 1999.
4.6 Form of Preferred Security Certificate of MBWM Trust
(included as an exhibit to Exhibit 4.5).
4.7 Form of Preferred Securities Guarantee Agreement.
4.8 Form of Agreement as to Expenses and Liabilities (included
as an exhibit to Exhibit 4.5).
5.1 Opinion of Dickinson Wright PLLC regarding legality(1).
5.2 Opinion of Richards, Layton & Finger, P.A. regarding
legality(1).
8.1 Opinion of Dickinson Wright PLLC, as to material federal
income tax consequences(1).
10.1 Employment Agreement between Gerald R. Johnson, Jr. and
Mercantile Bank Corporation dated December 1, 1998, is
incorporated by reference to Exhibit 10.4 of Mercantile's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998 (Commission File No. 333-33081).
10.2 Employment Agreement between Michael H. Price and Mercantile
Bank Corporation dated December 1, 1998, is incorporated by
reference to Exhibit 10.5 of Mercantile's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1998
(Commission File No. 333-33081).
</TABLE>
II-3
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
<C> <S>
10.3 1997 Employee Stock Option Plan of Mercantile Bank
Corporation is incorporated by reference to Exhibit 10.1 of
Mercantile's Registration Statement on Form SB-2 (Commission
File No. 333-33081) which became effective on October 23,
1997.
10.4 Lease Agreement between Mercantile and Division Partners,
L.L.C. dated August 16, 1997, is incorporated by reference
to Exhibit 10.2 of Mercantile's Registration Statement on
Form SB-2 (Commission File No. 333-33081) which became
effective October 23, 1997.
10.5 Agreement between Mercantile and Visser Brothers
Construction Inc. dated November 16, 1998, on modified
Standard Form of Agreement Between Owner and Construction
Manager where the Construction Manager is also the
Constructor is incorporated by reference to Exhibit 10.3 of
Mercantile's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1998 (Commission File No.
333-33081).
10.6 Mercantile Bank of West Michigan Deferred Compensation Plan
for Members of the Board of Directors(1).
10.7 Agreement between Fiserv Solutions, Inc. and Mercantile Bank
of West Michigan dated September 10, 1997 is incorporated by
reference to Exhibit 10.3 of Mercantile's Registration
Statement on Form SB-2 (Commission File No. 333-33081) which
became effective on October 23, 1997.
21 List of Subsidiaries of Mercantile Bank Corporation is
incorporated by reference to Exhibit 21 of Mercantile's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997 (Commission File No. 333-33081).
23.1 Consent of Crowe, Chizek & Company LLP.
23.2 Consent of Dickinson Wright PLLC (included in Exhibit 5.1).
23.3 Consent of Richards, Layton & Finger, P.A. (included in
Exhibit 5.2).
23.4 Consent of Dickinson Wright PLLC (included in Exhibit 8.1).
24 Power of Attorney(1).
25.1 Form T-1 Statement of Eligibility of Wilmington Trust
Company regarding Subordinated Indenture.
25.2 Form T-1 Statement of Eligibility of Wilmington Trust
Company regarding Amended and Restated Trust Agreement.
25.3 Form T-1 Statement of Eligibility of Wilmington Trust
Company regarding Preferred Securities Guarantee Agreement.
27 Financial Data Schedule(1).
</TABLE>
- -------------------------
(1) Previously filed.
II-4
<PAGE> 148
ITEM 28. UNDERTAKINGS.
The undersigned registrants hereby undertake as follows:
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities 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 registrants 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
registrants will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(2) The registrants 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 registrants 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 Commission
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-5
<PAGE> 149
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
co-registrant certifies that it has reasonable grounds to believe it meets all
of the requirements of filing on Form SB-2 and has authorized this amendment to
registration statement to be signed on its behalf by the undersigned, in the
City of Grand Rapids, State of Michigan, on August 24, 1999.
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, the
co-registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form SB-2 and has authorized this amendment
to registration statement to be signed on its behalf by the undersigned, in the
City of Grand Rapids, State of Michigan on August 24, 1999.
MBWM CAPITAL TRUST I
By: MERCANTILE BANK CORPORATION, as
depositor
By: /s/ GERALD R. JOHNSON, JR.
----------------------------------------
Gerald R. Johnson, Jr., Chairman
of the Board and Chief Executive
Officer
II-6
<PAGE> 150
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 August 24, 1999.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
* Director
---------------------------------------------------
Betty S. Burton
* Director
---------------------------------------------------
Edward J. Clark
* Director
---------------------------------------------------
Peter A. Cordes
* 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 officer)
Gerald R. Johnson, Jr.
* Director
---------------------------------------------------
Susan K. Jones
* Director
---------------------------------------------------
Lawrence W. Larsen
* Director
---------------------------------------------------
Calvin D. Murdock
/s/ MICHAEL H. PRICE President, Chief Operating Officer and Director
---------------------------------------------------
Michael H. Price
* Director
---------------------------------------------------
Dale J. Visser
* Director
---------------------------------------------------
Donald Williams, Sr.
Director
---------------------------------------------------
Robert M. Wynalda
/s/ CHARLES E. CHRISTMAS Chief Financial Officer and Treasurer (principal financial
--------------------------------------------------- and accounting officer)
Charles E. Christmas
*By: /s/ MICHAEL H. PRICE
----------------------------------------------
Michael H. Price
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 151
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 August 24, 1999.
Administrative Trustees of MBWM
Capital Trust I
/s/ GERALD R. JOHNSON, JR.
--------------------------------------
Gerald R. Johnson, Jr., as
administrative trustee
/s/ MICHAEL H. PRICE
--------------------------------------
Michael H. Price, as administrative
trustee
/s/ CHARLES E. CHRISTMAS
--------------------------------------
Charles E. Christmas, as
administrative trustee
II-8
<PAGE> 152
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of Mercantile Bank Corporation are
incorporated by reference to Exhibit 3.1 of Mercantile's
Registration Statement on Form SB-2 (Commission File No.
333-33081) that became effective on October 23, 1997.
3.2 Bylaws of Mercantile Bank Corporation are incorporated by
reference to Exhibit 3.2 of Mercantile's Registration
Statement on Form SB-2 (Commission File No. 333-33081) which
became effective on October 23, 1997.
4.1 Form of Subordinated Indenture dated , 1999
to be entered into between Mercantile Bank Corporation and
Wilmington Trust Company as Indenture Trustee.
4.2 Form of Junior Subordinated Debenture (included as an
exhibit to Exhibit 4.1).
4.3 Form of Certificate of Trust of MBWM Trust (included as
Exhibit A to Exhibit 4.5).
4.4 Form of Trust Agreement of MBWM Trust dated as of July 23,
1999(1).
4.5 Form of Amended and Restated Trust Agreement of MBWM Trust
dated , 1999.
4.6 Form of Preferred Security Certificate of MBWM Trust
(included as an exhibit to Exhibit 4.5).
4.7 Form of Preferred Securities Guarantee Agreement.
4.8 Form of Agreement as to Expenses and Liabilities (included
as an exhibit to Exhibit 4.5).
5.1 Opinion of Dickinson Wright PLLC regarding legality(1).
5.2 Opinion of Richards, Layton & Finger, P.A. regarding
legality(1).
8.1 Opinion of Dickinson Wright PLLC, as to material federal
income tax consequences(1).
10.1 Employment Agreement between Gerald R. Johnson, Jr. and
Mercantile Bank Corporation dated December 1, 1998, is
incorporated by reference to Exhibit 10.4 of Mercantile's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998 (Commission File No. 333-33081).
10.2 Employment Agreement between Michael H. Price and Mercantile
Bank Corporation dated December 1, 1998, is incorporated by
reference to Exhibit 10.5 of Mercantile's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1998
(Commission File No. 333-33081).
10.3 1997 Employee Stock Option Plan of Mercantile Bank
Corporation is incorporated by reference to Exhibit 10.1 of
Mercantile's Registration Statement on Form SB-2 (Commission
File No. 333-33081) which became effective on October 23,
1997.
</TABLE>
<PAGE> 153
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
<C> <S>
10.4 Lease Agreement between Mercantile and Division Partners,
L.L.C. dated August 16, 1997, is incorporated by reference
to Exhibit 10.2 of Mercantile's Registration Statement on
Form SB-2 (Commission File No. 333-33081) which became
effective October 23, 1997.
10.5 Agreement between Mercantile and Visser Brothers
Construction Inc. dated November 16, 1998, on modified
Standard Form of Agreement Between Owner and Construction
Manager where the Construction Manager is also the
Constructor is incorporated by reference to Exhibit 10.3 of
Mercantile's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1998 (Commission File No. 333-33081)
10.6 Mercantile Bank of West Michigan Deferred Compensation Plan
for Members of the Board of Directors(1)
10.7 Agreement between Fiserv Solutions, Inc. and Mercantile Bank
of West Michigan dated September 10, 1997 is incorporated by
reference to Exhibit 10.3 of Mercantile's Registration
Statement on Form SB-2 (Commission File No. 333-33081) which
became effective on October 23, 1997.
21 List of Subsidiaries of Mercantile Bank Corporation is
incorporated by reference to Exhibit 21 of Mercantile's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997 (Commission File No. 333-33081).
23.1 Consent of Crowe, Chizek & Company LLP.
23.2 Consent of Dickinson Wright PLLC (included in Exhibit 5.1).
23.3 Consent of Richards, Layton & Finger, P.A. (included in
Exhibit 5.2).
23.4 Consent of Dickinson Wright PLLC (included in Exhibit 8.1).
24 Power of Attorney(1).
25.1 Form T-1 Statement of Eligibility of Wilmington Trust
Company regarding Subordinated Indenture.
25.2 Form T-1 Statement of Eligibility of Wilmington Trust
Company regarding Amended and Restated Trust Agreement.
25.3 Form T-1 Statement of Eligibility of Wilmington Trust
Company regarding Preferred Securities Guarantee Agreement.
27 Financial Data Schedule(1).
</TABLE>
- -------------------------
(1) Previously filed.
<PAGE> 1
EXHIBIT 1.1
FORM OF
UNDERWRITING AGREEMENT
- --------------------------------------------------------------------------------
1,400,000 Preferred Securities
MERCANTILE BANK CORPORATION
MBWM CAPITAL TRUST I
% Cumulative Trust Preferred Securities
---
, 1999
------------
UNDERWRITING AGREEMENT
Stifel, Nicolaus & Company, Incorporated
and
Tucker Anthony Cleary Gull
As Representatives of the
Several Underwriters named
on Schedule I
<PAGE> 2
1,400,000 Preferred Securities
MERCANTILE BANK CORPORATION
MBWM CAPITAL TRUST I
% Cumulative Trust Preferred Securities
----
(Liquidation Amount of $10 per Preferred Security)
FORM OF
UNDERWRITING AGREEMENT
, 1999
----------
STIFEL, NICOLAUS & COMPANY, INCORPORATED
501 North Broadway
St. Louis, Missouri 63102
TUCKER ANTHONY CLEARY GULL
One Beacon Street
Boston, Massachusetts 02108
As Representatives of the Several Underwriters
named in Schedule I hereto
Dear Sirs:
Mercantile Bank Corporation, a Michigan corporation (the "Company"), and
its financing subsidiary, MBWM Capital Trust I, a Delaware business trust (the
"Trust," and hereinafter together with the Company, the "Offerors"), propose
that the Trust issue and sell to the several underwriters listed on Schedule I
hereto (the "Underwriters"), pursuant to the terms of this Agreement, 1,400,000
of the Trust's ______% Cumulative Trust Preferred Securities, with a liquidation
amount of $10.00 per preferred security (the "Preferred Securities"), to be
issued under the Trust Agreement (as hereinafter defined), the terms of which
are more fully described in the Prospectus (as hereinafter defined). The
aforementioned 1,400,000 Preferred Securities to be sold to the Underwriters are
herein called the "Firm Preferred Securities." Solely for the purpose of
covering over-allotments in the sale of the Firm Preferred Securities, the
Offerors further propose that the Trust issue and sell to the Underwriters, at
their option, up to an additional 200,000 Preferred Securities (the "Option
Preferred Securities") upon exercise of the over-allotment option granted in
Section 1 hereof. The Firm Preferred Securities and any Option Preferred
Securities are herein collectively referred to as the "Designated Preferred
Securities." Stifel, Nicolaus & Company, Incorporated and Tucker Anthony Cleary
Gull are acting jointly as representatives of the Underwriters and in such
capacity are sometimes herein referred to as the "Representatives."
The Offerors hereby confirm as follows their agreement with each of the
Underwriters in connection with the proposed purchase of the Designated
Preferred Securities.
2
<PAGE> 3
1. Sale, Purchase and Delivery of Designated Preferred Securities;
Description of Designated Preferred Securities.
(a) On the basis of the representations, warranties and agreements
herein contained, and subject to the terms and conditions herein set forth, the
Offerors hereby agree that the Trust shall issue and sell to each of the
Underwriters and each of the Underwriters agrees, severally and not jointly, to
purchase from the Trust, at a purchase price of $10.00 per share (the "Purchase
Price"), the respective number of Firm Preferred Securities set forth opposite
the name of such Underwriter in Schedule I hereto. Because the proceeds from the
sale of the Firm Preferred Securities will be used to purchase from the Company
its Debentures (as hereinafter defined and as described in the Prospectus), the
Company shall pay to each Underwriter a commission of $ per Firm Preferred
Security purchased (the "Firm Preferred Securities Commission"). The
Representatives may by notice to the Company amend Schedule I to add, eliminate
or substitute names set forth therein (other than to eliminate the names of the
Representatives) and to amend the number of firm Preferred Securities to be
purchased by any firm or corporation listed thereon, provided that the total
number of Firm Preferred Securities listed on Schedule I shall equal 1,400,000.
In addition, on the basis of the representations, warranties and
agreements herein contained and subject to the terms and conditions herein set
forth, the Trust hereby grants to the Underwriters, severally and not jointly,
an option to purchase all or any portion of the 200,000 Option Preferred
Securities, and upon the exercise of such option in accordance with this Section
1, the Offerors hereby agree that the Trust shall issue and sell to the
Underwriters, severally and not jointly, all or any portion of the Option
Preferred Securities at the same Purchase Price per share paid for the Firm
Preferred Securities. If any Option Preferred Securities are to be purchased,
each Underwriter, severally and not jointly, agrees to purchase from the Trust
that proportion (subject to adjustment as the Representatives may determine to
avoid fractional shares) of the number of Option Preferred Securities to be
purchased that the number of Firm Preferred Securities set forth opposite the
name of such Underwriter in Schedule I hereto (or such number increased as set
forth in Section 9 hereof) bears to 1,400,000. Because the proceeds from the
sale of the Option Preferred Securities will be used to purchase from the
Company its Debentures, the Company shall pay to the Underwriters a commission
of $ per Option Preferred Security for each Option Preferred Security
purchased (the "Option Preferred Securities Commission"). The option hereby
granted (the "Option") shall expire 30 days after the date upon which the
Registration Statement (as hereinafter defined) becomes effective and may be
exercised only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Firm Preferred Securities.
The Option may be exercised in whole or in part at any time (but not more than
once) by you giving notice (confirmed in writing) to the Trust setting forth the
number of Option Preferred Securities as to which the Underwriters are
exercising the Option and the time, date and place for payment and delivery of
certificates for such Option Preferred Securities. Such time and date of payment
and delivery for the Option Preferred Securities (the "Option Closing Date")
shall be determined by you, but shall not be earlier than two nor later than
five full business days after the exercise of such Option, nor in any event
prior to the Closing Date (as hereinafter defined). The Option Closing Date may
be the same as the Closing Date.
3
<PAGE> 4
Payment of the Purchase Price and the Firm Preferred Securities
Commission and delivery of certificates for the Firm Preferred Securities shall
be made at the offices of Vedder, Price, Kaufman & Kammholz, 222 N. LaSalle
Street, Chicago, Illinois 60601, or such other place as shall be agreed to by
you and the Offerors, at 9:00 a.m., Central time, on _________, 1999, or at such
other time not more than five full business days thereafter as the Offerors and
you shall determine (the "Closing Date"). If the Underwriters exercise the
option to purchase any or all of the Option Preferred Securities, payment of the
Purchase Price and Option Preferred Securities Commission and delivery of
certificates for such Option Preferred Securities shall be made on the Option
Closing Date at the Underwriters' counsel's offices, or at such other place as
the Offerors and you shall determine. Such payments shall be made to an account
designated by the Trust by wire transfer or certified or bank cashier's check,
in same day funds, in the amount of the Purchase Price therefor, against
delivery by or on behalf of the Trust to you for the respective accounts of the
several Underwriters of certificates for the Designated Preferred Securities to
be purchased by the Underwriters.
The Agreement contained herein with respect to the timing of the
Closing Date and Option Closing Date is intended to, and does, constitute an
express agreement, as described in Rule 15c6-1(c) and (d) promulgated under the
1934 Act (as defined herein), for a settlement date other than four business
days after the date of the contract.
Certificates for Designated Preferred Securities to be purchased by
the Underwriters shall be delivered by the Offerors in fully registered form in
such authorized denominations and registered in the name of Cede & Co., as
nominee for Depository Trust Company ("DTC"). Certificates for Designated
Preferred Securities to be purchased by the Underwriters shall be made available
by the Offerors to you for inspection, checking and packaging, at such office of
DTC as you may designate in writing, not later than 1:00 p.m., St. Louis time,
on the last business day prior to the Closing Date and, if applicable, on the
last business day prior to the Option Closing Date.
Time shall be of the essence, and delivery of the certificates for the
Designated Preferred Securities at the time and place specified pursuant to this
Agreement is a further condition of the obligations of each Underwriter
hereunder.
(b) Offerors propose that the Trust issue the Designated Preferred
Securities pursuant to an Amended and Restated Trust Agreement among Wilmington
Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware
Trustee, the Administrative Trustees named therein, (collectively, the
"Trustees"), and the Company, in substantially the form heretofore delivered to
the Underwriters, said Agreement being hereinafter referred to as the "Trust
Agreement." In connection with the issuance of the Designated Preferred
Securities, the Company proposes (i) to issue its Junior Subordinated Debentures
(the "Debentures") pursuant to an Indenture, to be dated as of __________, 1999,
between the Company and Wilmington Trust Company, as Trustee (the "Indenture")
and (ii) to guarantee certain payments on the Designated Preferred Securities
pursuant to a Guarantee Agreement between the Company and Wilmington Trust
Company, as guarantee trustee (the "Guarantee"), to the extent described
therein.
4
<PAGE> 5
2. Representations and Warranties.
(a) The Offerors jointly and severally represent and warrant to, and
agree with, each of the Underwriters that:
(i) The Offerors have prepared and filed with the Commission a
registration statement on Form SB-2 (File Numbers 333-84313 and
333-84313-01) for the registration of the Designated Preferred
Securities, the Guarantee and $16,000,000 aggregate principal amount
of Debentures under the Securities Act of 1933, as amended (the "1933
Act"), including the related prospectus subject to completion, and one
or more amendments to such registration statement may have been so
filed, in each case in conformity in all material respects with the
requirements of the 1933 Act, the rules and regulations promulgated
thereunder (the "1933 Act Regulations") and the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), and the rules and
regulations thereunder. Copies of such registration statement,
including any amendments thereto, each Preliminary Prospectus (as
defined herein) contained therein and the exhibits, financial
statements and schedules to such registration statement, as finally
amended and revised, have heretofore been delivered by the Offerors to
the Representatives. After the execution of this Agreement, the
Offerors will file with the Commission (A) if such registration
statement, as it may have been amended, has been declared by the
Commission to be effective under the 1933 Act, a prospectus in the
form most recently included in an amendment to such registration
statement (or, if no such amendment shall have been filed, in such
registration statement), with such changes or insertions as are
required by Rule 430A of the 1933 Act Regulations ("Rule 430A") or
permitted by Rule 424(b) of the 1933 Act Regulations ("Rule 424(b)")
and as have been provided to and not objected to by the
Representatives prior to (or as are agreed to by the Representatives
subsequent to) the execution of this Agreement, or (B) if such
registration statement, as it may have been amended, has not been
declared by the Commission to be effective under the 1933 Act, an
amendment to such registration statement, including a form of final
prospectus, necessary to permit such registration statement to become
effective, a copy of which amendment has been furnished to and not
objected to by the Representatives prior to (or is agreed to by the
Representatives subsequent to) the execution of this Agreement. As
used in this Agreement, the term "Registration Statement" means such
registration statement, as amended at the time when it was or is
declared effective under the 1933 Act, including (1) all financial
schedules and exhibits thereto, (2) all documents (or portions
thereof), if any, incorporated by reference therein filed under the
1934 Act, and (3) any information omitted therefrom pursuant to Rule
430A and included in the Prospectus (as hereinafter defined); the term
"Preliminary Prospectus" means each prospectus subject to completion
filed with such registration statement or any amendment thereto
(including the prospectus subject to completion included in the
Registration Statement and each prospectus filed pursuant to Rule
424(a) under the 1933 Act); and the term "Prospectus" means the
prospectus first filed with the Commission pursuant to Rule 424(b)(1)
or (4) or, if no prospectus is required to be filed pursuant to Rule
424(b)(1) or (4), the prospectus included in the Registration
Statement, in each case including the financial schedules and all
documents (or portions thereof)
5
<PAGE> 6
incorporated by reference therein under the 1934 Act. The date on
which the Registration Statement becomes effective is hereinafter
referred to as the "Effective Date."
(ii) No order preventing or suspending the use of any Prospectus
(or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) has been issued by the Commission, nor has the
Commission, to the knowledge of the Offerors, threatened to issue such
an order or instituted proceedings for that purpose. Each Preliminary
Prospectus, at the time of filing thereof, (A) complied in all
material respects with the requirements of the 1933 Act and the 1933
Act Regulations and (B) did not contain an 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; provided,
however, that this representation and warranty does not apply to
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Offerors by any of the
Underwriters expressly for inclusion in the Prospectus beneath the
heading "Underwriting" (such information referred to herein as the
"Underwriters' Information").
(iii) At the Effective Date and at all times subsequent thereto,
up to and including the Closing Date and, if applicable, the Option
Closing Date, the Registration Statement and any post-effective
amendment thereto (A) complied and will comply in all material
respects with the requirements of the 1933 Act, the 1933 Act
Regulations and the Trust Indenture Act (and the rules and regulations
thereunder) and (B) did not and will not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, not
misleading. At the Effective Date and at all times when the Prospectus
is required to be delivered in connection with offers and sales of
Designated Preferred Securities, including, without limitation, the
Closing Date and, if applicable, the Option Closing Date, the
Prospectus, as amended or supplemented, (A) complied and will comply
in all material respects with the requirements of the 1933 Act and the
1933 Act Regulations and the Trust Indenture Act (and the rules and
regulations thereunder) and (B) did not contain and will not contain
an 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; provided, however, that this representation and warranty
does not apply to Underwriters' Information.
6
<PAGE> 7
(iv) (A) The Company is duly organized, validly existing and in
good standing under the laws of the State of Michigan, with full
corporate and other power and authority to own, lease and operate its
properties and conduct its business as described in and contemplated
by the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus) and as currently being conducted, and is duly registered
as a bank holding company under the Bank Holding Company Act of 1956,
as amended (the "BHC Act").
(B) The Trust has been duly created and is validly existing
as a statutory business trust in good standing under the Delaware
Business Trust Act with the power and authority (trust and other) to
own its property and conduct its business as described in the
Registration Statement and Prospectus, to issue and sell its common
securities (the "Common Securities") to the Company pursuant to the
Trust Agreement, to issue and sell the Designated Preferred
Securities, to enter into and perform its obligations under this
Agreement and to consummate the transactions herein contemplated; the
Trust has no subsidiaries and is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct of
its business or the ownership of its property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Trust; the Trust has conducted and will conduct no
business other than the transactions contemplated by this Agreement
and described in the Prospectus; the Trust is not a party to or bound
by any agreement or instrument other than this Agreement, the Trust
Agreement and the agreements and instruments contemplated by the Trust
Agreement and described in the Prospectus; the Trust has no
liabilities or obligations other than those arising out of the
transactions contemplated by this Agreement and the Trust Agreement
and described in the Prospectus; the Trust is not a party to or
subject to any action, suit or proceeding of any nature; the Trust is
not, and at the Closing Date or any Option Closing Date will not be,
to the knowledge of the Offerors, classified as an association taxable
as a corporation for United States federal income tax purposes; and
the Trust is, and as of the Closing Date or any Option Closing Date
will be, treated as a consolidated subsidiary of the Company pursuant
to generally accepted accounting principles.
(v) The Company has two subsidiaries, Mercantile Bank of West
Michigan (the "Bank") and the Trust (together the "Subsidiaries"). The
Company does not own or control, directly or indirectly, more than 5%
of any class of equity security of any corporation, association or
other entity other than the Subsidiaries. The Bank is a bank duly
organized, validly existing and in good standing under the laws of
Michigan. The Trust is duly organized, validly existing and in good
standing as a business trust under the laws of Delaware. Each such
Subsidiary has full corporate and other power and authority to own,
lease and operate its properties and to conduct its business as
described in and contemplated by the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and as currently being conducted. The deposit
accounts of the Bank are insured by the Bank Insurance Fund
administered by the Federal Deposit Insurance Corporation (the "FDIC")
up to the maximum amount provided by law;
7
<PAGE> 8
and no proceedings for the modification, termination or revocation of
any such insurance are pending or, to the knowledge of the Offerors,
threatened.
(vi) The Company and the Bank maintain insurance of the types
and in the amounts required by the rules and regulations of the FRB
and the Michigan bank regulators and, to the best knowledge of the
Company, consistent with insurance coverage maintained by similar
companies and businesses, all of which insurance is in full force and
effect.
(vii) Each of the Offerors and the Bank is duly qualified to
transact business as a foreign corporation and is in good standing in
each other jurisdiction in which it owns or leases property or
conducts its business so as to require such qualification and in which
the failure to so qualify would, individually or in the aggregate,
have a material adverse effect on the condition (financial or
otherwise), earnings, business, prospects or results of operations of
the Company and the Subsidiaries on a consolidated basis. All of the
issued and outstanding shares of capital stock or equity securities,
as the case may be, of the Subsidiaries (A) have been duly authorized
and are validly issued, (B) are fully paid and nonassessable except to
the extent such shares may be deemed assessable under 12 U.S.C.
Section 55 or 12 U.S.C. Section 1831o or under applicable state
banking law, and (C) except as disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus), are directly owned by the Company free and clear of any
security interest, mortgage, pledge, lien, encumbrance, restriction
upon voting or transfer, preemptive rights, claim or equity.
(viii) The capital stock of the Company and the equity
securities of the Trust conform to the description thereof contained
in the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus). The outstanding shares of capital
stock and equity securities of each Offeror have been duly authorized
and validly issued and are fully paid and nonassessable, and no such
shares were issued in violation of the preemptive or similar rights of
any security holder of an Offeror; no person has any preemptive or
similar right to purchase any shares of capital stock or equity
securities of the Offerors. Except as disclosed in the Prospectus,
(or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) there are no outstanding rights, options or
warrants to acquire any securities of the Offerors or the Bank, and
there are no outstanding securities convertible into or exchangeable
for any securities of the Offerors or the Bank and no restrictions
upon the voting or transfer of any capital stock of the Company or
equity securities of the Trust pursuant to the Company's corporate
charter or bylaws, the Trust Agreement or any agreement or other
instrument to which an Offeror is a party or by which an Offeror is
bound.
(ix) (A) The Trust has all requisite power and authority to
issue, sell and deliver the Designated Preferred Securities in
accordance with and upon the terms and conditions set forth in this
Agreement, the Trust Agreement, the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). All corporate and trust action required to
8
<PAGE> 9
be taken by the Offerors for the authorization, issuance, sale and
delivery of the Designated Preferred Securities in accordance with
such terms and conditions has been validly and sufficiently taken. The
Designated Preferred Securities, when delivered in accordance with
this Agreement, will be duly and validly issued and outstanding, will
be fully paid and nonassessable undivided beneficial interests in the
assets of the Trust, will be entitled to the benefits of the Trust
Agreement, will not be issued in violation of or subject to any
preemptive or similar rights, and will conform to the description
thereof in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus) and the Trust Agreement. None of the Designated Preferred
Securities, immediately prior to delivery, will be subject to any
security interest, lien, mortgage, pledge, encumbrance, restriction
upon voting or transfer, preemptive rights, claim, equity or other
defect.
(B) The Debentures have been duly and validly authorized,
and, when duly and validly executed, authenticated and issued as
provided in the Indenture and delivered to the Trust pursuant to the
Trust Agreement, will constitute valid and legally binding obligations
of the Company entitled to the benefits of the Indenture and will
conform to the description thereof contained in the Prospectus.
(C) The Guarantee has been duly and validly authorized,
and, when duly and validly executed and delivered to the guarantee
trustee for the benefit of the Trust, will constitute a valid and
legally binding obligation of the Company and will conform to the
description thereof contained in the Prospectus.
(D) The Agreement as to Expenses and Liabilities between
the Company and the Trust (the "Expense Agreement") has been duly and
validly authorized, and, when duly and validly executed and delivered
by the Company, will constitute a valid and legally binding obligation
of the Company and will conform to the description thereof contained
in the Prospectus.
(x) The Offerors and the Bank have complied in all material
respects with all federal, state and local statutes, regulations,
ordinances and rules applicable to the ownership and operation of their
properties or the conduct of their businesses as described in and
contemplated by the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) and
as currently being conducted, except when the failure to comply would not
have a material adverse effect on the condition (financial or otherwise),
of the business or prospects of the Company and its Subsidaries on a
consolidated basis. Neither the Company nor the Bank is subject to any
directive from the Commission, the FDIC, the Federal Reserve Board ("FRB"),
Michigan Bank regulators, or any other governmental authority to make any
material change in the method of conducting its respective business and no
such directive is pending or threatened by such authorities. The Company
knows of no material spill, discharge, leak, emission, ejection, escape,
dumping or release of any kind onto the properties owned by the Company or
into the environment surrounding those properties, of any toxic or
hazardous substances as defined under any federal, state or local
regulations, laws or statutes, except for those releases permissible under
such regulations, laws or statutes or otherwise allowable under applicable
permits and except
9
<PAGE> 10
for such releases which would not have a material adverse effect on the
condition (financial or other), business or prospects of the Company and
its Subsidiaries on a consolidated basis.
(xi) The Offerors and the Bank have all material permits,
easements, consents, licenses, franchises and other governmental and
regulatory authorizations from all appropriate federal, state, local or
other public authorities ("Permits") as are necessary to own and lease
their properties and conduct their businesses in the manner described in
and contemplated by the Registration Statement and the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus)
and as currently being conducted in all material respects. All such Permits
are in full force and effect and each of the Offerors and the Bank are in
all material respects complying therewith, and no event has occurred that
allows, or after notice or lapse of time would allow, revocation or
termination thereof or will result in any other material impairment of the
rights of the holder of any such Permit, subject in each case to such
qualification as may be adequately disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
Such Permits contain no restrictions that would materially impair the
ability of the Company or the Subsidiaries to conduct their businesses in
the manner consistent with their past practices. Neither the Offerors nor
the Bank has received notice or otherwise has knowledge of any proceeding
or action relating to the revocation or modification of any such Permit.
(xii) Neither of the Offerors nor the Bank is in breach or
violation of its corporate charter, by-laws or other governing documents
(including without limitation, the Trust Agreement) in any material
respect. Neither of the Offerors nor the Bank is, and to the knowledge of
the Offerors no other party is, in violation, breach or default (with or
without notice or lapse of time or both) in the performance or observance
of any term, covenant, agreement, obligation, representation, warranty or
condition contained in (A) any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease, franchise, license, Permit or
any other agreement or instrument to which it is a party or by which it or
any of its properties may be bound, which breach, violation or default
could have material adverse consequences to the Offerors and the Bank on a
consolidated basis, and to the knowledge of the Offerors, no other party
has asserted that the Offerors or the Bank is in such violation, breach or
default (provided that the foregoing shall not apply to defaults by
borrowers from the Bank), or (B) except as disclosed in the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary
Prospectus), any order, decree, judgment, rule or regulation of any court,
arbitrator, government, or governmental agency or instrumentality, domestic
or foreign, having jurisdiction over the Offerors or the Bank or any of
their respective properties the breach, violation or default of which could
have a material adverse effect on the condition, financial or otherwise,
earnings, affairs, business, prospects, or results of operations of the
Offerors and the Bank on a consolidated basis.
(xiii) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated by this Agreement,
the Trust Agreement, the Registration Statement and the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus)
do not and will not conflict with, result in the creation or imposition of
any material lien, claim, charge, encumbrance or restriction upon any
property
10
<PAGE> 11
or assets of the Offerors or the Bank or the Designated Preferred
Securities pursuant to, constitute a breach or violation of, or constitute
a default under, with or without notice or lapse of time or both, any of
the terms, provisions or conditions of the charter or by-laws of the
Company or the Bank, the Trust Agreement, the Guarantee, the Indenture, any
contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease, franchise, license, Permit or any other agreement or
instrument to which either of the Offerors or the Bank is a party or by
which any of them or any of their respective properties may be bound or any
order, decree, judgment, rule or regulation of any court, arbitrator,
government, or governmental agency or instrumentality, domestic or foreign,
having jurisdiction over the Offerors or the Bank or any of their
respective properties which conflict, creation, imposition, breach,
violation or default would have either singly or in the aggregate a
material adverse effect on the condition, financial or otherwise, earnings,
affairs, business, prospects or results of operations of the Offerors and
the Bank on a consolidated basis. No authorization, approval, consent or
order of or filing, registration or qualification with, any person
(including, without limitation, any court, governmental body or authority)
is required in connection with the transactions contemplated by this
Agreement, the Trust Agreement, the Indenture, the Guarantee, the
Registration Statement and the Prospectus, except such as have been
obtained under the 1933 Act, the Trust Indenture Act and from the Nasdaq
National Market relating to the listing of the Designated Preferred
Securities, and such as may be required under state securities laws or
Interpretations or Rules of the National Association of Securities Dealers,
Inc. ("NASD") in connection with the purchase and distribution of the
Designated Preferred Securities by the Underwriters.
(xiv) The Offerors have all requisite corporate power and
authority to enter into this Agreement, and this Agreement has been duly
and validly authorized, executed and delivered by the Offerors and
constitutes the legal, valid and binding agreement of the Offerors,
enforceable against the Offerors in accordance with its terms, except as
the enforcement thereof may be limited by general principles of equity and
by bankruptcy or other laws relating to or affecting creditors' rights
generally and except as any indemnification or contribution provisions
thereof may be limited under applicable securities laws. Each of the
Indenture, the Trust Agreement, the Guarantee and the Expense Agreement has
been duly authorized by the Company, and, when executed and delivered by
the Company on the Closing Date, each of said agreements will constitute a
valid and legally binding obligation of the Company and will be enforceable
against the Company in accordance with its terms, except as the enforcement
thereof may be limited by general principles of equity and by bankruptcy or
other laws relating to or affecting creditors' rights generally and except
as any indemnification or contribution provisions thereof may be limited
under applicable securities laws. Each of the Indenture, the Trust
Agreement and the Guarantee has been duly qualified under the Trust
Indenture Act and will conform to the description thereof contained in the
Prospectus.
(xv) The Company and the Bank have good and marketable title in
fee simple to all real property and good title to all personal property
owned by them and material to their business, in each case free and clear
of all security interests, liens, mortgages, pledges, encumbrances,
restrictions, claims, equities and other defects except such as are
11
<PAGE> 12
referred to in the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) or such as do not materially affect
the value of such property in the aggregate and do not materially interfere
with the use made or proposed to be made of such property; and all of the
leases under which the Company or the Bank hold real or personal property
are valid, existing and enforceable leases and in full force and effect
with such exceptions as are not material and do not materially interfere
with the use made or proposed to be made of such real or personal property,
and neither the Company nor any of the Bank is in default in any material
respect of any of the terms or provisions of any leases.
(xvi) Crowe, Chizek and Company LLP, who have certified certain
of the consolidated financial statements of the Company and the Bank
including the notes thereto, included in the Registration Statement and
Prospectus, are independent certified public accountants within the meaning
of the Code of Professional Conduct of the American Institute of Certified
Public Accountants and all independent accountants with respect to the
Company and the Subsidiaries, as required by the 1933 Act and the 1933 Act
Regulations.
(xvii) The consolidated financial statements including the notes
thereto, included in the Registration Statement and the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus)
with respect to the Company and the Bank comply in all material respects
with the 1933 Act and the 1933 Act Regulations and present fairly the
consolidated financial position of the Company and the Bank as of the dates
indicated and the consolidated results of operations, cash flows and
shareholders' equity of the Company and the Bank for the periods specified
and have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis. The selected and summary
consolidated financial data concerning the Company and the Bank included in
the Registration Statement and the Prospectus (or such Preliminary
Prospectus) comply in all material respects with the 1933 Act and the 1933
Act Regulations, present fairly the information set forth therein, and have
been compiled on a basis consistent with that of the consolidated financial
statements of the Company and the Bank in the Registration Statement and
the Prospectus (or such Preliminary Prospectus). The other financial,
statistical and numerical information included in the Registration
Statement and the Prospectus (or such Preliminary Prospectus) complies in
all material respects with the 1933 Act and the 1933 Act Regulations,
presents fairly the information shown therein, and to the extent applicable
have been compiled on a basis consistent with the consolidated financial
statements of the Company and the Bank included in the Registration
Statement and the Prospectus (or such Preliminary Prospectus).
(xviii) The Company and the Bank make and keep accurate books
and records reflecting their respective assets and maintain internal
accounting controls which provide reasonable assurance that (i)
transactions are executed with management's authorization; (ii)
transactions are recorded as necessary to permit preparation of the
Company's consolidated financial statements and to maintain accountability
for the assets of the Company and the Subsidiaries; (iii) access to the
assets of the Company and the Subsidiaries is permitted only in accordance
with management's authorization; and (iv) the
12
<PAGE> 13
reported accountability of the assets of the Company and the Subsidiaries
is compared with existing assets at reasonable intervals.
(xix) The Company and the Bank maintain insurance of the types
and in the amounts required by the rules and regulations of the FRB and the
Michigan Bank regulators and, to the best knowledge of the Company,
consistent with insurance coverage maintained by similar companies and
businesses, all of which insurance is in full force and effect.
(xx) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
except as otherwise stated therein:
(A) neither of the Offerors nor the Bank has sustained any
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree which is
material to the condition (financial or otherwise), earnings,
business, prospects or results of operations of the Offerors and the
Bank on a consolidated basis;
(B) there has not been any material adverse change in, or
any development which is reasonably likely to have a material adverse
effect on, the condition (financial or otherwise), earnings, business,
prospects or results of operations of the Offerors and the Bank on a
consolidated basis, whether or not arising in the ordinary course of
business;
(C) neither of the Offerors nor the Bank has incurred any
liabilities or obligations, direct or contingent, or entered into any
material transactions, other than in the ordinary course of business
which is material to the condition (financial or otherwise), earnings,
business, prospects or results of operations of the Offerors and the
Bank on a consolidated basis;
(D) neither of the Offerors have declared or paid any
dividend and neither of the Offerors nor the Bank has become
delinquent in the payment of principal or interest on any outstanding
borrowings; and
(E) there has not been any change in the capital stock,
equity securities, long-term debt, obligations under capital leases
or, other than in the ordinary course of business, short-term
borrowings of the Offerors or the Bank.
(xxi) Except as set forth in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), no charge, investigation, action, suit or
proceeding is pending or, to the knowledge of the Offerors, threatened,
against or affecting the Offerors or the Bank or any of their respective
properties before or by any court or any regulatory, administrative or
governmental official, commission, board, agency or other authority or
body, or any arbitrator, wherein an
13
<PAGE> 14
unfavorable decision, ruling or finding could have a material adverse
effect on the consummation of this Agreement or the transactions
contemplated herein or the condition (financial or otherwise), earnings,
affairs, business, prospects or results of operations of the Offerors and
the Bank on a consolidated basis or which is required to be disclosed in
the Registration Statement or the Prospectus (or such Preliminary
Prospectus) and is not so disclosed.
(xxii) There are no contracts or other documents required to be
filed as exhibits to the Registration Statement by the 1933 Act or the 1933
Act Regulations or the Trust Indenture Act (or any rules or regulations
thereunder) which have not been filed as exhibits or incorporated by
reference to the Registration Statement, or that are required to be
summarized in the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) that are not so summarized.
(xxiii) Neither of the Offerors has taken, directly or indirectly,
any action causing or resulting in or which has constituted or which might
reasonably be expected to cause or result in stabilization or manipulation
of any security of the Offerors in connection with the sale or resale of
the Designated Preferred Securities in violation of the Commission's rules
and regulations, including, but not limited to, Regulation M, nor is either
Offeror aware of any such action having been taken or to be taken by any
affiliate of the Offerors.
(xxiv) The Offerors and the Bank own, or possess adequate rights
to use, all patents, copyrights, trademarks, service marks, trade names and
other rights necessary to conduct the businesses now conducted by them in
all material respects or as described in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) and
neither of the Offerors nor the Bank has received any notice of
infringement or conflict with asserted rights of others with respect to any
patents, copyrights, trademarks, service marks, trade names or other rights
which, individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse effect on the
condition (financial or otherwise), earnings, affairs, business, prospects
or results of operations of the Offerors and the Bank on a consolidated
basis, and the Offerors do not know of any basis for any such infringement
or conflict.
(xxv) Except as adequately disclosed in the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary
Prospectus), no labor dispute involving the Company or the Bank exists or,
to the knowledge of the Offerors, is imminent which might be expected to
have a material adverse effect on the condition (financial or otherwise),
earnings, affairs, business, prospects or results of operations of the
Offerors and the Bank on a consolidated basis or which is required to be
disclosed in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus). Neither the Company nor the Bank has
received notice of any existing or threatened labor dispute by the
employees of any of its principal suppliers, customers or contractors which
might be expected to have a material adverse effect on the condition
(financial or otherwise), earnings,
14
<PAGE> 15
affairs, business, prospects or results of operations of the Company and
the Subsidiaries on a consolidated basis.
(xxvi) The Offerors and the Bank have timely and properly
prepared and filed all necessary federal, state, local and foreign tax
returns which are required to be filed and have paid all taxes shown as due
thereon and have paid all other taxes and assessments to the extent that
the same shall have become due, except such as are being contested in good
faith or where the failure to so timely and properly prepare and file would
not have a material adverse effect on the condition (financial or
otherwise), earnings, affairs, business, prospects or results of operations
of the Offerors and the Bank on a consolidated basis. The Offerors have no
knowledge of any tax deficiency which has been or might be assessed against
the Offerors or the Bank which, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the condition
(financial or otherwise), earnings, affairs, business, prospects or results
of operations of the Offerors and the Bank on a consolidated basis.
(xxvii) All material disclosure regarding Year 2000 compliance
that is required to be disclosed under the 1933 Act has been included in
the Prospectus. Neither the Company nor the Bank has reason to believe that
it will incur material operating expenses or costs to insure that its
information systems will be Year 2000 compliant, other than as disclosed in
the Prospectus.
(xxviii) Each of the material contracts, agreements and instruments
described or referred to in the Registration Statement or the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) and each contract, agreement and instrument filed as an exhibit
to the Registration Statement is in full force and effect and is the legal,
valid and binding agreement of the Offerors or the Bank, enforceable in
accordance with its terms, except as the enforcement thereof may be limited
by general principles of equity, regardless of whether considered in a
proceeding at law or in equity, and by bankruptcy or other laws relating to
or affecting creditors' rights generally and, in the case of the Bank, by
the provisions of the Federal Deposit Insurance Act affecting the rights of
creditors of depository institutions the deposits of which are insured by
the FDIC. Except as disclosed in the Prospectus (or such Preliminary
Prospectus), to the knowledge of the Offerors, no other party to any such
agreement is (with or without notice or lapse of time or both) in breach or
default in any material respect thereunder.
(xxix) No relationship, direct or indirect, exists between or
among the Offerors or the Bank, on the one hand, and the directors,
officers, trustees, shareholders, customers or suppliers of the Offerors or
the Bank, on the other hand, which is required to be described in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) which is not adequately
described therein.
(xxx) No person has the right to request or require the Offerors
or the Bank to register any securities for offering and sale under the 1933
Act by reason of the filing of the Registration Statement with the
Commission or the issuance and sale of the Designated Preferred Securities
except as adequately disclosed in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
15
<PAGE> 16
(xxxi) The Designated Preferred Securities have been approved
for listing on the Nasdaq National Market subject to official notice of
issuance.
(xxxii) Except as described in or contemplated by the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), there are no contractual encumbrances or restrictions or
material legal restrictions required to be described therein, on the
ability of the Bank or the Company (A) to pay dividends or make any other
distributions on its capital stock or to pay any indebtedness owed to the
Offerors, (B) to make any loans or advances to, or investments in, the
Offerors or (C) to transfer any of its property or assets to the Offerors.
(xxxiii) Neither of the Offerors is an "investment company"
within the meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act").
(xxxiv) The Offerors have not distributed and will not distribute
prior to the Closing Date any prospectus in connection with the Offering,
other than a Preliminary Prospectus, the Prospectus, the Registration
Statement and the other materials permitted by the 1933 Act and the 1933
Act Regulations and reviewed by the Representatives.
3. Offering by the Underwriters. After the Registration Statement becomes
effective or, if the Registration Statement is already effective, after this
Agreement becomes effective, the Underwriters propose to offer the Firm
Preferred Securities for sale to the public upon the terms and conditions set
forth in the Prospectus. The Underwriters may from time to time thereafter
reduce the public offering price and change the other selling terms, provided
the proceeds to the Trust shall not be reduced as a result of such reduction or
change. Because the NASD is expected to view the Preferred Securities as
interests in a direct participation program, the offering of the Preferred
Securities is being made in compliance with the applicable provisions of Rule
2810 of the NASD's Conduct Rules.
The Underwriters may reserve and sell such of the Designated Preferred
Securities purchased by the Underwriters as the Underwriters may elect to
dealers chosen by it (the "Selected Dealers") at the public offering price set
forth in the Prospectus less the applicable Selected Dealers' concessions set
forth therein, for re-offering by Selected Dealers to the public at the public
offering price. The Underwriters may allow, and Selected Dealers may re-allow, a
concession set forth in the Prospectus to certain other brokers and dealers.
4. Certain Covenants of the Offerors. The Offerors jointly and severally
covenant with the Underwriters as follows:
(a) The Offerors shall use their best efforts to cause the
Registration Statement and any amendments thereto, if not effective at the time
of execution of this Agreement, to become effective as promptly as possible. If
the Registration Statement has become or becomes effective pursuant to Rule 430A
and information has been omitted therefrom in reliance on Rule 430A, then, the
Offerors will prepare and file in accordance with Rule 430A and Rule 424(b)
copies of the
16
<PAGE> 17
Prospectus or, if required by Rule 430A, a post-effective amendment to the
Registration Statement (including the Prospectus) containing all information so
omitted and will provide evidence satisfactory to the Representatives of such
timely filing.
(b) The Offerors shall notify you immediately, and confirm such
notice in writing:
(i) when the Registration Statement, or any post-effective
amendment to the Registration Statement, has become effective, or when the
Prospectus or any supplement to the Prospectus or any amended Prospectus
has been filed;
(ii) of the receipt of any comments or requests from the
Commission relating to the Registration Statement or the Prospectus;
(iii) of any request of the Commission to amend or supplement the
Registration Statement, any Preliminary Prospectus or the Prospectus or for
additional information; and
(iv) of the issuance by the Commission or any state or other
regulatory body of any stop order or other order suspending the
effectiveness of the Registration Statement, preventing or suspending the
use of any Preliminary Prospectus or the Prospectus, or suspending the
qualification of any of the Designated Preferred Securities for offering or
sale in any jurisdiction or the institution or threat of institution of any
proceedings for any of such purposes. The Offerors shall use their best
efforts to prevent the issuance of any such stop order or of any other such
order and if any such order is issued, to cause such order to be withdrawn
or lifted as soon as possible.
(c) The Offerors shall furnish to the Underwriters, from time to time
without charge, as soon as available, as many copies as the Underwriters may
reasonably request of (i) the registration statement as originally filed and of
all amendments thereto, in executed form, including exhibits, whether filed
before or after the Registration Statement becomes effective, (ii) all exhibits
and documents incorporated therein or filed therewith, (iii) all consents and
certificates of experts in executed form, (iv) each Preliminary Prospectus and
all amendments and supplements thereto, and (v) the Prospectus, and all
amendments and supplements thereto.
(d) During the time when a prospectus is required to be delivered
under the 1933 Act, the Offerors shall comply to the best of their ability with
the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act
Regulations so as to permit the completion of the distribution of the Designated
Preferred Securities as contemplated herein and in the Trust Agreement and the
Prospectus. The Offerors shall not file any amendment to the registration
statement as originally filed or to the Registration Statement and shall not
file any amendment thereto or make any amendment or supplement to any
Preliminary Prospectus or to the Prospectus of which you shall not previously
have been advised in writing and provided a copy a reasonable time prior to the
proposed filings thereof or to which you or counsel for the Underwriters shall
object. If it is necessary, in the Company's reasonable opinion or in the
reasonable opinion of the Company's counsel to amend or supplement the
Registration Statement or the Prospectus in
17
<PAGE> 18
connection with the distribution of the Designated Preferred Securities, the
Offerors shall forthwith amend or supplement the Registration Statement or the
Prospectus, as the case may be, by preparing and filing with the Commission
(provided the Underwriters or counsel for the Underwriters does not reasonably
object), and furnishing to you, such number of copies as you may reasonably
request of an amendment or amendments of, or a supplement or supplements to, the
Registration Statement or the Prospectus, as the case may be (in form and
substance reasonably satisfactory to you and counsel for the Underwriters). If
any event shall occur as a result of which it is necessary to amend or
supplement the Prospectus to correct an untrue statement of a material fact or
to include a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or if for any
reason it is necessary at any time to amend or supplement the Prospectus to
comply with the 1933 Act and the 1933 Act Regulations, the Offerors shall,
subject to the second sentence of this subsection (d), forthwith amend or
supplement the Prospectus by preparing and filing with the Commission, and
furnishing to you, such number of copies as you may reasonably request of an
amendment or amendments of, or a supplement or supplements to, the Prospectus
(in form and substance satisfactory to you and counsel for the Underwriters) so
that, as so amended or supplemented, the Prospectus shall not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(e) The Offerors shall cooperate with you and counsel for the
Underwriters in order to qualify the Designated Preferred Securities for
offering and sale under the securities or blue sky laws, if required, of such
jurisdictions as you may reasonably request and shall continue such
qualifications in effect so long as may be advisable for distribution of the
Designated Preferred Securities; provided, however, that the Offerors shall not
be required to qualify to do business as a foreign corporation or file a general
consent to service of process in any jurisdiction in connection with the
foregoing. The Offerors shall file such statements and reports as may be
required by the laws of each jurisdiction in which the Designated Preferred
Securities have been qualified as above. The Offerors will notify you
immediately of, and confirm in writing, the suspension of qualification of the
Designated Preferred Securities or threat thereof in any jurisdiction.
(f) The Offerors shall make generally available to their security
holders in the manner contemplated by Rule 158 of the 1933 Act Regulations and
furnish to you as soon as practicable, but in any event not later than 16 months
after the Effective Date, a consolidated earnings statement of the Offerors
conforming with the requirements of Section 11(a) of the 1933 Act and Rule 158.
(g) The Offerors shall use the proceeds from the sale of the
Designated Preferred Securities to be sold by the Trust hereunder in the manner
specified in the Prospectus under the caption "Use of Proceeds."
(h) For five years from the Effective Date, the Offerors shall
furnish to the Representatives copies of all reports and communications
(financial or otherwise) furnished by the Offerors to the holders of the
Designated Preferred Securities as a class, copies of all reports and financial
statements filed with or furnished to the Commission (other than portions for
which confidential treatment has been obtained from the Commission) or with any
national securities
18
<PAGE> 19
exchange or self-regulatory organization, and such other documents, reports and
information concerning the business and financial conditions of the Offerors as
the Representatives may reasonably request, other than such documents, reports
and information for which the Offerors has the legal obligation not to reveal to
the Representatives.
(i) For a period of 30 days from the Effective Date, the Offerors
shall not, directly or indirectly, offer for sale, sell or agree to sell or
otherwise dispose of any Designated Preferred Securities other than pursuant to
this Agreement, any other beneficial interests in the assets of the Trust or any
securities of the Trust or the Company that are substantially similar to the
Designated Preferred Securities or the Debentures, including any guarantee of
such beneficial interests or substantially similar securities, or securities
convertible into or exchangeable for or that represent the right to receive any
such beneficial interest or substantially similar securities, without the prior
written consent of the Representatives.
(j) The Offerors shall use their best efforts to cause the Designated
Preferred Securities to become listed on the Nasdaq National Market or in lieu
thereof on a national stock exchange, and to remain so listed for at least five
years from the Effective Date or for such shorter period as may be specified in
a written consent of the Representatives, provided this shall not prevent the
Company from redeeming the Designated Preferred Securities pursuant to the terms
of the Trust Agreement. If the Designated Preferred Securities are exchanged for
Debentures, the Company will use reasonable efforts to have the Debentures
promptly listed on the Nasdaq National Market or other exchange on which the
Designated Preferred Securities are then listed, and to have the Debentures
promptly registered under the Exchange Act.
(k) Subsequent to the date of this Agreement and through the date
which is the later of (i) the day following the date on which the Underwriters'
option to purchase the Option Preferred Securities shall expire or (ii) the day
following the Option Closing Date with respect to any Option Preferred
Securities that the Underwriters shall elect to purchase, except as described in
or contemplated by the Prospectus, neither the Offerors nor the Bank shall take
any action (or refrain from taking any action) which will result in the Offerors
or the Bank incurring any material liability or obligation, direct or
contingent, or enter into any material transaction, except in the ordinary
course of business, and there will not be any material change in the financial
position, capital stock, or any material increase in long-term debt, obligations
under capital leases or short-term borrowings of the Offerors and the Bank on a
consolidated basis.
(l) The Offerors shall not, for a period of 180 days after the date
hereof, without the prior written consent of the Representatives, purchase,
redeem or call for redemption, or prepay or give notice of prepayment (or
announce any redemption or call for redemption, or any repayment or notice of
prepayment) of the Offerors' securities.
(m) The Offerors shall not take, directly or indirectly, any action
designed to result in or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
security of the Offerors in connection with the sale or resale of the Designated
Preferred Securities in violation of the Commission's rules and regulations,
19
<PAGE> 20
including, but not limited to, Regulation M, and the Offerors are not aware of
any such action taken or to be taken by any affiliate of the Offerors.
(n) Prior to the Closing Date (and, if applicable, the Option Closing
Date), the Offerors will not issue any press release or other communication
directly or indirectly or hold any press conference with respect to either of
the Offerors, the Bank or the offering of the Designated Preferred Securities
(the "Offering") without your prior written consent.
5. Payment of Expenses. Whether or not this Agreement is terminated or
the sale of the Designated Preferred Securities to the Underwriters is
consummated, the Company covenants and agrees that it will pay or cause to be
paid (directly or by reimbursement) all costs and expenses incident to the
performance of the obligations of the Offerors under this Agreement, including:
(a) the preparation, printing, filing, delivery and shipping of the
initial registration statement, the Preliminary Prospectus or Prospectuses, the
Registration Statement and the Prospectus and any amendments or supplements
thereto, and the printing, delivery and shipping of this Agreement and any other
underwriting documents (including, without limitation, selected dealers
agreements), the certificates for the Designated Preferred Securities and the
Preliminary and Final Blue Sky Memoranda and any legal investment surveys and
any supplements thereto;
(b) all fees, expenses and disbursements of the Offerors' counsel and
accountants;
(c) all fees and expenses incurred in connection with the
qualification of the Designated Preferred Securities, Debentures and the
Guarantee under the securities or blue sky laws of such jurisdictions as you may
request, including all filing fees and fees and disbursements of counsel for the
Underwriters in connection therewith, including, without limitation, in
connection with the preparation of the Preliminary and Final Blue Sky Memoranda
and any legal investment surveys and any supplements thereto;
(d) all fees and expenses incurred in connection with filings made
with the NASD;
(e) any applicable fees and other expenses incurred in connection
with the listing of the Designated Preferred Securities, and, if applicable, the
Guarantee and the Debentures, on the Nasdaq National Market;
(f) the cost of furnishing to you copies of the initial registration
statements, any Preliminary Prospectus, the Registration Statement and the
Prospectus and all amendments or supplements thereto;
(g) the costs and charges of any transfer agent or registrar and the
fees and disbursements of counsel for any transfer agent or registrar;
20
<PAGE> 21
(h) all costs and expenses (including stock transfer taxes) incurred
in connection with the printing, issuance and delivery of the Designated
Preferred Securities to the Underwriters;
(i) all expenses incident to the preparation, execution and delivery
of the Trust Agreement, the Indenture and the Guarantee; and
(j) all other costs and expenses incident to the performance of the
obligations of the Company hereunder and under the Trust Agreement that are not
otherwise specifically provided for in this Section 5.
If the sale of Designated Preferred Securities contemplated by this
Agreement is not completed due to the termination pursuant to the terms hereof
(other than pursuant to Section 9 hereof), the Company will pay you your
accountable out-of-pocket expenses in connection herewith or in contemplation of
the performance of your obligations hereunder, including without limitation
travel expenses, reasonable fees, expenses and disbursements of counsel or other
out-of-pocket expenses incurred by you in connection with any discussion of the
Offering or the contents of the Registration Statement, any investigation of the
Offerors and the Bank, or any preparation for the marketing, purchase, sale or
delivery of the Designated Preferred Securities, in each case following
presentation of reasonably detailed invoices therefor.
If the sale of Designated Preferred Securities contemplated by this
Agreement is completed, the Company shall not be responsible for payment of fees
or disbursements of counsel for the Underwriters other than in accordance with
paragraph (c) above, or for the reimbursement of any expenses of the
Underwriters.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Firm Preferred Securities and,
following exercise of the option granted by the Offerors in Section 1 of this
Agreement, the Option Preferred Securities, are subject, in your sole
discretion, to the accuracy of and compliance with the representations and
warranties and agreements of the Offerors herein as of the date hereof and as of
the Closing Date (or in the case of the Option Preferred Securities, if any, as
of the Option Closing Date), to the accuracy of the written statements of the
Offerors made pursuant to the provisions hereof, to the performance by the
Offerors of their covenants and obligations hereunder and to the following
additional conditions:
(a) If the Registration Statement or any amendment thereto filed
prior to the Closing Date has not been declared effective prior to the time of
execution hereof, the Registration Statement shall become effective not later
than 10:00 a.m., St. Louis time, on the first business day following the time of
execution of this Agreement, or at such later time and date as you may agree to
in writing. If required, the Prospectus and any amendment or supplement thereto
shall have been timely filed in accordance with Rule 424(b) and Rule 430A under
the 1933 Act and Section 4(a) hereof. No stop order suspending the effectiveness
of the Registration Statement or any amendment or supplement thereto shall have
been issued under the 1933 Act or any applicable state securities laws and no
proceedings for that purpose shall have been instituted or shall be pending, or,
to the knowledge of the Offerors or the Representatives, shall be contemplated
by the Commission or any state authority. Any request on the part of the
Commission or any state authority for additional
21
<PAGE> 22
information (to be included in the Registration Statement or Prospectus or
otherwise) shall have been disclosed to you and complied with to your
satisfaction and to the satisfaction of counsel for the Underwriters.
(b) No Underwriter shall have advised the Company at or before the
Closing Date (and, if applicable, the Option Closing Date) that the Registration
Statement or any post-effective amendment thereto, or the Prospectus or any
amendment or supplement thereto, contains an untrue statement of a fact which,
in your opinion, is material or omits to state a fact which, in your opinion, is
material and is required to be stated therein or is necessary to make statements
therein (in the case of the Prospectus or any amendment or supplement thereto,
in light of the circumstances under which they were made) not misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Trust Agreement, and the
Designated Preferred Securities, and the authorization and form of the
Registration Statement and Prospectus, other than financial statements and other
financial data, and all other legal matters relating to this Agreement and the
transactions contemplated hereby or by the Trust Agreement shall be satisfactory
in all material respects to counsel for the Underwriters, and the Offerors and
the Bank shall have furnished to such counsel all documents and information
relating thereto that they may reasonably request to enable them to pass upon
such matters.
(d) Dickinson Wright PLLC, counsel for the Offerors, shall have
furnished to you their signed opinion, dated the Closing Date or the Option
Closing Date, as the case may be, in form and substance satisfactory to counsel
for the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly
existing and in good standing under the laws of the State of Michigan, and
is duly registered as a bank holding company under the BHC Act. The Bank is
duly organized, validly existing and in good standing under the laws of
Michigan. To the best of such counsel's knowledge and information after due
inquiry, the Bank is not required to be authorized to do business in any
other jurisdiction. The Trust is not required to be authorized to transact
business in the State of Michigan and to the best of such counsel's
knowledge and information after due inquiry, a party to or otherwise bound
by any agreement other than those described in the Prospectus. Each of the
Company and the Bank has full corporate power and authority to own or lease
its properties and to conduct its business as such business is described in
the Prospectus and is currently conducted in all material respects. To the
best of such counsel's knowledge, all outstanding shares of capital stock
of the Bank have been duly authorized and validly issued and are fully paid
and nonassessable except to the extent such shares may be deemed assessable
under 12 U.S.C. Section 18310, or Section of the Michigan Banking
Code and, to the best of such counsel's knowledge, except as disclosed in
the Prospectus, there are no outstanding rights, options or warrants to
purchase any such shares or securities convertible into or exchangeable for
any such shares;
(ii) The Debentures and Guarantee of the Company and the Common
and Preferred Securities of the Trust conform to the description thereof
contained in the Prospectus in all material respects. To the best of such
counsel's knowledge, the equity capitalization of the Company as of
June 30, 1999, is as set forth under the caption.
22
<PAGE> 23
"Capitalization" in the Prospectus, and the outstanding capital stock of
the Company has been duly authorized and validly issued, and is fully paid
and nonassessable. All of the issued and outstanding Common Securities of
the Trust are owned by the Company, and to the best of such counsel's
knowledge, are held free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equitable right. To the best of such
counsel's knowledge, there are no outstanding rights, options or warrants
to purchase, no other outstanding securities convertible into or
exchangeable for, and no commitments, existing approved plans or
arrangements to issue, any shares of capital stock of the Company or Common
and Preferred Securities of the Trust, except as described in the
Prospectus;
(iii) The issuance, sale and delivery of the Debentures in
accordance with the terms and conditions of this Agreement and the
Indenture have been duly authorized by all necessary actions of the
Company. The Designated Preferred Securities have been approved for listing
on the Nasdaq National Market subject to official notice of issuance. There
are no preemptive or other rights to subscribe for or to purchase, and
other than as disclosed in the Prospectus no restrictions upon the voting
or transfer of, any shares of capital stock or equity securities of the
Offerors or the Bank pursuant to the corporate charter, by-laws or other
governing documents (including without limitation, the Trust Agreement) of
the Offerors or the Bank, or, to the best of such counsel's knowledge, any
agreement or other instrument to which either Offeror or the Bank is a
party or by which either Offeror or the Bank may be bound;
(iv) The Company has all requisite corporate power to enter
into and perform its obligations under this Agreement, and this Agreement
has been duly and validly authorized, executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company
enforceable in accordance with its terms, except as the enforcement hereof
or thereof may be limited by general principles of equity, regardless of
whether considered in a proceeding at law or in equity, and by bankruptcy
or other laws relating to or affecting creditors' rights generally, and
except as the indemnification and contribution provisions hereof may be
limited under applicable laws and certain remedies may not be available in
the case of a non-material breach;
(v) Each of the Indenture, the Trust Agreement and the
Guarantee has been duly qualified under the Trust Indenture Act, and has
been duly authorized, executed and delivered by the Company, and each of
the Indenture and Guarantee is a valid and legally binding obligation of
the Company enforceable in accordance with its terms, subject to the effect
of bankruptcy, insolvency, reorganization, receivership, moratorium and
other laws affecting the rights and remedies of creditors generally and of
general principles of equity; provided however, that in the case of Section
15.5 of the Indenture and Section 9.5 of the Guarantee such counsel need
express no opinion regarding the enforceability of the choice of
Delaware law to govern the applicable standard of care;
(vi) The Debentures have been duly authorized, executed,
authenticated and delivered by the Company, are legal, valid and binding
obligations of the Company enforceable against the Company in accordance
with their terms, subject to the effect of bankruptcy, insolvency,
reorganization, receivership, moratorium and other laws affecting
23
<PAGE> 24
the rights and remedies of creditors generally and of general principles of
equity regardless of whether considered in a proceeding at law or in
equity; and the holders of the Debentures are entitled to the benefits of
the Indenture;
(vii) The Expense Agreement has been duly authorized, executed
and delivered by the Company, and is a valid and legally binding obligation
of the Company enforceable in accordance with its terms, subject to the
effect of bankruptcy, insolvency, reorganization, receivership, moratorium
and other laws affecting the rights and remedies of creditors generally and
of general principles of equity regardless of whether considered in a
proceeding at law or in equity;
(viii) Neither the Trust, the Company nor the Bank is an
"investment company" or a company controlled by an "investment company"
within the meaning of the Investment Company Act;
(ix) To the best of such counsel's knowledge, neither of the
Offerors nor the Bank is in breach or violation of, or default under, with
or without notice or lapse of time or both, its corporate charter, by-laws
or governing document (including without limitation, the Trust Agreement).
The execution, delivery and performance by the Offerors of this Agreement
and the consummation of the transactions contemplated by this Agreement,
and the execution, delivery and performance by the Company of the Trust
Agreement (A) do not violate or conflict with their respective organic
documents, and (B) do not conflict with, or constitute a material default
or result in the creation or imposition of any material lien, claim,
charge, encumbrance or restriction upon any respective properties or assets
of the Offerors or the Bank, under, or constitute a material breach or
violation of, with or without notice or lapse of time or both, any material
contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease, franchise, license or any other agreement or instrument known
to such counsel to which either Offeror or the Bank is a party or by which
any of them or any of their respective properties may be bound or any
order, decree, judgment, franchise, license, Permit, rule or regulation of
any court, arbitrator, government, or governmental agency or
instrumentality, domestic or foreign, known to such counsel having
jurisdiction over the Offerors or the Bank or any of their respective
properties to the extent, in each case, that any such violation, conflict,
default or lien would reasonably be expected to have a material adverse
effect on the Offerors and the Bank taken as a whole;
(x) To the best of such counsel's knowledge, holders of
securities of the Offerors either do not have any right that, if exercised,
would require the Offerors to cause such securities to be included in the
Registration Statement or have waived such right. To the best of such
counsel's knowledge, neither the Offerors nor the Bank is a party to any
agreement or other instrument which grants rights for or relating to the
registration of any securities of the Offerors;
24
<PAGE> 25
(xi) To the best of such counsel's knowledge, (i) no action,
suit or proceeding at law or in equity is pending or threatened in writing
to which the Offerors or the Bank is or may be a party, and (ii) no action,
suit or proceeding is pending or threatened in writing against or affecting
the Offerors or the Bank or any of their properties, before or by any court
or governmental official, commission, board or other administrative agency,
authority or body, or any arbitrator, wherein an unfavorable decision,
ruling or finding could reasonably be expected to have a material adverse
effect on the consummation of this Agreement or the issuance and sale of
the Designated Preferred Securities as contemplated herein or the condition
(financial or otherwise), earnings, affairs, business, or results of
operations of the Offerors and the Bank on a consolidated basis or which is
required to be disclosed in the Registration Statement or the Prospectus
and is not so disclosed;
(xii) No authorization, approval, consent or order of or filing,
registration or qualification with any court, governmental body or
authority) is required in connection with the transactions contemplated by
this Agreement, the Trust Agreement, the Registration Statement and the
Prospectus, except such as have been obtained under the 1933 Act and the
Trust Indenture Act, the Securities Exchange Act of 1934, or state
securities laws, and except such as may be required under Interpretations
or Rules of the NASD in connection with the purchase and distribution of
the Designated Preferred Securities by the Underwriters;
(xiii) The Registration Statement and the Prospectus and any
amendments or supplements thereto (other than the financial statements or
other financial data included therein or omitted therefrom and
Underwriters' Information, as to which such counsel need express no
opinion) comply as to form in all material respects with the requirements
of the 1933 Act and the 1933 Act Regulations as of their respective dates
of effectiveness;
(xiv) To the best of such counsel's knowledge, there are no
contracts, agreements, leases or other documents of a character required to
be disclosed in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement that are not so disclosed or filed;
(xv) The statements under the captions "Supervision and
Regulation," "Description of the Preferred Securities," "Description of the
Junior Subordinated Debentures," "Description of the Preferred Securities
Guarantee," "Relationship Among the Preferred Securities, the Junior
Subordinated Debentures and the Preferred Securities Guarantee," "Material
Federal Income Tax Consequences," and "ERISA Considerations" in the
Prospectus, insofar as such statements constitute a summary of legal and
regulatory matters, documents or instruments referred to therein are
accurate descriptions of the matters summarized therein in all material
respects and fairly present the information called for with respect to such
legal matters, documents and instruments;
(xvi) Such counsel has been advised by the staff of the
Commission that the Registration Statement has become effective under the
1933 Act; any required filing of the Prospectus pursuant to Rule 424(b) has
been made within the time period required by Rule 424(b); to the best of
such counsel's knowledge, no stop order suspending the
25
<PAGE> 26
effectiveness of the Registration Statement has been issued and no
proceedings for a stop order are pending or threatened by the Commission;
(xvii) Except as described in or contemplated by the Prospectus,
to the best of such counsel's knowledge, there are no contractual
encumbrances or restrictions, or material legal restrictions required to be
described therein on the ability of the Company or the Bank to pay
dividends or make any other distributions on its capital stock or to pay
indebtedness owed to the Offerors;
(xviii) To the best of such counsel's knowledge, (A) the
respective business and operations of the Company and the Bank as described
in the prospectus are in compliance in all material respects with the
requirements of the Bank Holding Company Act, the Federal Deposit Insurance
Act, the Michigan Banking Code, and all rules and regulations, respectively
promulgated under each such statute (collectively, "Banking Laws"), except
in those instances where non-compliance would not reasonably be expected to
materially impair the ability of the Company and the Bank to conduct their
respective businesses; and (B) the Company and the Bank possess and are
operating in all material respects in compliance with the terms, provisions
and conditions of all Permits that are required to conduct their businesses
as described in the Prospectus and that are material to the Company and
the Bank on a consolidated basis, except in those instances where the loss
thereof or non-compliance therewith would not reasonably be expected to
have a material adverse effect on the condition (financial or otherwise),
earnings, affairs, business, prospects or results of operations of the
Company and the Bank on a consolidated basis; (C) all Permits referred to
in clause (B) are valid and in full force and effect, and, (D) no action,
suit or proceeding is pending or threatened which may lead to the
revocation, termination, suspension or non-renewal of any Permit referred
to in clause (B), except in those instances where the loss thereof or
non-compliance therewith would not materially impair the ability of the
Company or the Bank to conduct their respective businesses; and
(xix) To the best of such counsel's knowledge, no Tax Event,
Capital Treatment Event or Investment Company Event (each as defined in the
Indenture) has occurred.
In giving the above opinion, such counsel may state that, insofar as
such opinion involves factual matters, they have relied upon certificates of
officers of the Offerors including, without limitation, certificates as to the
identity of any and all material contracts, indentures, mortgages, deeds of
trust, loans or credit agreements, notes, leases, franchises, licenses or other
agreements or instruments, and all material permits, easements, consents,
licenses, franchises and government regulatory authorizations, for purposes of
paragraphs (ix), (xiv) and (xviii) hereof and certificates of public
officials. In giving such opinion, such counsel may rely as to matters of
Delaware law upon the opinion of Richards, Layton and Finger, P.A. described
herein.
26
<PAGE> 27
Such counsel shall also confirm that, in connection with the
preparation of the Registration Statement and Prospectus, such counsel has
participated in conferences with officers and Representatives of the Offerors
and with their independent public accountants and with you and your counsel, at
which conferences such counsel made inquiries of such officers, Representatives
and accountants and discussed in detail the contents of the Registration
Statement and Prospectus and the documents incorporated therein by reference
(without taking further action to verify independently the statements made in
the Registration Statement and the Prospectus, and without assuming
responsibility for the accuracy or completeness of such statements, except to
the extent expressly provided in paragraphs (ii) and (xv) above) and such
counsel has no reason to believe (A) that the Registration Statement or any
amendment thereto (except for the financial statements and related schedules and
statistical data included therein or omitted therefrom or Underwriters'
Information, as to which such counsel need express no opinion), at the time the
Registration Statement or any such amendment became effective, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading or (B)
that the Prospectus or any amendment or supplement thereto (except for the
financial statements and related schedules and statistical data included therein
or omitted therefrom or Underwriters' Information, as to which such counsel need
express no opinion), at the time the Registration Statement became effective
(or, if the term "Prospectus" refers to the prospectus first filed pursuant to
Rule 424(b) of the 1933 Act Regulations, at the time the Prospectus was issued),
at the time any such amended or supplemented Prospectus was issued, at the
Closing Date and, if applicable, the Option Closing Date, contained or contains
any untrue statement of a material fact or omitted or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made,
or (C) that there is any amendment to the Registration Statement required to be
filed that has not already been filed.
(e) Richards, Layton & Finger, P.A., special Delaware counsel to the
Offerors, shall have furnished to you their signed opinion, dated as of Closing
Date or the Option Closing Date, as the case may be, in form and substance
satisfactory to such counsel, to the effect that:
(i) The Trust has been duly created and is validly existing in
good standing as a business trust under the Delaware Business Trust Act
and, under the Trust Agreement and the Delaware Business Trust Act, has the
trust power and authority to conduct its business as described in the
Prospectus;
(ii) The Trust Agreement is a legal, valid and binding agreement
of the Company, as sponsor, and the Trustees, and is enforceable against
the Company, as sponsor, and the Trustees, in accordance with its terms;
(iii) Under the Trust Agreement and the Delaware Business Trust
Act, the execution and delivery of the Underwriting Agreement by the Trust,
and the performance by the Trust of its obligations thereunder, have been
authorized by all requisite trust action on the part of the Trust;
27
<PAGE> 28
(iv) The Designated Preferred Securities have been duly
authorized by the Trust Agreement, and when issued and sold in accordance
with the Trust Agreement, the Designated Preferred Securities will be
validly issued and, subject to qualifications to the effect set forth in
paragraph (v) below, fully paid and nonassessable undivided beneficial
interests in the assets of the Trust and will entitle the holders thereof
to the benefits of the Trust Agreement. The form of certificates to
evidence the Designated Preferred Securities comply with the Trust
Agreement and all applicable requirements, if any, of the Delaware Business
Trust Act;
(v) Holders of Designated Preferred Securities, as beneficial
owners of the Trust, will be entitled to the same limitation of personal
liability extended to shareholders of private, for-profit corporations
organized under the General Corporation Law of the State of Delaware. Such
opinion may note that the holders of Designated Preferred Securities may be
obligated to make payments as set forth in the Trust Agreement;
(vi) The issuance of the Common Securities and Designated
Preferred Securities is not subject to preemptive rights under the
Delaware Business Trust Act or the Trust Agreement; and
(vii) The issuance and sale by the Trust of the Designated
Preferred Securities and the Common Securities, the execution, delivery and
performance by the Trust of this Agreement, and the consummation of the
transactions contemplated by this Agreement, do not violate (A) the Trust
Agreement, or (B) any applicable Delaware law, rule or regulation.
Such opinion may state that it is limited to the laws of the State of
Delaware and that the opinion expressed in paragraph (ii) above is subject to
the effect upon the Trust Agreement of (i) bankruptcy, insolvency, moratorium,
receivership, reorganization, liquidation, fraudulent conveyance and other
similar laws relating to or affecting the rights and remedies of creditors
generally, (ii) principles of equity, including applicable law relating to
fiduciary duties (regardless of whether considered and applied in a proceeding
in equity or at law), and (iii) the effect of applicable public policy on the
enforceability of provisions relating to indemnification or contribution.
(f) Vedder, Price, Kaufman & Kammholz, counsel for the Underwriters,
shall have furnished you their signed opinion, dated the Closing Date or the
Option Closing Date, as the case may be, with respect to the sufficiency of all
corporate procedures and other legal matters relating to this Agreement, the
validity of the Designated Preferred Securities, the Registration Statement, the
Prospectus and such other related matters as you may reasonably request and
there shall have been furnished to such counsel such documents and other
information as they may request to enable them to pass on such matters. In
giving such opinion, Vedder, Price, Kaufman & Kammholz may rely as to matters of
fact upon statements and certifications of officers of the Offerors and of other
appropriate persons and may rely as to matters of law, other than the law of the
United States and the State of Illinois, upon the opinions of Dickinson Wright
PLLC and Richards, Layton & Finger, P.A. described herein.
28
<PAGE> 29
(g) On the date of this Agreement and on the Closing Date (and, if
applicable, any Option Closing Date), the Representatives shall have received
from Crowe, Chizek and Company LLP a letter, dated the date of this Agreement
and the Closing Date (and, if applicable, the Option Closing Date),
respectively, in form and substance satisfactory to the Representatives,
confirming that they are independent public accountants with respect to Company
(which shall be inclusive of the Subsidiaries for purposes of this Section
6(g)), within the meaning of the 1933 Act and the 1933 Act Regulations, and
stating in effect that:
(i) In their opinion, the consolidated financial statements of
the Company audited by them and included in the Registration Statement
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act Regulations.
(ii) On the basis of the procedures specified by the American
Institute of Certified Public Accountants as described in SAS No. 71,
"Interim Financial Information," inquiries of officials of the Company
responsible for financial and accounting matters, and such other inquiries
and procedures as may be specified in such letter, which procedures do not
constitute an audit in accordance with U.S. generally accepted auditing
standards, nothing came to their attention that caused them to believe
that, if applicable, the unaudited interim consolidated financial
statements of the Company included in the Registration Statement do not
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and 1933 Act Regulations or are not in
conformity with U.S. generally accepted accounting principles applied on a
basis substantially consistent, except as noted in the Registration
Statement, with the basis for the audited consolidated financial statements
of the Company included in the Registration Statement.
(iii) On the basis of limited procedures, not constituting an
audit in accordance with U.S. generally accepted auditing standards,
consisting of a reading of the unaudited interim financial statements and
other information referred to below, a reading of the latest available
unaudited condensed consolidated financial statements of the Company,
inspection of the minute books of the Company since the date of the latest
audited financial statements of the Company included or incorporated by
reference in the Registration Statement, inquiries of officials of the
Company responsible for financial and accounting matters and such other
inquiries and procedures as may be specified in such letter, nothing came
to their attention that caused them to believe that:
(A) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock of the Company, any increase in the
consolidated debt of the Company, any decreases in consolidated total
assets or shareholders equity of the Company, or any changes,
decreases or increases in other items specified by the
Representatives, in each case as compared with amounts shown in the
latest unaudited interim consolidated statement of financial condition
of the Company included in the Registration Statement except in each
case for changes, increases or decreases which the
29
<PAGE> 30
Registration Statement specifically discloses, have occurred or may
occur or which are described in such letter; and
(B) for the period from the date of the latest unaudited
interim consolidated financial statements of the Company included in
the Registration Statement to the specified date referred to in Clause
(iii)(A), there were any decreases in the consolidated interest
income, net interest income, or net income of the Company or in the
per share amount of net income of the Company, or any changes,
decreases or increases in any other items specified by the
Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified by the Representatives, except in each case for
increases or decreases which the Registration Statement discloses have
occurred or may occur, or which are described in such letter.
(iv) In addition to the audit referred to in their report
included in the Registration Statement and the limited procedures,
inspection of minute books, inquiries and other procedures referred to in
paragraphs (ii) and (iii) above, they have carried out certain specified
procedures, not constituting an audit in accordance with U.S. generally
accepted auditing standards, with respect to certain amounts, percentages
and financial information specified by the Representatives which appear in
the Registration Statement, and have compared such amounts, percentages and
financial information with the accounting records and the material derived
from such records and consolidated financial statements of the Company and
have found them to be in agreement.
In the event that the letters to be delivered referred to above set
forth any such changes, decreases or increases as specified in Clauses (iii)(A)
or (iii)(B) above, or any exceptions from such agreement specified in Clause
(iv) above, it shall be a further condition to the obligations of the
Underwriters that the Representatives shall have determined, after discussions
with officers of the Company responsible for financial and accounting matters,
that such changes, decreases, increases or exceptions as are set forth in such
letters do not (x) reflect a material adverse change in the items specified in
Clause (iii)(A) above as compared with the amounts shown in the latest unaudited
consolidated statement of financial condition of the Company included in the
Registration Statement, (y) reflect a material adverse change in the items
specified in Clause (iii)(B) above as compared with the corresponding periods of
the prior year or other period specified by the Representatives, or (z) reflect
a material change in items specified in Clause (iv) above from the amounts shown
in the Preliminary Prospectus distributed by the Underwriters in connection with
the offering contemplated hereby or from the amounts shown in the Prospectus.
(h) At the Closing Date and, if applicable, the Option Closing Date,
you shall have received certificates of the chief executive officer and the
chief financial and accounting officer of the Company, which certificates shall
be deemed to be made on behalf of the Company dated as of the Closing Date and,
if applicable, the Option Closing Date, evidencing satisfaction of the
conditions of Section 6(a) and stating that (i) the representations and
warranties of the Company set forth in Section 2(a) hereof are accurate as of
the Closing Date and, if applicable, the Option Closing Date, and that the
Offerors have complied with all agreements and satisfied all conditions on their
30
<PAGE> 31
part to be performed or satisfied at or prior to such Closing Date; (ii) since
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 otherwise), earnings, affairs, business, prospects
or results of operations of the Offerors and the Bank on a consolidated basis;
(iii) since such dates there has not been any material transaction entered into
by the Offerors or the Bank other than transactions in the ordinary course of
business; and (iv) they have carefully examined the Registration Statement and
the Prospectus as amended or supplemented and nothing has come to their
attention that would lead them to believe that either the Registration Statement
or the Prospectus, or any amendment or supplement thereto as of their respective
effective or issue dates, contained, and the Prospectus as amended or
supplemented at such Closing Date (and, if applicable, the Option Closing Date),
contains any untrue statement of a material fact, or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) covering such other matters as you may reasonably request.
The officers' certificate of the Company shall further state that no stop order
affecting the Registration Statement is in effect or, to their knowledge,
threatened.
(i) At the Closing Date and, if applicable, the Option Closing Date,
you shall have received a certificate of an authorized representative of the
Trust to the effect that to the best of his or her knowledge based upon a
reasonable investigation, the representations and warranties of the Trust in
this Agreement are true and correct as though made on and as of the Closing Date
(and, if applicable, the Option Closing Date); the Trust has complied with all
the agreements and satisfied all the conditions required by this Agreement to be
performed or satisfied by the Trust on or prior to the Closing Date and since
the most recent date as of which information is given in the Prospectus, except
as contemplated by the Prospectus, the Trust has not incurred any material
liabilities or obligations, direct or contingent, or entered into any material
transactions not in the ordinary course of business and there has not been any
material adverse change in the condition (financial or otherwise) of the Trust.
(j) On the Closing Date, you shall have received duly executed
counterparts of the Trust Agreement, the Guarantee, the Indenture and the
Expense Agreement.
(k) The NASD, upon review of the terms of the public offering of the
Designated Preferred Securities, shall not have objected to the Underwriters'
participation in such offering.
(l) Prior to the Closing Date and, if applicable, the Option Closing
Date, the Offerors shall have furnished to you and counsel for the Underwriters
all such other documents, certificates and opinions as they have reasonably
requested.
All opinions, certificates, letters and other documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you. The Offerors shall furnish you with conformed
copies of such opinions, certificates, letters and other documents as you shall
reasonably request.
If any of the conditions referred to in this Section 6 shall not have been
fulfilled when and as required by this Agreement, this Agreement and all of the
Underwriters' obligations hereunder
31
<PAGE> 32
may be terminated by you on notice to the Company at, or at any time before, the
Closing Date or the Option Closing Date, as applicable. Any such termination
shall be without liability of the Underwriters to the Offerors.
7. Indemnification and Contribution.
(a) The Offerors agree to jointly and severally indemnify and hold
harmless each Underwriter, each of its directors, officers and agents, and each
person, if any, who controls any Underwriter within the meaning of the 1933 Act,
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation and reasonable attorney fees and expenses),
joint or several, arising out of or based: (i) upon any untrue statement or
alleged untrue statement of a material fact made by the Company or the Trust
contained in Section 2(a) of this Agreement (or any certificate delivered by the
Company or the Trust pursuant to Sections 6(h), 6(i) or 6(j) hereof) or the
registration statement as originally filed or the Registration Statement, any
Preliminary Prospectus or the Prospectus, or in any amendment or supplement
thereto; (ii) upon any blue sky application or other document executed by the
Company or the Trust specifically for that purpose or based upon written
information furnished by the Company or the Trust filed in any state or other
jurisdiction in order to qualify any of the Designated Preferred Securities
under the securities laws thereof (any such application, document or information
being hereinafter referred to as a "Blue Sky Application"); (iii) upon any
omission or alleged omission to state a material fact in the registration
statement as originally filed or the Registration Statement, the Preliminary
Prospectus or the Prospectus, or in any amendment or supplement thereto, or in
any Blue Sky Application required to be stated therein or necessary to make the
statements therein not misleading, and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation
and attorney fees), joint or several, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus, or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a 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 (iv) the enforcement of this indemnification provision
or the contribution provisions of Section 7(d); and shall reimburse each such
indemnified party for any reasonable legal or other expenses as incurred, but in
no event less frequently than 30 days after each invoice is submitted, incurred
by them in connection with investigating or defending against or appearing as a
third-party witness in connection with any such loss, claim, damage, liability
or action, notwithstanding the possibility that payments for such expenses might
later be held to be improper, in which case such payments shall be promptly
refunded; provided, however, that the Offerors shall not be liable in any such
case to the extent, but only to the extent, that any such losses, claims,
damages, liabilities and expenses arise out of or are based upon any untrue
statement or omission or allegation thereof that has been made therein or
omitted therefrom in reliance upon and in conformity with the Underwriters'
Information; provided, that the indemnification contained in this paragraph with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or of any person controlling any Underwriter) to the extent any
such losses, claims, damages, liabilities or expenses directly results from the
fact that such Underwriter sold Designated Preferred Securities to a person to
whom there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the Prospectus (as amended or supplemented if any
amendments or supplements thereto
32
<PAGE> 33
shall have been furnished to you in sufficient time to distribute same with or
prior to the written confirmation of the sale involved), if required by law, and
if such loss, claim, damage, liability or expense would not have arisen but for
the failure to give or send such person such document. The foregoing indemnity
agreement is in addition to any liability the Company or the Trust may otherwise
have to any such indemnified party, but it is not intended that any such
indemnified party shall be entitled to duplicate recovery hereunder.
(b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless each Offeror, each of its directors, each of its officers and
each person, if any, who controls an Offeror within the meaning of the 1933 Act,
to the same extent as required by the foregoing indemnity from the Company to
each Underwriter, but only with respect to the Underwriters' Information. The
foregoing indemnity agreement is in addition to any liability which any
Underwriter may otherwise have to any such indemnified party, but it is not
intended that any such indemnified party shall be entitled to duplicate recovery
hereunder.
(c) If any action or claim shall be brought or asserted against any
indemnified party or any person controlling an indemnified party in respect of
which indemnity may be sought from the indemnifying party, such indemnified
party or controlling person shall promptly notify the indemnifying party in
writing, and the indemnifying party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all expenses; provided, however, that the failure so to notify
the indemnifying party shall not relieve it from any liability which it may have
to an indemnified party otherwise than under such paragraph, and further, shall
only relieve it from liability under such paragraph to the extent prejudiced
thereby. Any indemnified party or any such controlling person shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such indemnified party or such controlling person unless (i) the
employment thereof has been specifically authorized by the indemnifying party in
writing, (ii) the indemnifying party has failed to assume the defense or to
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
such indemnified party or such controlling person and the indemnifying party and
such indemnified party or such controlling person shall have been advised by
such counsel that there may be one or more legal defenses available to it that
are different from or in addition to those available to the indemnifying party
(in which case, if such indemnified party or controlling person notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party
or such controlling person) it being understood, however, that the indemnifying
party shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys at any time and for all
such indemnified parties and controlling persons, which firm shall be designated
in writing by the indemnified party (and, if such indemnified parties are
Underwriters, by you, as Representatives). Each indemnified party and each
controlling person, as a condition of such indemnity, shall use reasonable
efforts to cooperate with the indemnifying party in the defense of any such
action or claim. The indemnifying party shall not be liable for any settlement
of any such action effected without its written consent, but if there be a final
judgment for the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold
33
<PAGE> 34
harmless any indemnified party and any such controlling person from and against
any loss, claim, damage, liability or expense by reason of such judgment.
An indemnifying party shall not, without the prior written consent of
each indemnified party, settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnity may be sought hereunder (whether or not such
indemnified party or any person who controls such indemnified party within the
meaning of the 1933 Act is a party to such claim, action, suit or proceeding),
unless such settlement, compromise or consent includes a release of each such
indemnified party reasonably satisfactory to each such indemnified party and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding or unless the indemnifying party shall confirm in a
written agreement with each indemnified party, that notwithstanding any federal,
state or common law, such settlement, compromise or consent shall not alter the
right of any indemnified party or controlling person to indemnification or
contribution as provided in this Agreement.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraphs (a), (b) or (c) hereof in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Offerors on the one hand and the
Underwriters on the other from the offering of the Designated Preferred
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Offerors on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Offerors on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Designated
Preferred Securities (before deducting expenses) received by the Offerors bear
to the total underwriting discounts, commissions and compensation received by
the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault of the Offerors on the one hand and of the
Underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Offerors or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Offerors and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this paragraph
(d) were determined by pro rata allocation or by any other method of allocation
that does not take into account the equitable considerations referred to herein.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in the first sentence of
this paragraph (d) shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this paragraph (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Designated Preferred
34
<PAGE> 35
Securities underwritten by such Underwriter and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
For purposes of this paragraph (d), each person who controls an
Underwriter within the meaning of the 1933 Act shall have the same rights to
contribution as such Underwriter, and each person who controls an Offeror within
the meaning of the 1933 Act, each officer and trustee of an Offeror and each
director of an Offeror shall have the same rights to contribution as the
Offerors subject in each case to the preceding sentence. The obligations of the
Offerors under this paragraph (d) shall be in addition to any liability which
the Offerors may otherwise have and the obligations of the Underwriters under
this paragraph (d) shall be in addition to any liability that the Underwriters
may otherwise have but it is not intended that any such indemnified party shall
be entitled to duplicate recovery hereunder.
(e) The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Offerors set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling an Underwriter or by or on behalf of the Offerors, or such
directors, trustees or officers (or any person controlling an Offeror, (ii)
acceptance of any Designated Preferred Securities and payment therefor hereunder
and (iii) any termination of this Agreement. A successor of any Underwriter or
of an Offeror, such directors, trustees or officers (or of any person
controlling an Underwriter or an Offeror) shall be entitled to the benefits of
the indemnity, contribution and reimbursement agreements contained in this
Section 7.
(f) The Company agrees to indemnify the Trust against any and all
losses, claims, damages or liabilities that may become due from the Trust under
this Section 7.
8. Termination. You shall have the right to terminate this Agreement at
any time at or prior to the Closing Date or, with respect to the Underwriters'
obligation to purchase the Option Preferred Securities, at any time at or prior
to the Option Closing Date, without liability on the part of the Underwriters to
the Offerors, if:
(a) Either Offeror shall have failed, refused, or been unable to
perform any agreement on its part to be performed under this Agreement, or any
of the conditions referred to in Section 6 shall not have been fulfilled, when
and as required by this Agreement;
(b) The Offerors or the Bank shall have sustained any material loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree which in the judgment of the
Representatives materially impairs the investment quality of the Designated
Preferred Securities;
35
<PAGE> 36
(c) There has been since the respective dates as of which information
is given in the Registration Statement or the Prospectus, any materially adverse
change in, or any development which is reasonably likely to have a material
adverse effect on, the condition (financial or otherwise), earnings, affairs,
business, prospects or results of operations of the Offerors and the Bank on a
consolidated basis, whether or not arising in the ordinary course of business;
(d) There has occurred any outbreak of hostilities or other calamity
or crisis or material change in general economic, political or financial
conditions, or internal conditions, the effect of which on the financial markets
of the United States is such as to make it, in your reasonable judgment,
impracticable to market the Designated Preferred Securities or enforce contracts
for the sale of the Designated Preferred Securities;
(e) Trading generally on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market shall have been suspended, or
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required, by any of said exchanges or
market system or by the Commission or any other governmental authority;
(f) A banking moratorium shall have been declared by either federal
or Michigan authorities; or
(g) Any action shall have been taken by any government in respect of
its monetary affairs which, your reasonable judgment, has a material adverse
effect on the United States securities markets.
If this Agreement shall be terminated pursuant to this Section 8, the
Offerors shall not then be under any liability to the Underwriters except as
provided in Sections 5 and 7 hereof.
9. Default of Underwriters. If any Underwriter or Underwriters shall
default in its or their obligations to purchase Designated Preferred Securities
hereunder, the other Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Designated Preferred
Securities which such defaulting Underwriter or Underwriters agreed but failed
to purchase; provided, however, that the non-defaulting Underwriters shall be
under no obligation to purchase such Designated Preferred Securities if the
aggregate number of Designated Preferred Securities to be purchased by such
non-defaulting Underwriters shall exceed 110% of the aggregate underwriting
commitments set forth in Schedule I hereto, and provided further, that no
non-defaulting Underwriter shall be obligated to purchase Designated Preferred
Securities to the extent that the number of such Designated Preferred Securities
is more than 110% of such Underwriter's underwriting commitment set forth in
Schedule I hereto.
In the event that the non-defaulting Underwriters are not obligated under
the above paragraph to purchase the Designated Preferred Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase, the
Representatives may in their discretion arrange for one or more of the
Underwriters or for another party or parties to purchase such Designated
Preferred Securities on the terms contained herein. If within one business day
after such default the Representatives do
36
<PAGE> 37
not arrange for the purchase of such Designated Preferred Securities, then the
Company shall be entitled to a further period of one business day within which
to procure another party or parties satisfactory to the Representatives to
purchase such Designated Preferred Securities on such terms.
In the event that the Representatives or the Company do not arrange for the
purchase of any Designated Preferred Securities to which a default relates as
provided above, this Agreement shall be terminated.
If the remaining Underwriters or substituted underwriters are required
hereby or agree to take up all or a part of the Designated Preferred Securities
of a defaulting Underwriter or Underwriters as provided in this Section 9, (i)
you shall have the right to postpone the Closing Date for a period of not more
than five full business days, in order to effect any changes that, in the
opinion of counsel for the Underwriters or the Company, may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or agreements, and the Company agrees promptly to file any amendments
to the Registration Statement or supplements to the Prospectus which, in its
opinion, may thereby be made necessary and (ii) the respective numbers of
Designated Preferred Securities to be purchased by the remaining Underwriters or
substituted underwriters shall be taken as the basis of their underwriting
obligation for all purposes of this Agreement. Nothing herein contained shall
relieve any defaulting Underwriter of any liability it may have for damages
occasioned by its default hereunder. Any termination of this Agreement pursuant
to this Section 9 shall be without liability on the part of any non-defaulting
Underwriter or the Company, except for expenses to be paid or reimbursed
pursuant to Section 5 and except for the provisions of Section 7.
10. Effective Date of Agreement. If the Registration Statement is not
effective at the time of execution of this Agreement, this Agreement shall
become effective on the Effective Date at the time the Commission declares the
Registration Statement effective. The Company shall immediately notify the
Underwriters when the Registration Statement becomes effective.
If the Registration Statement is effective at the time of execution of this
Agreement, this Agreement shall become effective at the earlier of 11:00 a.m.
Central time, on the first full business day following the day on which this
Agreement is executed, or at such earlier time as the Representatives shall
release the Designated Preferred Securities for initial public offering. The
Representatives shall notify the Offerors immediately after they have taken any
action which causes this Agreement to become effective.
Until such time as this Agreement shall have become effective, it may be
terminated by the Offerors, by notifying you or by you, as Representatives of
the several Underwriters, by notifying either Offeror, except that the
provisions of Sections 5 and 7 shall at all times be effective.
11. Representations, Warranties and Agreements to Survive Delivery. The
representations, warranties, indemnities, agreements and other statements of the
Offerors and their officers and trustees set forth in or made pursuant to this
Agreement and the agreements of the Underwriters contained in Section 7 hereof
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Offerors or controlling persons of
either Offeror, or by or on behalf of the Underwriters or controlling persons of
the Underwriters or any
37
<PAGE> 38
termination or cancellation of this Agreement and shall survive delivery of and
payment for the Designated Preferred Securities.
12. Notices. Except as otherwise provided in this Agreement, all notices
and other communications hereunder shall be in writing and shall be deemed to
have been duly given if delivered by hand, mailed by registered or certified
mail, return receipt requested, or transmitted by any standard form of
telecommunication and confirmed. Notices to either Offeror shall be sent to 216
North Division Avenue NW, Grand Rapids, Michigan 49503, Attention: Gerald R.
Johnson, Jr. (with a copy to Dickinson Wright PLLC, 500 Woodward Avenue, Suite
4000, Detroit, Michigan 48226, Attention: Jerome M. Schwartz, Esq.) and notices
to the Underwriters shall be sent to Stifel, Nicolaus & Company, Incorporated,
501 North Broadway, 9th Floor, St. Louis, Missouri 63102, Attention: Patrick R.
Koster (with a copy to Vedder, Price, Kaufman & Kammholz, 222 North LaSalle
Street, Chicago, Illinois 60601-1003, Attention: Jennifer R. Evans, Esq.).
13. Parties. The Agreement herein set forth is made solely for the benefit
of the Underwriters and the Offerors and, to the extent expressed, directors,
trustees and officers of the Offerors, any person controlling the Offerors or
the Underwriters, and their respective successors and assigns. No other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, in his status as such
purchaser, from the Underwriters of the Designated Preferred Securities.
14. Governing Law. This Agreement shall be governed by the laws of the
State of Missouri, without giving effect to the choice of law or conflicts of
law principles thereof.
15. Counterparts. This Agreement may be executed in one or more
counterparts, and when a counterpart has been executed by each party hereto all
such counterparts taken together shall constitute one and the same Agreement.
16. Limitation of Liability. It is expressly understood and agreed by the
parties hereto that (a) this Agreement is executed and delivered by one of the
Trustees of the Trust, not in such entity's individual or personal capacity but
solely as Trustee of the Trust, in the exercise of the powers and authority
conferred and vested in it under the Trust Agreement, (b) each of the
representations, undertakings and agreements herein made on the part of the
Trust is made and intended not as personal representations, undertakings and
agreements by Wilmington Trust Company or the Administrative Trustees but is
made and intended for the purpose of binding only the Trust and (c) under no
circumstances shall Wilmington Trust Company or the Administrative Trustees be
personally liable for the payment of any indebtedness or expenses of the Trust
or be liable for the breach or failure of any obligation, representation,
warranty or covenant made or undertaken by the Trust under this Agreement or the
other related documents.
38
<PAGE> 39
If the foregoing is in accordance with the your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
shall become a binding agreement between the Company, the Trust and you in
accordance with its terms.
Very truly yours,
MERCANTILE BANK CORPORATION
By:
---------------------------------------
Name:
Title:
MBWM CAPITAL TRUST I
By:
---------------------------------------
Name: , not in an
individual capacity but solely as Trustee.
CONFIRMED AND ACCEPTED,
as of , 1999.
-------------------
STIFEL, NICOLAUS & COMPANY,
INCORPORATED
TUCKER ANTHONY CLEARY GULL
By: Stifel, Nicolaus & Company, Incorporated
- ----------------------------------------------
Name:
Title:
For themselves and as Representatives of the several
Underwriters named in Schedule I hereto.
39
<PAGE> 40
SCHEDULE I
<TABLE>
<CAPTION>
Underwriter Number of
----------- Preferred Securities
--------------------
<S> <C>
Stifel, Nicolaus & Company, Incorporated
-------------
Tucker Anthony Cleary Gull
-------------
-------------
Total 1,400,000
-------------
</TABLE>
40
<PAGE> 1
EXHIBIT 4.1
MERCANTILE BANK CORPORATION
AS ISSUER
TO
WILMINGTON TRUST COMPANY,
AS TRUSTEE
SUBORDINATED INDENTURE
DATED AS OF SEPTEMBER , 1999
% Junior Subordinated Debentures due 2029
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <S> <C>
ARTICLE I. DEFINITIONS...............................................................................2
ARTICLE II. DESCRIPTION, TERMS, CONDITIONS, REGISTRATION AND
EXCHANGE OF THE JUNIOR SUBORDINATED DEBENTURES............................................9
2.1 DESIGNATION AND PRINCIPAL AMOUNT..........................................................9
2.2 MATURITY.................................................................................10
2.3 FORM AND PAYMENT.........................................................................10
2.4 GLOBAL SUBORDINATED DEBENTURE............................................................10
2.5 INTEREST.................................................................................12
2.6 EXECUTION, AUTHENTICATION, DELIVERY AND DATING...........................................13
2.7 REGISTRATION AND TRANSFER................................................................13
2.8 MUTILATED, DESTROYED, LOST AND STOLEN JUNIOR
SUBORDINATED DEBENTURES..................................................................14
ARTICLE III. REDEMPTION OF JUNIOR SUBORDINATED DEBENTURES.............................................15
3.1 REDEMPTION...............................................................................15
3.2 SPECIAL EVENT REDEMPTION.................................................................15
3.3 OPTIONAL REDEMPTION BY COMPANY...........................................................16
3.4 NOTICE OF REDEMPTION.....................................................................16
3.5 PAYMENT UPON REDEMPTION..................................................................17
3.6 NO SINKING FUND..........................................................................18
ARTICLE IV. EXTENSION OF INTEREST PAYMENT PERIOD.....................................................18
4.1 EXTENSION OF INTEREST PAYMENT PERIOD.....................................................18
4.2 NOTICE OF EXTENSION......................................................................19
4.3 LIMITATION OF TRANSACTIONS DURING EXTENSION..............................................19
ARTICLE V. PARTICULAR COVENANTS OF THE COMPANY......................................................19
5.1 PAYMENT OF PRINCIPAL AND INTEREST........................................................19
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
5.2 MAINTENANCE OF AGENCY....................................................................19
5.3 PAYING AGENTS............................................................................20
5.4 APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE.........................................21
5.5 COMPLIANCE WITH CONSOLIDATION PROVISIONS.................................................21
5.6 RESTRICTIONS ON CERTAIN PAYMENTS.........................................................21
5.7 COVENANTS AS TO THE TRUST................................................................22
ARTICLE VI. SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY
AND THE TRUSTEE..........................................................................22
6.1 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES
OF SECURITYHOLDERS.......................................................................22
6.2 PRESERVATION OF INFORMATION; COMMUNICATIONS WITH
SECURITYHOLDERS..........................................................................22
6.3 REPORTS BY THE COMPANY...................................................................23
6.4 REPORTS BY THE TRUSTEE...................................................................23
ARTICLE VII. REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON
EVENT OF DEFAULT.........................................................................24
7.1 EVENTS OF DEFAULT........................................................................24
7.2 COLLECTION OF INDEBTEDNESS AND SUITS FOR
ENFORCEMENT BY TRUSTEE...................................................................25
7.3 APPLICATION OF MONEYS COLLECTED..........................................................27
7.4 LIMITATION ON SUITS......................................................................27
7.5 RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION
NOT WAIVER...............................................................................28
7.6 CONTROL BY SECURITYHOLDERS...............................................................28
7.7 UNDERTAKING TO PAY COSTS.................................................................29
ARTICLE VIII. FORM OF JUNIOR SUBORDINATED DEBENTURE AND
ORIGINAL ISSUE...........................................................................29
8.1 FORM OF JUNIOR SUBORDINATED DEBENTURE....................................................29
8.2 ORIGINAL ISSUE OF JUNIOR SUBORDINATED DEBENTURES.........................................29
ARTICLE IX. CONCERNING THE TRUSTEE...................................................................30
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
9.1 CERTAIN DUTIES AND RESPONSIBILITIES OF THE TRUSTEE.......................................30
9.2 CERTAIN RIGHTS OF TRUSTEE................................................................31
9.3 TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
THE JUNIOR SUBORDINATED DEBENTURES.......................................................32
9.4 MAY HOLD JUNIOR SUBORDINATED DEBENTURES..................................................32
9.5 MONEYS HELD IN TRUST.....................................................................32
9.6 COMPENSATION AND REIMBURSEMENT...........................................................33
9.7 RELIANCE ON OFFICERS' CERTIFICATE........................................................33
9.8 DISQUALIFICATION; CONFLICTING INTERESTS..................................................33
9.9 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY..................................................34
9.10 RESIGNATION AND REMOVAL; APPOINTMENT OF
SUCCESSOR................................................................................34
9.11 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR...................................................35
9.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS..............................................................................36
9.13 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE
COMPANY..................................................................................36
9.14 APPOINTMENT OF AUTHENTICATING AGENT......................................................36
ARTICLE X. CONCERNING THE SECURITYHOLDERS...........................................................38
10.1 EVIDENCE OF ACTION BY SECURITYHOLDERS....................................................38
10.2 PROOF OF EXECUTION BY SECURITYHOLDERS....................................................38
10.3 WHO MAY BE DEEMED OWNERS.................................................................39
10.4 CERTAIN JUNIOR SUBORDINATED DEBENTURES OWNED BY
COMPANY DISREGARDED......................................................................39
10.5 ACTIONS BINDING ON FUTURE SECURITYHOLDERS................................................39
ARTICLE XI. SUPPLEMENTAL INDENTURES..................................................................40
11.1 SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF
SECURITYHOLDERS..........................................................................40
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
11.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF
SECURITYHOLDERS..........................................................................41
11.3 EFFECT OF SUPPLEMENTAL INDENTURES........................................................41
11.4 JUNIOR SUBORDINATED DEBENTURES AFFECTED BY
SUPPLEMENTAL INDENTURES..................................................................41
11.5 EXECUTION OF SUPPLEMENTAL INDENTURES.....................................................42
ARTICLE XII. SUCCESSOR CORPORATION....................................................................42
12.1 COMPANY MAY CONSOLIDATE, ETC.............................................................42
12.2 SUCCESSOR SUBSTITUTED....................................................................43
12.3 EVIDENCE OF CONSOLIDATION, ETC., TO TRUSTEE..............................................43
ARTICLE XIII. SATISFACTION AND DISCHARGE...............................................................43
13.1 SATISFACTION AND DISCHARGE OF INDENTURE..................................................43
13.2 DISCHARGE OF OBLIGATIONS.................................................................44
13.3 DEPOSITED MONEYS TO BE HELD IN TRUST.....................................................44
13.4 PAYMENT OF MONIES HELD BY PAYING AGENTS..................................................44
13.5 REPAYMENT TO COMPANY.....................................................................44
ARTICLE XIV. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS
AND DIRECTORS............................................................................45
14.1 NO RECOURSE..............................................................................45
ARTICLE XV. MISCELLANEOUS PROVISIONS.................................................................45
15.1 EFFECT ON SUCCESSORS AND ASSIGNS.........................................................45
15.2 ACTIONS BY SUCCESSOR.....................................................................46
15.3 SURRENDER OF COMPANY POWERS..............................................................46
15.4 NOTICES..................................................................................46
15.5 GOVERNING LAW............................................................................46
15.6 TREATMENT OF JUNIOR SUBORDINATED DEBENTURES AS
DEBT.....................................................................................46
15.7 COMPLIANCE CERTIFICATES AND OPINIONS.....................................................46
15.8 PAYMENTS ON BUSINESS DAYS................................................................47
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
15.9 CONFLICT WITH TRUST INDENTURE ACT........................................................47
15.10 COUNTERPARTS.............................................................................47
15.11 SEPARABILITY.............................................................................47
15.12 ASSIGNMENT...............................................................................48
15.13 ACKNOWLEDGMENT OF RIGHTS.................................................................48
ARTICLE XVI. SUBORDINATION OF JUNIOR SUBORDINATED DEBENTURES..........................................48
16.1 AGREEMENT TO SUBORDINATE.................................................................48
16.2 DEFAULT ON SENIOR AND SUBORDINATED DEBT..................................................49
16.3 LIQUIDATION; DISSOLUTION; BANKRUPTCY.....................................................49
16.4 SUBROGATION..............................................................................50
16.5 TRUSTEE TO EFFECTUATE SUBORDINATION......................................................51
16.6 NOTICE BY THE COMPANY....................................................................51
16.7 RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR AND
SUBORDINATED DEBT........................................................................52
16.8 SUBORDINATION MAY NOT BE IMPAIRED........................................................53
</TABLE>
v
<PAGE> 7
MERCANTILE BANK CORPORATION
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939, AS
AMENDED, AND SUBORDINATED INDENTURE, DATED AS OF SEPTEMBER, 1999
Trust Indenture Act Section Subordinated Indenture Section
Section 310(a)(1), (2) 9.9; 15.9
Section 310(a)(3) n/a
Section 310(b) 9.8
Section 311 15.9
Section 311(a) 9.13
Section 311(b) 9.13
Section 311(c) n/a
Section 312 15.9
Section 312(a) 6.1; 6.2(a)
Section 312(b) 6.2(c)
Section 313 15.9
Section 313(a) 6.4(a)
Section 313(b) 6.4(b)
Section 313(c) 6.4(b)
Section 313(d) 6.4(c)
Section 314 6.3; 15.9
Section 315 15.9
Section 316 15.9
Section 317 15.9
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Subordinated Indenture.
vi
<PAGE> 8
SUBORDINATED INDENTURE (the "Indenture"), dated as of , 1999,
between Mercantile Bank Corporation, a Michigan corporation (the "Company") and
Wilmington Trust Company, a Delaware banking corporation duly organized and
existing under the laws of the State of Delaware, as trustee (acting not in its
individual capacity but solely as trustee, the "Trustee");
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the execution and delivery of this Indenture to provide for the
issuance of its securities to be known as its % Junior Subordinated
Debentures due 2029 (hereinafter referred to as the "Junior Subordinated
Debentures"), the form and substance of such Junior Subordinated Debentures and
the terms, provisions and conditions thereof to be set forth as provided in this
Indenture; and
WHEREAS, MBWM Trust, a Delaware statutory business trust (the "Trust"),
has offered to the public $14,000,000, and a possible additional amount of up to
$2,000,000 pursuant to the Underwriters' Over-Allotment Option, for a total of
up to $16,000,000 aggregate liquidation amount of its % Cumulative
Preferred Securities (the "Preferred Securities"), representing undivided
beneficial interests in the assets of the Trust and proposes to invest the
proceeds from such offering, together with the proceeds of the issuance and sale
by the Trust to the Company of $[432,990], and a possible additional amount of
up to $[61,856] related to the Underwriters' Over-Allotment Option with respect
to the Preferred Securities, for a total of up to $[494,846] aggregate
liquidation amount of its % Common Securities, in $[16,432,990], and a
possible additional amount of up to $[61,856] related to the Underwriters'
Over-Allotment Option with respect to the Preferred Securities, for a total of
up to $[16,494,846] aggregate principal amount of the Junior Subordinated
Debentures; and
WHEREAS, the Company has requested that the Trustee execute and deliver
this Indenture and all requirements necessary to make this Indenture a valid
instrument in accordance with its terms, and to make the Junior Subordinated
Debentures, when executed by the Company and authenticated and delivered by the
Trustee, the valid obligations of the Company; and
WHEREAS, to provide the terms and conditions upon which the Junior
Subordinated Debentures are to be authenticated, issued and delivered, the
Company has duly authorized the execution and delivery of this Indenture; and
WHEREAS, all things necessary to make this Indenture a valid agreement
of the Company, in accordance with its terms, have been done.
NOW, THEREFORE, in consideration of the premises and the purchase of
the Junior Subordinated Debentures by the holders thereof, it is mutually
covenanted and agreed as follows for the equal and ratable benefit of the
holders of Junior Subordinated Debentures:
1
<PAGE> 9
ARTICLE I. DEFINITIONS
The terms defined in this Section (except as in this Indenture
otherwise expressly provided or unless the context otherwise requires) for all
purposes of this Indenture and of any indenture supplemental hereto shall have
the respective meanings specified in this Section and shall include the plural
as well as the singular. All other terms used in this Indenture that are defined
in the Trust Indenture Act of 1939, as amended, or that are by reference in said
Trust Indenture Act defined in the Securities Act of 1933, as amended (except as
herein otherwise expressly provided or unless the context otherwise requires),
shall have the meanings assigned to such terms in said Trust Indenture Act and
in said Securities Act as in force at the date of the execution of this
Indenture. All accounting terms used herein and not expressly defined shall have
the meanings assigned to such terms in accordance with generally accepted
accounting principles.
"Accelerated Maturity Date" means, if the Company elects to accelerate
the Maturity Date in accordance with Section 2.2, the date selected by the
Company which is prior to the Scheduled Maturity Date, but is on or after
, 2004.
"Additional Sums" shall have the meaning set forth in Section 2.5(c).
"Administrative Trustees" has the meaning set forth in the Trust
Agreement.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person, (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person, (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person, (d) a partnership in which the specified Person is a
general partner, (e) any officer or director of the specified Person, and (f) if
the specified Person is an individual, any entity of which the specified Person
is an officer, director or general partner.
"Authenticating Agent" means an authenticating agent with respect to
the Junior Subordinated Debentures appointed by the Trustee pursuant to Section
9.14.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or any
duly authorized committee of such Board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification.
2
<PAGE> 10
"Business Day" means any day other than a day on which federal or state
banking institutions in the State of Michigan are authorized or obligated by
law, executive order or regulation to close or a day on which the Trustee is
closed.
"Capital Treatment Event" means the receipt by the Company and the
Trust of an Opinion of Counsel rendered by a law firm experienced in such
matters to the extent that, as a result of any amendment to, or change
(including any proposed change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision thereof or therein, or as a
result of any official or administrative pronouncement or action or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or such proposed change, pronouncement or decision is
announced on or after the date of issuance of the Preferred Securities under the
Trust Agreement, there is more than an insubstantial risk of impairment of the
Company's ability to treat the Preferred Securities (or any substantial portion
thereof) as "Tier I Capital" (or the then equivalent thereof) for purposes of
the capital adequacy guidelines of the Federal Reserve, as then in effect and
applicable to the Company, provided, however that the Trust or the Company shall
have requested and received such an Opinion of Counsel with regard to such
matters within a reasonable period of time after the Trust or Company shall have
become aware of the possible occurrence of any such event.
"Certificate" means a certificate signed by the principal executive
officer, the principal financial officer or the principal accounting officer of
the Company. The Certificate need not comply with the provisions of Section
15.7.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this Indenture such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Securities" means undivided beneficial interests in the assets
of the Trust which rank pari passu with Preferred Securities issued by the
Trust; provided, however, that upon the occurrence of an Event of Default, the
rights of holders of Common Securities to payment in respect of Distributions
and payments upon liquidation, redemption and otherwise are subordinated to the
rights of holders of Preferred Securities.
"Company" means Mercantile Bank Corporation, a corporation duly
organized and existing under the laws of the State of Michigan, and, subject to
the provisions of Article XII, shall also include its successors and assigns.
"Compounded Interest" shall have the meaning set forth in Section 4.1.
"Corporate Trust Office" means the office of the Trustee at which, at
any particular time, its corporate trust business shall be principally
administered, which office at the date hereof is located at Rodney Square North,
1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate
Trust Administration.
"Coupon Rate" shall have the meaning set forth in Section 2.5(a).
3
<PAGE> 11
"Custodian" means any receiver, trustee, assignee, liquidator, or
similar official under any Bankruptcy Law.
"Debt" means with respect to any Person, whether recourse is to all or
a portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; and (vi) every
obligation of the type referred to in clauses (i) through (v) of another Person
and all dividends of another Person the payment of which, in either case, such
Person has guaranteed or for which such Person is responsible or liable,
directly or indirectly, as obligor or otherwise.
"Default" means any event, act or condition that with notice or lapse
of time, or both, would constitute an Event of Default.
"Deferred Interest" shall have the meaning set forth in Section 4.1.
"Depositary" means, with respect to Junior Subordinated Debentures
issued as a Global Subordinated Debenture, The Depository Trust Company, New
York, New York, another clearing agency, or any successor registered as a
clearing agency under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or other applicable statute or regulation, which, in each case,
shall be designated by the Company pursuant to either Section 2.1 or 2.4.
"Dissolution Event" means that as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance with
the Trust Agreement and the Junior Subordinated Debentures held by the Property
Trustee are to be distributed to the holders of the Trust Securities issued by
the Trust pro rata in accordance with the Trust Agreement.
"Distributions" shall have the meaning set forth in the Trust
Agreement.
"Event of Default" means any event specified in Section 7.1, continued
for the period of time, if any, and after the giving of notices, if any, therein
designated.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 4.1.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System.
"Global Subordinated Debenture" means a Junior Subordinated Debenture
executed by the Company and delivered by the Trustee to the Depositary or
pursuant to the Depositary's
4
<PAGE> 12
instruction, all in accordance with this Indenture, which shall be registered in
the name of the Depositary or its nominee.
"Governmental Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America that, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act of 1933, as amended) as custodian with respect to any such
Governmental Obligation or a specific payment of principal of or interest on any
such Governmental Obligation held by such custodian for the account of the
holder of such depositary receipt; provided, however, that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depositary receipt from any amount received by the
custodian in respect of the Governmental Obligation or the specific payment of
principal of or interest on the Governmental Obligation evidenced by such
depositary receipt.
"Herein," "hereof," and "hereunder," and other words of similar import,
refer to this Indenture as a whole and not to any particular Article, Section or
other subdivision.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into in accordance with the terms hereof.
"Indenture Act" means, to the extent required by any such amendment,
the Trust Indenture Act of 1939 as so amended.
"Interest Payment Date," when used with respect to any installment of
interest on the Junior Subordinated Debentures, means the date specified in the
Junior Subordinated Debenture as the fixed date on which an installment of
interest with respect to the Junior Subordinated Debentures is due and payable.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"Investment Company Event" means the receipt by the Company and the
Trust of an Opinion of Counsel rendered by a law firm experienced in such
matters to the effect that, as a result of the occurrence of a change in law or
regulation or a change in interpretation or application of law or regulation by
any legislative body, court, governmental agency or regulatory authority (a
"Change in Investment Company Act Law"), the Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act, which Change in Investment Company Act Law becomes effective on or
after the date of original issuance of the Preferred Securities under the Trust
Agreement, provided, however, that the Trust shall have requested and received
such an Opinion of Counsel with regard to such matters within a reasonable
period of time after the Trust or the Company shall have become aware of the
possible occurrence of any such event.
5
<PAGE> 13
"Junior Subordinated Debentures" means the % Junior Subordinated
Debentures due 2029 authenticated and delivered under this Indenture.
"Liquidation Amount" means the stated amount of $10 per Trust Security.
"Maturity Date" shall have the meaning set forth in Section 2.2.
"Non Book-Entry Preferred Securities" shall have the meaning set forth
in Section 2.4(a).
"Officers' Certificate" means a certificate signed by the Chairman, the
President or a Vice President and by the Chief Accounting Officer or the
Controller or an Assistant Controller or the Secretary or an Assistant Secretary
of the Company that is delivered to the Trustee in accordance with the terms
hereof. Each such certificate shall include the statements provided for in
Section 15.7, if and to the extent required by the provisions thereof.
"Opinion of Counsel" means an opinion in writing of legal counsel, who
may be an employee of or counsel for the Company, that is delivered to the
Trustee in accordance with the terms hereof. Each such opinion shall include the
statements provided for in Section 15.7, if and to the extent required by the
provisions thereof.
"Outstanding," when used with reference to the Junior Subordinated
Debentures means, subject to the provisions of Section 10.4, as of any
particular time, all Junior Subordinated Debentures theretofore authenticated
and delivered by the Trustee under this Indenture, except (a) Junior
Subordinated Debentures theretofore canceled by the Trustee or any paying agent,
or delivered to the Trustee or any paying agent for cancellation or that have
previously been canceled; (b) Junior Subordinated Debentures or portions thereof
for the payment or redemption of which moneys or Governmental Obligations in the
necessary amount shall have been deposited in trust with the Trustee or with any
paying agent (other than the Company) or shall have been set aside and
segregated in trust by the Company (if the Company shall act as its own paying
agent); provided, however, that if such Junior Subordinated Debentures or
portions of such Junior Subordinated Debentures are to be redeemed prior to the
maturity thereof, notice of such redemption shall have been given as provided in
Article Three, or provision satisfactory to the Trustee shall have been made for
giving such notice; and (c) Junior Subordinated Debentures in lieu of or in
substitution for which other Junior Subordinated Debentures shall have been
authenticated and delivered pursuant to the terms of Section 2.8, provided,
however, that in determining whether the holding of the requisite percentage of
Junior Subordinated Debentures have given any request, notice, or consents or
waiver hereunder, Junior Subordinated Debentures held by the Company or any
Affiliate of the Company shall not be included; provided, further, that the
Trustee shall be protected in acting upon any request, notice, consent or waiver
unless a Responsible Officer of the Trustee shall have actual knowledge that the
holder of such Junior Subordinated Debenture is the Company or an Affiliate
thereof.
"Person" means any individual, corporation, partnership, joint venture,
joint-stock company, unincorporated organization or government or any agency or
political subdivision thereof.
6
<PAGE> 14
"Predecessor Junior Subordinated Debenture" means every previous Junior
Subordinated Debenture evidencing all or a portion of the same debt as that
evidenced by such particular Junior Subordinated Debenture; and, for the
purposes of this definition, any Junior Subordinated Debenture authenticated and
delivered under Section 2.8 in lieu of a lost, destroyed or stolen Junior
Subordinated Debenture shall be deemed to evidence the same debt as the lost,
destroyed or stolen Junior Subordinated Debenture.
"Preferred Securities" means undivided beneficial interests in the
assets of the Trust which rank pari passu with Common Securities issued by the
Trust; provided, however, that upon the occurrence of an Event of Default, the
rights of holders of Common Securities to payment in respect of Distributions
and payments upon liquidation, redemption and otherwise are subordinated to the
rights of holders of Preferred Securities.
"Preferred Securities Certificate" has the meaning set forth in the
Trust Agreement.
"Preferred Securities Guarantee" means any guarantee that the Company
may enter into with a trustee or other Persons that operates directly or
indirectly for the benefit of holders of Preferred Securities of the Trust.
"Property Trustee" has the meaning set forth in the Trust Agreement.
"Redemption Price" means the amount equal to 100% of the principal
amount of Junior Subordinated Debentures to be redeemed plus any accrued and
unpaid interest thereon to the date of the redemption of such Junior
Subordinated Debentures.
"Responsible Officer" when used with respect to the Trustee means the
Chairman of the Board of Directors, the President, any Vice President, the
Secretary, the Treasurer, any trust officer, any corporate trust officer or any
other officer or assistant officer or authorized signatory of the Trustee
customarily performing functions similar to those performed by the Persons who
at the time shall be such officers, respectively, or to whom any corporate trust
matter is referred because of his or her knowledge of and familiarity with the
particular subject.
"Scheduled Maturity Date" means , 2029.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 2.7.
"Securityholder," "Holder," "Registered Holder," or other similar term,
means the Person or Persons in whose name or names particular Junior
Subordinated Debentures shall be registered in the Securities Register.
"Senior and Subordinated Debt" means the principal of (and premium, if
any) and interest, if any (including interest accruing on or after the filing of
any petition in bankruptcy or for reorganization relating to the Company whether
or not such claim for post-petition interest is allowed in such proceeding), on
Debt of the Company, whether incurred on or prior to the date
7
<PAGE> 15
of this Indenture or thereafter incurred, unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are not superior in right of payment to the Junior
Subordinated Debentures or to other Debt which is pari passu with, or
subordinated to, the Junior Subordinated Debentures; provided, however, that
Senior and Subordinated Debt shall not be deemed to include (i) any Debt of the
Company which when incurred and without respect to any election under section of
the United States Bankruptcy Code of 1978, as amended, was without recourse to
the Company, (ii) any Debt of the Company to any of its Subsidiaries, (iii) any
Debt to any employee of the Company, (iv) any Debt which by its terms is
subordinated to any trade accounts payable or accrued liabilities arising in the
ordinary course of business to the extent that payments made to the holders of
such Debt by the Holders of the Junior Subordinated Debentures as a result of
the subordination provisions of this Indenture would be greater than they
otherwise would have been as a result of any obligation of such holders to pay
amounts over to the obligees on such trade accounts payable or accrued
liabilities arising in the ordinary course of business as a result of
subordination provisions to which such Debt is subject, (v) the Preferred
Securities Guarantee, and (vi) any other debt securities issued pursuant to this
Indenture.
"Special Event" means a Tax Event, an Investment Company Event or a
Capital Treatment Event.
"Subsidiary" means, with respect to any Person, (i) any corporation at
least a majority of whose outstanding Voting Stock shall at the time be owned,
directly or indirectly, by such Person, or by one or more of its Subsidiaries,
or by such Person and one or more of its Subsidiaries, (ii) any general
partnership, joint venture or similar entity, at least a majority of whose
outstanding partnership or similar interests shall at the time be owned by such
Person, or by one or more of its Subsidiaries, or by such Person and one or more
of its Subsidiaries, and (iii) any limited partnership of which such Person or
any of its Subsidiaries is a general partner.
"Tax Event" means the receipt by the Company and the Trust of an
Opinion of Counsel rendered by a law firm experienced in such matters to the
effect that, as a result amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Junior Subordinated Debentures, there is more than an
insubstantial risk that (i) interest payable by the Company on the Junior
Subordinated Debentures is not, or within 90 days after the date of such Opinion
of Counsel will not be, deductible by the Company, in whole or in part, for
United States federal income tax purposes, (ii) the Trust is, or will be within
90 days after the date of such Opinion of Counsel, subject to United States
federal income tax with respect to income received or accrued on the Junior
Subordinated Debentures, or (iii) the Trust is, or will be within 90 days after
the date of such Opinion of Counsel, subject to more than a de minimis amount of
other taxes, duties, assessments or other governmental charges, provided,
however, that the Trust shall have requested and received such an Opinion of
Counsel with regard to such matters within a reasonable period of time after the
Trust or the Company shall have become aware of the possible occurrence of any
such event.
8
<PAGE> 16
"Trust" means MBWM Capital Trust I, a Delaware statutory business trust
created for the purpose of issuing Trust Securities in connection with the
issuance of Junior Subordinated Debentures under this Indenture.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
as of , 1999, of the Trust.
"Trustee" means Wilmington Trust Company not in its individual capacity
but solely as trustee and, subject to the provisions of Article IX, shall also
include its successors and assigns, and, if at any time there is more than one
acting in such capacity hereunder, "Trustee" shall mean each such Person. The
Trustee shall be the initial paying agent.
"Trust Indenture Act," means the Trust Indenture Act of 1939 as in
force at the date of execution of this Indenture; provided, however, that in the
event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trust Securities" means Common Securities and Preferred Securities of
the Trust.
"Underwriters' Over-Allotment Option" means the option, exercisable
within 30 days after the date of the prospectus, granted to the underwriters in
the offering to the public of Preferred Securities, to purchase up to $2,000,000
additional Preferred Securities at the same price per Preferred Security as paid
for the other Preferred Securities issued pursuant to the prospectus.
"Voting Stock," as applied to stock of any Person, means shares,
interests, participations or other equivalents in the equity interest (however
designated) in such Person having ordinary voting power for the election of a
majority of the directors (or the equivalent) of such Person, other than shares,
interests, participations or other equivalents having such power only by reason
of the occurrence of a contingency.
ARTICLE II. DESCRIPTION, TERMS, CONDITIONS, REGISTRATION AND
EXCHANGE OF THE JUNIOR SUBORDINATED DEBENTURES
----------------------------------------------
2.1 DESIGNATION AND PRINCIPAL AMOUNT.
---------------------------------
There is hereby authorized a series of Securities designated the
" % Junior Subordinated Debentures due 2029," limited in aggregate principal
amount to $14,000,000, and a possible additional amount of up to $2,000,000
related to the Underwriters' Over-Allotment Option with respect to the Preferred
Securities, for a total of up to $16,000,000 aggregate principal amount, which
amount shall be as set forth in any written order of the Company for the
authentication and delivery of Junior Subordinated Debentures pursuant to
Section 8.2 of this Indenture.
9
<PAGE> 17
2.2 MATURITY.
(a) The Maturity Date will be either:
(i) the Scheduled Maturity Date; or
(ii) if the Company elects to accelerate the Maturity Date to be a
date prior to the Scheduled Maturity Date in accordance with Section 2.2(b), the
Accelerated Maturity Date.
(b) The Company may, at any time before the day which is 90 days before
the Scheduled Maturity Date and after , 2004, elect to shorten the
Maturity Date only once to the Accelerated Maturity Date, provided that the
Company has received the prior approval of the Federal Reserve if then required
under applicable capital guidelines or policies of the Federal Reserve.
(c) If the Company elects to accelerate the Maturity Date in accordance
with Section 2.2(b), the Company shall give notice to the Registered Holders of
the Junior Subordinated Debentures, the Property Trustee and the Trustee of the
acceleration of the Maturity Date and the Accelerated Maturity Date at least 90
days before the Accelerated Maturity Date and not more than 130 days before the
Accelerated Maturity Date.
2.3 FORM AND PAYMENT.
Except as provided in Section 2.4, the Junior Subordinated Debentures
shall be issued in fully registered certificated form without interest coupons.
Principal and interest on the Junior Subordinated Debentures issued in
certificated form will be payable, the transfer of such Junior Subordinated
Debentures will be registrable and such Junior Subordinated Debentures will be
exchangeable for Junior Subordinated Debentures bearing identical terms and
provisions at the office or agency of the Trustee; provided, however, that
payment of interest may be made at the option of the Company by check mailed to
the Holder at such address as shall appear in the Securities Register or by wire
transfer to an account maintained by the Holder as specified in the Securities
Register, provided that the Holder provides proper transfer instructions by the
regular record date. Notwithstanding the foregoing, so long as the Holder of any
Junior Subordinated Debentures is the Property Trustee, the payment of the
principal of and interest (including Compounded Interest and Additional Sums, if
any) on such Junior Subordinated Debentures held by the Property Trustee will be
made at such place and to such account as may be designated by the Property
Trustee.
2.4 GLOBAL SUBORDINATED DEBENTURE.
(a) In connection with a Dissolution Event,
(i) the Junior Subordinated Debentures in certificated form may be
presented to the Trustee by the Property Trustee in exchange for a Global
Subordinated Debenture in an aggregate principal amount equal to the aggregate
principal amount of all outstanding Junior Subordinated Debentures (a "Global
Subordinated Debenture"), to be
10
<PAGE> 18
registered in the name of the Depositary, or its nominee, and delivered by the
Trustee to the Depositary for crediting to the accounts of its participants
pursuant to the instructions of the Administrative Trustees. The Company upon
any such presentation shall execute a Global Subordinated Debenture in such
aggregate principal amount and deliver the same to the Trustee for
authentication and delivery in accordance with this Indenture. Payments on the
Junior Subordinated Debentures issued as a Global Subordinated Debenture will be
made to the Depositary; and
(ii) if any Preferred Securities are held in non book-entry
certificated form, the Junior Subordinated Debentures in certificated form may
be presented to the Trustee by the Property Trustee and any Preferred Securities
Certificate which represents Preferred Securities other than Preferred
Securities held by the Depositary or its nominee ("Non Book-Entry Preferred
Securities") will be deemed to represent beneficial interests in Junior
Subordinated Debentures presented to the Trustee by the Property Trustee having
an aggregate principal amount equal to the aggregate Liquidation Amount of the
Non Book-Entry Preferred Securities until such Preferred Securities Certificates
are presented to the Securities Registrar for transfer or reissuance at which
time such Preferred Securities Certificates will be canceled and a Junior
Subordinated Debenture, registered in the name of the holder of the Preferred
Securities Certificate or the transferee of the holder of such Preferred
Securities Certificate, as the case may be, with an aggregate principal amount
equal to the aggregate Liquidation Amount of the Preferred Securities
Certificate canceled, will be executed by the Company and delivered to the
Trustee for authentication and delivery in accordance with this Indenture. On
issue of such Junior Subordinated Debentures, Junior Subordinated Debentures
with an equivalent aggregate principal amount that were presented by the
Property Trustee to the Trustee will be deemed to have been canceled.
(b) A Global Subordinated Debenture may be transferred, in whole but
not in part, only to another nominee of the Depositary, or to a successor
Depositary selected or approved by the Company or to a nominee of such successor
Depositary.
(c) If at any time the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary or if at any time the Depositary
for such series shall no longer be registered or in good standing under the
Exchange Act or other applicable statute or regulation, and a successor
Depositary for such series is not appointed by the Company within 90 days after
the Company receives such notice or becomes aware of such condition, as the case
may be, the Company will execute, and the Trustee, upon written notice from the
Company, will authenticate and deliver the Junior Subordinated Debentures in
definitive registered form without coupons, in authorized denominations, and in
an aggregate principal amount equal to the principal amount of the Global
Subordinated Debenture in exchange for such Global Subordinated Debenture. In
addition, the Company may at any time determine that the Junior Subordinated
Debentures shall no longer be represented by a Global Subordinated Debenture. In
such event the Company will execute, and the Trustee, upon receipt of an
Officers' Certificate evidencing such determination by the Company, will
authenticate and deliver the Junior Subordinated Debentures in
11
<PAGE> 19
definitive registered form without coupons, in authorized denominations, and in
an aggregate principal amount equal to the principal amount of the Global
Subordinated Debenture in exchange for such Global Subordinated Debenture. Upon
the exchange of the Global Subordinated Debenture for such Junior Subordinated
Debentures in definitive registered form without coupons, in authorized
denominations, the Global Subordinated Debenture shall be canceled by the
Trustee. Such Junior Subordinated Debentures in definitive registered form
issued in exchange for the Global Subordinated Debenture shall be registered in
such names and in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver such Junior Subordinated
Debentures to the Depositary for delivery to the Persons in whose names such
Junior Subordinated Debentures are so registered.
2.5 INTEREST.
(a) Each Junior Subordinated Debenture will bear interest at the rate
of % per annum (the "Coupon Rate") from the original date of issuance until
the principal thereof becomes due and payable, and on any overdue principal and
(to the extent that payment of such interest is enforceable under applicable
law) on any overdue installment of interest at the Coupon Rate, compounded
quarterly, payable (subject to the provisions of Article IV) quarterly in
arrears on the 15th day of April, July, October and January in each year (each,
an "Interest Payment Date"), commencing on October 15, 1999, to the Person in
whose name such Junior Subordinated Debenture or any Predecessor Junior
Subordinated Debenture is registered at the close of business on the regular
record date for such interest installment, which, in respect of (i) Junior
Subordinated Debentures of which the Property Trustee is the Holder and the
Preferred Securities are in book-entry only form or (ii) a Global Subordinated
Debenture, shall be the close of business on the Business Day next preceding
that Interest Payment Date. Notwithstanding the foregoing sentence, if (i) the
Junior Subordinated Debentures are held by the Property Trustee and the
Preferred Securities are no longer in book-entry only form or (ii) the Junior
Subordinated Debentures are not represented by a Global Subordinated Debenture,
the record date for such interest installment shall be the first day of the
month in which such payment is to be made. The amount of each interest payment
due with respect to the Junior Subordinated Debentures will include amounts
accrued and unpaid through the date the interest payment is due.
(b) The amount of interest payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months. Except as provided in the
following sentence, the amount of interest payable for any period shorter than a
full quarterly period for which interest is computed will be computed on the
basis of the actual number of days elapsed in such a quarterly period. In the
event that any date on which interest is payable on the Junior Subordinated
Debentures is not a Business Day, then payment of interest payable on such date
will be made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day (and without any reduction of interest
or any other payment in respect of any such acceleration) in each case with the
same force and effect as if made on such date.
(c) If, at any time while the Property Trustee is the Holder of any
Junior Subordinated Debentures, the Trust or the Property Trustee is required to
pay any taxes, duties, assessments or governmental charges of whatever nature
(other than withholding taxes) imposed by the United States, or any other taxing
authority, then, in any case, the Company will pay as additional interest
("Additional Sums") on the Junior Subordinated Debentures held by the Property
Trustee such additional amounts as shall be required so that the net amounts
received
12
<PAGE> 20
and retained by the Trust and the Property Trustee after paying such taxes,
duties, assessments or other governmental charges will be equal to the amounts
the Trust and the Property Trustee would have received had no such taxes,
duties, assessments or other government charges been imposed.
2.6 EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Junior Subordinated Debentures shall be executed on behalf of the
Company by its Chairman, its President or any Vice President and attested by its
Secretary or Assistant Secretary. The signature of any of these officers on the
Junior Subordinated Debentures may be manual or facsimile.
Junior Subordinated Debentures bearing the manual or facsimile
signatures of individuals who were at any time the proper officers of the
Company shall bind the Company, notwithstanding that such individuals or any of
them have ceased to hold such offices prior to the authentication and delivery
of such Junior Subordinated Debentures or did not hold such offices at the date
of such Junior Subordinated Debentures.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Junior Subordinated Debentures executed
by the Company to the Trustee for authentication, together with a Company order
for the authentication and delivery of such Junior Subordinated Debentures. The
Trustee, in accordance with such Company order, shall authenticate and deliver
such Junior Subordinated Debentures as in this Indenture provided and not
otherwise.
Upon the initial issuance, each Junior Subordinated Debenture shall be
dated , 1999, and thereafter Junior Subordinated Debentures issued
hereunder shall be dated the date of their authentication.
No Junior Subordinated Debenture shall be entitled to any benefit under
this Indenture or be valid or obligatory for any purpose unless there appears on
such Junior Subordinated Debenture a certificate of authentication substantially
in the form provided for herein executed by the Trustee by manual signature, and
such certificate upon any Junior Subordinated Debenture shall be conclusive
evidence, and the only evidence, that such Junior Subordinated Debenture has
been duly authenticated and delivered hereunder and is entitled to the benefits
of this Indenture.
2.7 REGISTRATION AND TRANSFER.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office or any other office
or agency pursuant to Section 5.2 being herein sometimes referred to as the
"Securities Register") in which, subject to such reasonable regulations as it
may prescribe, the Company shall provide for the registration of the Junior
Subordinated Debentures and transfers of the Junior Subordinated Debentures. The
Trustee is hereby appointed "Securities Registrar" for the purpose of
registering the Junior Subordinated Debentures and transfers of the Junior
Subordinated Debentures as herein provided.
13
<PAGE> 21
Upon surrender for registration of transfer of any Junior Subordinated
Debenture at an office or agency of the Company designated pursuant to Section
5.2 for such purpose, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, a new Junior Subordinated Debenture of the authorized denomination.
All Junior Subordinated Debentures issued upon any registration of
transfer of Junior Subordinated Debentures shall be valid obligations of the
Company, evidencing the same debt and entitled to the same benefits under this
Indenture as the Junior Subordinated Debentures surrendered upon such
registration of transfer.
Every Junior Subordinated Debenture presented or surrendered for
exchange or registration of transfer shall be duly endorsed for transfer (if so
required by the Company or the Trustee), or shall be accompanied by a written
instrument of transfer in form satisfactory to the Company and the Securities
Registrar duly executed by the Holder thereof or such Holder's attorney duly
authorized in writing.
No service charge shall be made for any exchange or registration of
transfer of Junior Subordinated Debentures or issue new Junior Subordinated
Debentures in the case of partial redemption, but the Company and the Trustee
payment of a sum sufficient to cover any expense, tax or other governmental
charge that may be imposed in connection with any registration of transfer of
Junior Subordinated Debentures. The Company shall not be required (i) to issue,
exchange or register the transfer of any Junior Subordinated Debenture during a
period beginning at the opening of business 15 days before the day of the
mailing of a notice of redemption of less than all the outstanding Junior
Subordinated Debentures selected for redemption pursuant to Article III and
ending at the close of business on the day of such mailing; nor (ii) to register
the transfer or exchange of any Junior Subordinated Debentures or portions
thereof called for redemption.
2.8 MUTILATED, DESTROYED, LOST AND STOLEN JUNIOR SUBORDINATED
DEBENTURES.
If any mutilated Junior Subordinated Debenture is surrendered to the
Trustee, the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a new Junior Subordinated Debenture of like tenor
and principal amount and bearing a number not contemporaneously outstanding. If
there shall be delivered to the Company and the Trustee (i) evidence to their
satisfaction of the destruction, loss or theft of any Junior Subordinated
Debenture and (ii) such security or indemnity as may be required by them to save
each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Junior Subordinated Debenture has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen Junior
Subordinated Debenture, a new Junior Subordinated Debenture of like tenor and
principal amount and bearing a number not contemporaneously outstanding.
14
<PAGE> 22
In case any such mutilated, destroyed, lost or stolen Junior
Subordinated Debenture has become or is about to become due and payable, the
Company in its discretion may, instead of issuing a new Junior Subordinated
Debenture, pay such Junior Subordinated Debenture.
Upon the issuance of any new Junior Subordinated Debenture under this
Section, the Company and the Trustee may require the payment of a sum sufficient
to cover any expense, tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Trustee) connected therewith.
Every new Junior Subordinated Debenture issued pursuant to this Section
in lieu of any destroyed, lost or stolen Junior Subordinated Debenture shall
constitute an original additional contractual obligation of the Company, whether
or not the destroyed, lost or stolen Junior Subordinated Debenture shall be at
any time enforceable by anyone, and shall be entitled to all of the benefits of
this Indenture.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Junior Subordinated Debentures.
ARTICLE III. REDEMPTION OF JUNIOR SUBORDINATED DEBENTURES
3.1 REDEMPTION.
Subject to the Company having received prior approval of the Federal
Reserve, if then required under the applicable capital guidelines or policies of
the Federal Reserve, the Company may redeem the Junior Subordinated Debentures
in accordance with this Article III.
3.2 SPECIAL EVENT REDEMPTION.
Subject to the Company having received the prior approval of the
Federal Reserve, if then required under the applicable capital guidelines or
policies of the Federal Reserve, if a Special Event has occurred and is
continuing, then, notwithstanding Section 3.3, the Company shall have the right
upon not less than 30 days nor more than 60 days notice to the Holders of the
Junior Subordinated Debentures to redeem the Junior Subordinated Debentures, in
whole but not in part, for cash within 90 days following the occurrence of such
Special Event (the "90-Day Period") at the Redemption Price, provided that if at
the time there is available to the Company the opportunity to eliminate, within
the 90-Day Period, the Tax Event by taking some ministerial action ("Ministerial
Action"), such as filing a form or making an election, or pursuing some other
similar reasonable measure which has no adverse effect on the Company, the Trust
or the Holders of the Trust Securities issued by the Trust, the Company shall
pursue such Ministerial Action in lieu of redemption, and, provided, further,
that the Company shall have no right to redeem the Junior Subordinated
Debentures while the Trust is pursuing any Ministerial Action to eliminate the
Tax Event. The Redemption Price shall be paid prior to 2:00 p.m., Detroit,
Michigan time, on the date of such redemption or such earlier time as the
Company determines, provided that the Company shall deposit with the Trustee an
amount sufficient to pay the
15
<PAGE> 23
Redemption Price by 12:00 noon, Detroit, Michigan time, on the date such
Redemption Price is to be paid.
3.3 OPTIONAL REDEMPTION BY COMPANY.
(a) Except as otherwise may be specified in this Indenture, the
Company shall have the right to redeem the Junior Subordinated Debentures, in
whole or in part, from time to time, on or after , 2004, at the
Redemption Price. Any redemption pursuant to this Section 3.3 will be made upon
not less than 30 days nor more than 60 days notice to the Holders of the Junior
Subordinated Debentures, at the Redemption Price. If the Junior Subordinated
Debentures are only partially redeemed pursuant to this Section 3.3, the Junior
Subordinated Debentures will be redeemed pro rata or by lot or by any other
method utilized by the Trustee; provided, that if at the time of redemption the
Junior Subordinated Debentures are registered as a Global Subordinated
Debenture, the Depositary shall determine, in accordance with its procedures,
the principal amount of such Junior Subordinated Debentures held by each Holder
of Junior Subordinated Debentures to be redeemed. The Redemption Price shall be
paid prior to 2:00 p.m., Detroit, Michigan time, on the date of such redemption
or at such earlier time as the Company determines provided that the Company
shall deposit with the Trustee an amount sufficient to pay the Redemption Price
by 12:00 noon, Detroit, Michigan time, on the date such Redemption Price is to
be paid.
(b) If a partial redemption of the Junior Subordinated Debentures
would result in the delisting of the Preferred Securities issued by the Trust
from any national securities exchange, quotation system or other organization on
which the Preferred Securities may then be listed, if any, the Company shall not
be permitted to effect such partial redemption and may only redeem the Junior
Subordinated Debentures in whole or in part to such extent as would not cause
such delisting.
3.4 NOTICE OF REDEMPTION.
(a) In case the Company shall desire to exercise such right to
redeem all or, as the case may be, a portion of the Junior Subordinated
Debentures in accordance with the right reserved so to do, the Company shall, or
shall cause the Trustee to upon 45 days' (or such shorter period as is
acceptable to the Trustee) written notice from the Company, give notice of such
redemption to Holders of the Junior Subordinated Debentures to be redeemed by
mailing, first class postage prepaid, a notice of such redemption not less than
30 days and not more than 60 days before the date fixed for redemption to such
Holders at their last addresses as they shall appear upon the Securities
Register. Any notice that is mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the Registered
Holder receives the notice. In any case, failure duly to give such notice to the
Holder of any Junior Subordinated Debenture designated for redemption in whole
or in part, or any defect in the notice, shall not affect the validity of the
proceedings for the redemption of any other Junior Subordinated Debentures. In
the case of any redemption of Junior Subordinated Debentures prior to the
expiration of any restriction on such redemption provided elsewhere in this
Indenture, the Company shall furnish the Trustee with an Officers' Certificate
evidencing compliance with any such restriction.
16
<PAGE> 24
Each such notice of redemption shall specify the date fixed for
redemption and the Redemption Price, and shall state that payment of the
Redemption Price of such Junior Subordinated Debentures to be redeemed will be
made at the office or agency of the Company in Grand Rapids, Michigan, upon
presentation and surrender of such Junior Subordinated Debentures, that interest
accrued to the date fixed for redemption will be paid as specified in said
notice, that from and after said date interest will cease to accrue. If less
than all the Junior Subordinated Debentures are to be redeemed, the notice to
the Holders of Junior Subordinated Debentures to be redeemed in whole or in part
shall specify the particular Junior Subordinated Debentures to be so redeemed.
In case any Junior Subordinated Debenture is to be redeemed in part only, the
notice that relates to such Junior Subordinated Debenture shall state the
portion of the principal amount thereof to be redeemed, and shall state that on
and after the redemption date, upon surrender of such Junior Subordinated
Debenture, a new Junior Subordinated Debenture or Junior Subordinated Debentures
in principal amount equal to the unredeemed portion thereof shall be issued to
the Holder.
(b) If less than all the Junior Subordinated Debentures are to be
redeemed, the Company shall give the Trustee at least 45 days (or such shorter
period as is acceptable to the Trustee) notice in advance of the date fixed for
redemption as to the aggregate principal amount of Junior Subordinated
Debentures to be redeemed, and thereupon the Trustee shall select, pro rata or
by lot or in such other manner as it shall deem appropriate and fair in its
discretion and that may provide for the selection of a portion or portions
(equal to ten U.S. dollars ($10) or any integral multiple thereof), the Junior
Subordinated Debentures to be redeemed and shall thereafter promptly notify the
Company in writing of the numbers of the Junior Subordinated Debentures to be
redeemed, in whole or in part.
The Company may, if and whenever it shall so elect, by delivery of
instructions signed on its behalf by its Chairman, its President or any
Vice President, instruct the Trustee or any paying agent to call all or any part
of the Junior Subordinated Debentures for redemption and to give notice of
redemption in the manner set forth in this Section, such notice to be in the
name of the Company or in the name of the Trustee or the paying agent, as the
Trustee or such paying agent may deem advisable. In any case in which notice of
redemption is to be given by the Trustee or any such paying agent, the Company
shall deliver or cause to be delivered to, or permit to remain with, the Trustee
or such paying agent, as the case may be, such Securities Register, transfer
books or other records, or suitable copies or extracts therefrom, sufficient to
enable the Trustee or such paying agent to give any notice by mail that may be
required under the provisions of this Section.
3.5 PAYMENT UPON REDEMPTION.
(a) If the giving of notice of redemption shall have been completed
as above provided, the Junior Subordinated Debentures or portions of Junior
Subordinated Debentures to be redeemed specified in such notice shall become due
and payable on the date and at the place stated in such notice at the Redemption
Price (which includes interest accrued to the date fixed for redemption) and
interest on such Junior Subordinated Debentures or portions of Junior
Subordinated Debentures shall cease to accrue on and after the date fixed for
redemption, unless the Company shall default in the payment of such Redemption
Price with respect to any such Junior Subordinated Debentures or portions
thereof. On presentation and surrender of such
17
<PAGE> 25
Junior Subordinated Debentures on or after the date fixed for redemption at the
place of payment specified in the notice, such Junior Subordinated Debentures
shall be paid and redeemed at the Redemption Price (which includes the interest
accrued thereon to the date fixed for redemption) (but if the date fixed for
redemption is an Interest Payment Date, the interest installment payable on such
date shall be payable to the Registered Holder at the close of business on the
applicable record date pursuant to Section 2.5(a)).
(b) Upon presentation of any Junior Subordinated Debenture that is
to be redeemed in part only, the Company shall execute and the Trustee shall
authenticate and the office or agency where the Junior Subordinated Debenture is
presented shall deliver to the Holder thereof, at the expense of the Company, a
new Junior Subordinated Debenture or Junior Subordinated Debentures of
authorized denominations in principal amount equal to the unredeemed portion of
the Junior Subordinated Debenture so presented.
3.6 NO SINKING FUND.
The Junior Subordinated Debentures are not entitled to the benefit of
any sinking fund.
ARTICLE IV. EXTENSION OF INTEREST PAYMENT PERIOD
4.1 EXTENSION OF INTEREST PAYMENT PERIOD.
So long as no Event of Default has occurred and is continuing, the
Company shall have the right, at any time and from time to time during the term
of the Junior Subordinated Debentures, to defer payments of interest by
extending the interest payment period of such Junior Subordinated Debentures for
a period not exceeding 20 consecutive quarters (the "Extended Interest Payment
Period"), during which Extended Interest Payment Period no interest shall be due
and payable; provided that no Extended Interest Payment Period may extend beyond
the Maturity Date or end on a date other than an Interest Payment Date. To the
extent permitted by applicable law, interest, the payment of which has been
deferred because of the extension of the interest payment period pursuant to
this Section 4.1, will bear interest thereon at the Coupon Rate compounded
quarterly for each quarter of the Extended Interest Payment Period ("Compounded
Interest"). At the end of the Extended Interest Payment Period, the Company
shall pay all interest accrued and unpaid on the Junior Subordinated Debentures,
including any Additional Sums and Compounded Interest (together, "Deferred
Interest") that shall be payable to the Holders of the Junior Subordinated
Debentures in whose names the Junior Subordinated Debentures are registered in
the Securities Register on the record date for the Interest Payment Date
coinciding with the end of the Extended Interest Payment Period. Before the
termination of any Extended Interest Payment Period, the Company may further
extend such period, provided that such period together with all such further
extensions thereof shall not exceed 20 consecutive quarters, or extend beyond
the Maturity Date or end on a date other than an Interest Payment Date. Upon the
termination of any Extended Interest Payment Period and upon the payment of all
Deferred Interest then due, the Company may commence a new Extended Interest
Payment Period, subject to the foregoing requirements. No interest shall be due
and payable during an Extended Interest Payment Period, except at the end
thereof, but the Company may prepay at any time all or any portion of the
interest accrued during an Extended Interest Payment Period.
18
<PAGE> 26
4.2 NOTICE OF EXTENSION.
(a) If the Property Trustee is the only Registered Holder of the
Junior Subordinated Debentures at the time the Company selects an Extended
Interest Payment Period, the Company shall give written notice to the
Administrative Trustees, the Property Trustee and the Trustee of its selection
of such Extended Interest Payment Period at least one Business Day before the
earlier of (i) the next succeeding date on which Distributions are payable, or
(ii) the date the Trust is required to give notice of the record date, or the
date such Distributions are payable, to the Preferred Securities holders or to
the Nasdaq National Market or other applicable self-regulatory organization, if
any, but in any event at least one Business Day before such record date.
(b) If the Property Trustee is not the only Holder of the Junior
Subordinated Debentures at the time the Company selects an Extended Interest
Payment Period, the Company shall give the Holders of the Junior Subordinated
Debentures and the Trustee written notice of its selection of such Extended
Interest Payment Period at least one Business Day before the earlier of (i) the
next succeeding Interest Payment Date, or (ii) the date the Company is required
to give notice of the record or payment date of such interest payment to the
Holders of the Junior Subordinated Debentures or to the Nasdaq National Market
or other applicable self regulatory organization, if any.
(c) The quarter in which any notice is given pursuant to paragraph
(a) or paragraph (b) of this Section 4.2 shall be counted as one of the 20
quarters permitted in the maximum Extended Interest Payment Period permitted
under Section 4.1.
4.3 LIMITATION OF TRANSACTIONS DURING EXTENSION.
If (i) the Company shall exercise its right to defer payment of
interest as provided in Section 4.1; or (ii) there shall have occurred and be
continuing any Event of Default, then the Company shall be subject to the
restrictions on payments set forth under Section 5.6.
ARTICLE V. PARTICULAR COVENANTS OF THE COMPANY
5.1 PAYMENT OF PRINCIPAL AND INTEREST.
The Company will duly and punctually pay or cause to be paid the
principal of and interest on the Junior Subordinated Debentures at the time and
place and in the manner provided herein and established with respect to such
Junior Subordinated Debentures.
Notwithstanding anything to the contrary in this Indenture, the Company
may satisfy any payment it is otherwise required to make to the Trust under this
Indenture, by and to the extent that the Company has made, or is concurrently on
the date of the payment required by this Indenture making, a payment under the
Preferred Securities Guarantee.
5.2 MAINTENANCE OF AGENCY.
So long as any Junior Subordinated Debentures remain Outstanding, the
Company agrees to maintain an office or agency in Grand Rapids, Michigan, or at
such other location or locations as may be designated as provided in this
Section 5.2, where (i) Junior Subordinated Debentures may be presented for
payment, (ii) Junior Subordinated Debentures may be presented as hereinabove
authorized for registration of transfer and exchange, and (iii) notices and
demands to or upon the Company in respect of the Junior Subordinated Debentures
and this Indenture may
19
<PAGE> 27
be given or served, such designation to continue with respect to such office or
agency until the Company shall, by written notice signed by its Chairman,
President or a Vice President and delivered to the Trustee, designate some other
office or agency for such purposes or any of them. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, notices and
demands may be made or served at the Corporate Trust Office of the Trustee, and
the Company hereby appoints the Trustee as its agent to receive all such
presentations, notices and demands.
5.3 PAYING AGENTS.
(a) If the Company shall appoint one or more paying agents for the
Junior Subordinated Debentures, other than the Trustee, the Company will cause
each such paying agent to execute and deliver to the Trustee an instrument in
which such agent shall agree with the Trustee, subject to the provisions of this
Section:
(i) that it will hold all sums held by it as such agent for the
payment of the principal of or interest on the Junior Subordinated Debentures
(whether such sums have been paid to it by the Company or by any other obligor)
in trust for the benefit of the Persons entitled thereto;
(ii) that it will give the Trustee notice of any failure by the
Company (or by any other obligor) to make any payment of the principal of or
interest on the Junior Subordinated Debentures when the same shall be due and
payable;
(iii) that it will, at any time during the continuance of any
failure referred to in the preceding paragraph (a)(ii) above, upon the written
request of the Trustee, forthwith pay to the Trustee all sums so held in trust
by such paying agent; and
(iv) that it will perform all other duties of paying agent as
set forth in this Indenture.
(b) If the Company shall act as its own paying agent with respect
to the Junior Subordinated Debentures, it will on or before each due date of the
principal of or interest on Junior Subordinated Debentures, set aside, segregate
and hold in trust for the benefit of the Persons entitled thereto a sum
sufficient to pay such principal or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided and
will promptly notify the Trustee of such action, or any failure (by it or any
other obligor) to take such action. Whenever the Company shall have one or more
paying agents for the Junior Subordinated Debentures, it will, prior to each due
date of the principal of or interest on the Junior Subordinated Debentures,
deposit with the paying agent a sum sufficient to pay the principal or interest
so becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal or interest, and (unless such paying agent is the
Trustee) the Company will promptly notify the Trustee of this action or failure
so to act.
(c) Notwithstanding anything in this Section to the contrary, (i)
the agreement to hold sums in trust as provided in this Section is subject to
the provisions of Section 13.5, and (ii) the Company may at any time, for the
purpose of obtaining the satisfaction and discharge of
20
<PAGE> 28
this Indenture or for any other purpose, pay, or direct any paying agent to pay,
to the Trustee (upon the Trustee's consent) all sums held in trust by the
Company or such paying agent, such sums to be held by the Trustee upon the same
terms and conditions as those upon which such sums were held by the Company or
such paying agent; and, upon such payment by any paying agent to the Trustee,
such paying agent shall be released from all further liability with respect to
such money.
5.4 APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE.
The Company, whenever necessary to avoid or fill a vacancy in the
office of Trustee, will appoint, in the manner provided in Section 9.10, a
Trustee, so that there shall at all times be a Trustee hereunder.
5.5 COMPLIANCE WITH CONSOLIDATION PROVISIONS.
The Company will not, while any of the Junior Subordinated Debentures
remain Outstanding, consolidate with, or merge into, or merge into itself, or
sell or convey all or substantially all of its property to any other company
unless the provisions of Article XII hereof are complied with.
5.6 RESTRICTIONS ON CERTAIN PAYMENTS.
If at any time (i) there shall have occurred any event of which the
Company has actual knowledge that (a) with the giving of notice or the lapse of
time, or both, would constitute an Event of Default and (b) in respect to which
the Company shall not have taken reasonable steps to cure, or (ii) the Company
shall have given notice of its election of an Extended Interest Payment Period
as provided herein with respect to the Junior Subordinated Debentures and shall
not have rescinded such notice, or such Extended Interest Payment Period, or any
extension thereof, shall be continuing; or (iii) while the Junior Subordinated
Debentures are held by the Property Trustee, the Company shall be in default
with respect to its payment of any obligation under the Preferred Securities
Guarantee, then the Company will not (1) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock (other than a
reclassification of its capital stock) or (2) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company (including the Junior Subordinated Debentures) that
rank pari passu with or junior in interest to the Junior Subordinated Debentures
or make any guarantee payments with respect to any guarantee by the Company of
the debt securities of any Subsidiary of the Company if such guarantee ranks
pari passu or junior in interest to the Junior Subordinated Debentures (other
than (a) dividends or distributions in common stock, (b) any declaration of a
dividend in connection with the implementation of a shareholders' rights plan,
or the issuance of stock under any such plan in the future or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the Preferred
Securities Guarantee and (d) purchases of common stock related to the issuance
of common stock or rights under any of the Company's benefit plans for its
directors, officers or employees).
21
<PAGE> 29
5.7 COVENANTS AS TO THE TRUST.
For so long as the Trust Securities of the Trust remain outstanding,
the Company will (i) maintain 100% direct or indirect ownership of the Common
Securities of the Trust; provided, however, that any permitted successor of the
Company under this Indenture may succeed to the Company's ownership of the
Common Securities,(ii) not voluntarily terminate, wind up or liquidate the
Trust, except upon approval of the Federal Reserve if then so required and use
its reasonable efforts to cause the Trust (a) to remain a business trust, except
in connection with a distribution of Junior Subordinated Debentures, the
redemption of all of the Trust Securities of the Trust or certain mergers,
consolidations or amalgamations, each as permitted by the Trust Agreement, and
(b) to otherwise continue not to be treated as an association taxable as a
corporation or partnership for United States federal income tax purposes, and
(iii) to use its reasonable efforts to cause each Holder of Trust Securities to
be treated as owning an individual beneficial interest in the Junior
Subordinated Debentures.
If the Junior Subordinated Debentures are to be issued as a Global
Subordinated Debenture in connection with the distribution of the Junior
Subordinated Debentures to the holders of the Preferred Securities issued by the
Trust upon a Dissolution Event, the Company will use reasonable efforts to list
such Junior Subordinated Debentures on a national securities exchange or
quotation system.
ARTICLE VI. SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE
6.1 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF SECURITYHOLDERS.
The Company will furnish or cause to be furnished to the Trustee (a) on
each regular record date (as defined in Section 2.5(a)) a list, in such form as
the Trustee may reasonably require, of the names and addresses of the Holders as
of such regular record date, provided that the Company shall not be obligated to
furnish or cause to furnish such list at any time that the list shall not differ
in any respect from the most recent list furnished to the Trustee by the Company
and (b) at such other times as the Trustee may request in writing within 30 days
after the receipt by the Company of any such request, a list of similar form and
content as of a date not more than 15 days prior to the time such list is
furnished; provided, however, that, in either case, no such list need be
furnished if the Trustee shall be the Securities Registrar.
6.2 PRESERVATION OF INFORMATION; COMMUNICATIONS WITH SECURITYHOLDERS.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses of the
Holders contained in the most recent list furnished to it as provided in Section
6.1 and as to the names and addresses of Holders received by the Trustee in its
capacity as Securities Registrar (if acting in such capacity).
(b) The Trustee may destroy any list furnished to it as provided in
Section 6.1 upon receipt of a new list so furnished.
22
<PAGE> 30
(c) Securityholders may communicate as provided in Section 312(b)
of the Trust Indenture Act with other Securityholders with respect to their
rights under this Indenture or under the Junior Subordinated Debentures.
6.3 REPORTS BY THE COMPANY.
(a) The Company covenants and agrees to file with the Trustee,
within 15 days after the Company is required to file the same with the
Commission, copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may from time to time by rules and regulations prescribe) that the
Company may be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act; or, if the Company is not required to file
information, documents or reports pursuant to either of such sections, then to
file with the Trustee and the Commission, in accordance with the rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports that may be
required pursuant to any applicable rules and regulations of the Commission.
(b) The Company covenants and agrees to file with the Trustee and
the Commission, in accordance with the rules and regulations prescribed from to
time by the Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants provided
for in this Indenture as may be required from time to time by such rules and
regulations.
(c) The Company covenants and agrees to transmit by mail,
first-class postage prepaid, or reputable over-night delivery service that
provides for evidence of receipt, to the Securityholders, as their names and
addresses appear upon the Securities Register, within 30 days after the filing
thereof with the Trustee, such summaries of any information, documents and
reports required to be filed by the Company pursuant to subsections (a) and (b)
of this Section as may be required by rules and regulations prescribed from time
to time by the Commission.
6.4 REPORTS BY THE TRUSTEE.
(a) Beginning January 31, 2000, on or before January 31 in each
year in which any of the Junior Subordinated Debentures are Outstanding, the
Trustee shall transmit by mail, first class postage prepaid, to the
Securityholders, as their names and addresses appear upon the Securities
Register, a brief report dated as of the preceding December 31, if and to the
extent required under Section 313(a) of the Trust Indenture Act.
(b) The Trustee shall comply with Section 313(b) and 313(c) of the
Trust Indenture Act.
(c) A copy of each such report shall, at the time of such
transmission to Securityholders, be filed by the Trustee with the Company which
shall file such report with each exchange upon which any Junior Subordinated
Debentures are listed (if any), and also with the Commission.
23
<PAGE> 31
ARTICLE VII. REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT
7.1 EVENTS OF DEFAULT.
(a) Whenever used herein, "Event of Default" means any one or more
of the following events that has occurred and is continuing:
(i) the Company defaults in the payment of any installment of
interest upon any of the Junior Subordinated Debentures, as and when the same
shall become due and payable, and continuance of such default for a period of 30
days; provided, however, that a valid extension of an interest payment period by
the Company in accordance with the terms of this Indenture shall not constitute
a default in the payment of interest for this purpose;
(ii) the Company defaults in the payment of the principal of
any of the Junior Subordinated Debentures as and when the same shall become due
and payable whether at maturity, upon redemption, by declaration or otherwise;
(iii) the Company fails to observe or perform any other of its
covenants or agreements hereunder with respect to the Junior Subordinated
Debentures for a period of 90 days after the date on which written notice of
such failure, requiring the same to be remedied and stating that such notice is
a "Notice of Default" hereunder, shall have been given to the Company by the
Trustee, by registered or certified mail, or to the Company and the Trustee by
the Holders of at least 25% in principal amount of the Junior Subordinated
Debentures at the time Outstanding;
(iv) the Company pursuant to or within the meaning of any
Bankruptcy Law (1) commences a voluntary case, (2) consents to the entry of an
order for relief against it in an involuntary case, (3) consents to the
appointment of a custodian of it or for all or substantially all of its property
or (4) makes a general assignment for the benefit of its creditors;
(v) a court of competent jurisdiction enters an order under any
Bankruptcy Law that (1) is for relief against the Company in an involuntary
case, (2) appoints a custodian of the Company for all or substantially all of
its property, or (3) orders the liquidation of the Company, and the order or
decree remains unstayed and in effect for 90 days; or
(vi) in the event Junior Subordinated Debentures are issued to
the Trust or a trustee of the Trust in connection with the issuance of Trust
Securities by the Trust, the Trust shall have voluntarily or involuntarily
dissolved, wound-up its business or otherwise terminated its existence, except
in connection with (1) the distribution of Junior Subordinated Debentures to
holders of Trust Securities in liquidation of their interests in the Trust, (2)
the redemption of all of the outstanding Trust Securities of the Trust or (3)
certain mergers, consolidations or amalgamations, each as permitted by the Trust
Agreement.
24
<PAGE> 32
(b) In each and every such case, unless the principal of all the
Junior Subordinated Debentures shall have already become due and payable, either
the Trustee or the Holders of not less than 25% in aggregate principal amount of
the Junior Subordinated Debentures then Outstanding hereunder, by notice in
writing to the Company (and to the Trustee if given by such Securityholders) may
declare the principal of all the Junior Subordinated Debentures to be due and
payable immediately, and upon any such declaration the same shall become and
shall be immediately due and payable, notwithstanding anything contained in this
Indenture or in the Junior Subordinated Debentures to the contrary.
(c) At any time after the principal of the Junior Subordinated
Debentures shall have been so declared due and payable, and before any judgment
or decree for the payment of the moneys due shall have been obtained or entered
as hereinafter provided, the Holders of a majority in aggregate principal amount
of the Junior Subordinated Debentures then Outstanding, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if: (i) the Company has paid or deposited with the Trustee a sum
sufficient to pay all matured installments of interest upon all the Junior
Subordinated Debentures and the principal of any and all Junior Subordinated
Debentures that shall have become due otherwise than by acceleration (with
interest upon such principal and, to the extent that such payment is enforceable
under applicable law, upon overdue installments of interest, at the rate per
annum expressed in the Junior Subordinated Debentures to the date of such
payment or deposit) and the amount payable to the Trustee under Section 9.6, and
(ii) any and all Events of Default under this Indenture, other than the
nonpayment of principal on Junior Subordinated Debentures that shall not have
become due by their terms, shall have been remedied or waived as provided in
Section 7.6. Should the Holders fail to annul such declaration and waive such
default, then the holders of a majority in aggregate Liquidation Amount of the
Preferred Securities shall have such right.
No such rescission and annulment shall extend to or shall affect any
subsequent default or impair any right consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any right
with respect to Junior Subordinated Debentures under this Indenture and such
proceedings shall have been discontinued or abandoned because of such rescission
or annulment or for any other reason or shall have been determined adversely to
the Trustee, then and in every such case the Company and the Trustee shall be
restored respectively to their former positions and rights hereunder, and all
rights, remedies and powers of the Company and the Trustee shall continue as
though no such proceedings had been taken.
7.2 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
(a) The Company covenants that (i) in case it shall default in the
payment of any installment of interest on any of the Junior Subordinated
Debentures as and when the same shall have become due and payable, and such
default shall have continued for a period of 90 Business Days, or (ii) in case
it shall default in the payment of the principal of any of the Junior
Subordinated Debentures when the same shall have become due and payable, whether
upon maturity of the Junior Subordinated Debentures or upon redemption or upon
declaration or otherwise, then, upon demand of the Trustee, the Company will pay
to the Trustee, for the
25
<PAGE> 33
benefit of the Holders of the Junior Subordinated Debentures, the whole amount
that then shall have become due and payable on all such Junior Subordinated
Debentures for principal or interest, or both, as the case may be, with interest
upon the overdue principal and (to the extent that payment of such interest is
enforceable under applicable law and, if the Junior Subordinated Debentures are
held by the Trust or a trustee of the Trust, without duplication of any other
amounts paid by the Trust or trustee in respect thereof) upon overdue
installments of interest at the rate per annum expressed in the Junior
Subordinated Debentures; and, in addition thereto, such further amount as shall
be sufficient to cover the costs and expenses of collection, and the amount
payable to the Trustee under Section 9.6.
(b) If the Company shall fail to pay such amounts forthwith upon
such demand, the Trustee, in its own name and as trustee of an express trust,
shall be entitled and empowered to institute any action or proceedings at law or
in equity for the collection of the sums so due and unpaid, and may prosecute
any such action or proceeding to judgment or final decree, and may enforce any
such judgment or final decree against the Company or other obligor upon the
Junior Subordinated Debentures and collect the moneys adjudged or decreed to be
payable in the manner provided by law out of the property of the Company or
other obligor upon the Junior Subordinated Debentures, wherever situated.
(c) In case of any receivership, insolvency, liquidation,
bankruptcy, reorganization, readjustment, arrangement, composition or judicial
proceedings affecting the Company or the creditors or property of either, the
Trustee shall have power to intervene in such proceedings and take any action
therein that may be permitted by the court and shall (except as may be otherwise
provided by law) be entitled to file such proofs of claim and other papers and
documents as may be necessary or advisable in order to have the claims of the
Trustee and of the Holders of Junior Subordinated Debentures allowed for the
entire amount due and payable by the Company under this Indenture at the date of
institution of such proceedings and for any additional amount that may become
due and payable by the Company after such date, and to collect and receive any
moneys or other property payable or deliverable on any such claim, and to
distribute the same after the deduction of the amount payable to the Trustee
under Section 9.6; and any receiver, assignee or trustee in bankruptcy or
reorganization is hereby authorized by each of the Holders to make such payments
to the Trustee, and, in the event that the Trustee shall consent to the making
of such payments directly to such Securityholders, to pay to the Trustee any
amount due it under Section 9.6.
(d) All rights of action and of asserting claims under this
Indenture may be enforced by the Trustee without the possession of any of the
Junior Subordinated Debentures, or the production thereof at any trial or other
proceeding relative thereto, and any such suit or proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for payment to the Trustee of any
amounts due under Section 9.6, be for the ratable benefit of the Holders of the
Junior Subordinated Debentures.
In case of an Event of Default hereunder, the Trustee may in its
discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either at law or in
equity or in bankruptcy or otherwise, whether for the specific enforcement of
26
<PAGE> 34
any covenant or agreement contained in this Indenture or in aid of the exercise
of any power granted in this Indenture, or to enforce any other legal or
equitable right vested in the Trustee by this Indenture or by law.
Nothing contained herein shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Securityholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Junior Subordinated Debentures or the rights of any Holder thereof or to
authorize the Trustee to vote in respect of the claim of any Securityholder in
any such proceeding.
7.3 APPLICATION OF MONEYS COLLECTED.
Any moneys collected by the Trustee pursuant to this Article with
respect to the Junior Subordinated Debentures shall be applied in the following
order, at the date or dates fixed by the Trustee and, in case of the
distribution of such moneys on account of principal or interest, upon
presentation of the Junior Subordinated Debentures, and notation thereon the
payment, if only partially paid, and upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses of collection and of all
amounts payable to the Trustee under Section 9.6;
SECOND: To the payment of all Senior and Subordinated Debt of the
Company if and to the extent required by Article Sixteen; and
THIRD: To the payment of the amounts then due and unpaid upon Junior
Subordinated Debentures for principal and interest, in respect of which or for
the benefit of which such money has been collected, ratably, without preference
or priority of any kind, according to the amounts due and payable on such Junior
Subordinated Debentures for principal and interest, respectively.
7.4 LIMITATION ON SUITS.
No Holder shall have any right by virtue of or by availing any
provision of this Indenture to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Indenture or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(i) such Holder previously shall have given to the Trustee written notice of an
Event of Default and of the continuance thereof; (ii) the Holders of not less
than 25% in aggregate principal amount of the Junior Subordinated Debentures
then Outstanding shall have made written request upon the Trustee to institute
such action, suit or proceeding in its own name as trustee hereunder; (iii) such
Holder or Holders shall have offered to the Trustee such reasonable indemnity as
it may require against the costs, expenses and liabilities to be incurred
therein or thereby; (iv) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity shall have failed to institute any such
action, suit or proceeding; and (v) during such 60 day period, the Holders of a
majority in principal amount of the Junior Subordinated Debentures do not give
the Trustee a direction inconsistent with the request.
Notwithstanding any other provisions of this Indenture to the contrary,
the right of any Holder to receive payment of the principal of and interest on
the Junior Subordinated Debentures
27
<PAGE> 35
on or after the respective due dates (or in the case of redemption, on the
redemption date), or to institute suit for the enforcement of any such payment
on or after such respective dates or redemption date, shall not be impaired or
affected without the consent of such Holder; and by accepting a Junior
Subordinated Debenture hereunder it is expressly understood, intended and
covenanted by the Holder thereof with every other such Holder and the Trustee,
that no one or more Holders shall have any right in any manner whatsoever by
virtue of or by availing any provision of this Indenture to affect, disturb or
prejudice the rights of any other Holders, or to obtain or seek to obtain
priority over or preference to any such other Holders, or to enforce any right
under this Indenture, except in the manner herein provided and for the equal,
ratable and common benefit of all Holders of Junior Subordinated Debentures. For
the protection and enforcement of the provisions of this Section, each and every
Securityholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.
7.5 RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER.
(a) Except as otherwise provided in Section 7.2, all powers and
remedies given by this Article VII to the Trustee or to the Securityholders
shall, to the extent permitted by law, be deemed cumulative and not exclusive of
any other powers and remedies available to the Trustee or the Holders of the
Junior Subordinated Debentures, by judicial proceedings or otherwise, to enforce
the performance or observance of the covenants and agreements contained in this
Indenture or otherwise established with respect to such Junior Subordinated
Debentures.
(b) No delay or omission of the Trustee or of any Holder of any of
the Junior Subordinated Debentures to exercise any right or power accruing upon
any Event of Default occurring and continuing as aforesaid shall impair any such
right or power, or shall be construed to be a waiver of any such default or on
acquiescence therein; and, subject to the provisions of Section 7.4, every power
and remedy given by this Article or by law to the Trustee or the Securityholders
may be exercised from time to time, and as often as shall be deemed expedient,
by the Trustee or by the Securityholders.
7.6 CONTROL BY SECURITYHOLDERS.
The Holders of a majority in aggregate principal amount of the Junior
Subordinated Debentures at the time Outstanding, determined in accordance with
Section 10.4, shall have the right to direct the Trustee and the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee; provided, however,
that such direction shall not be in conflict with any rule of law or with this
Indenture. Subject to the provisions of Section 9.1, the Trustee shall have the
right to decline to follow any such direction if the Trustee in good faith
shall, by a Responsible Officer or Officers of the Trustee, determine that the
proceeding so directed would involve the Trustee in personal liability. The
Holders of a majority in aggregate principal amount of the Junior Subordinated
Debentures at the time Outstanding, determined in accordance with Section 10.4,
may on behalf of the Holders of all of the Junior Subordinated Debentures waive
any past default in the performance of any of the covenants contained herein and
its consequences, except (i) a default in the payment of the principal of or
interest on any of the Junior Subordinated Debentures as and when the same shall
become due by its terms otherwise than by acceleration (unless such
28
<PAGE> 36
default has been cured and a sum sufficient to pay all matured installments of
interest and principal has been deposited with the Trustee in accordance with
Section 7.1(c)), (ii) a default in the covenants contained in Section 5.6 or
(iii) in respect of a covenant or provision hereof which under Article Eleven
cannot be modified or amended without the consent of the Holder of each
Outstanding Junior Subordinated Debenture; provided, however, that if the Junior
Subordinated Debentures are held by the Trust or a Trustee of the Trust, such
waiver or modification to such waiver shall not be effective until the Holders
of a majority in Liquidation Amount of Trust Securities of the Trust shall have
consented to such waiver or modification to such waiver; provided further, that
if the consent of the Holder of each Outstanding Junior Subordinated Debenture
is required, such waiver shall not be effective until each Holder of the Trust
Securities of the Trust shall have consented to such waiver. Upon any such
waiver, the default covered thereby shall be deemed to be cured for all purposes
of this Indenture and the Company, the Trustee and the Holders of the Junior
Subordinated Debentures shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
7.7 UNDERTAKING TO PAY COSTS.
All parties to this Indenture agree, and each Holder of any Junior
Subordinated Debentures by such Holder's acceptance thereof shall be deemed to
have agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken or omitted by it as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit, and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Securityholder, or
group of Securityholders, holding more than 10% in aggregate principal amount of
the Outstanding Junior Subordinated Debentures, or to any suit instituted by any
Securityholder for the enforcement of the payment of the principal of or
interest on the Junior Subordinated Debentures on or after the due dates
thereof.
ARTICLE VIII. FORM OF JUNIOR SUBORDINATED DEBENTURE AND ORIGINAL ISSUE
8.1 FORM OF JUNIOR SUBORDINATED DEBENTURE.
The Junior Subordinated Debenture and the Trustee's Certificate of
Authentication to be endorsed thereon are to be substantially in the forms
contained as Exhibit A to this Indenture, attached hereto and incorporated
herein by reference.
8.2 ORIGINAL ISSUE OF JUNIOR SUBORDINATED DEBENTURES.
Junior Subordinated Debentures in the aggregate principal amount of
$14,000,000 may, upon execution of this Indenture, and a possible additional
amount of up to $2,000,000 related to the Underwriters' Over-Allotment Option
with respect to the Preferred Securities may, upon
29
<PAGE> 37
exercise of the Underwriters' Over-Allotment Option, be executed by the Company
and delivered to the Trustee for authentication, and the Trustee shall thereupon
authenticate and deliver the Junior Subordinated Debentures to or upon the
written order of the Company, signed by its Chairman, President or any Vice
President, without any further action by the Company.
ARTICLE IX. CONCERNING THE TRUSTEE
9.1 CERTAIN DUTIES AND RESPONSIBILITIES OF THE TRUSTEE.
(a) The Trustee, prior to the occurrence of an Event of Default and
after the curing of all Events of Default that may have occurred, shall
undertake to perform with respect to the Junior Subordinated Debentures such
duties and only such duties as are specifically set forth in this Indenture, and
no implied covenants shall be read into this Indenture against the Trustee. In
case an Event of Default has occurred (that has not been cured or waived), the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after
the curing or waiving of all such Events of Default that may have occurred:
(1) the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Indenture, and the Trustee
shall not be liable except for the performance of such duties and obligations as
are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on the part of the Trustee,
the Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates or opinions
furnished to the Trustee and conforming to the requirements of this Indenture;
but in the case of any such certificates or Opinions that by any provision
hereof are specifically required to be furnished to the Trustee, the Trustee
shall be under a duty to examine the same to determine whether or not they
conform to the requirement of this Indenture;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Responsible Officers of the
Trustee;
(iii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the Company pursuant to this Indenture or of the Holders of not
less than a majority in principal amount of the Junior
30
<PAGE> 38
Subordinated Debentures at the time Outstanding relating to the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee under this Indenture;
and
(iv) none of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if there is reasonable ground for believing that
the repayment of such funds or liability is not reasonably assured to it under
the terms of this Indenture or adequate indemnity against such risk is not
reasonably assured to it.
9.2 CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 9.1:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond, security or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) Any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by a Board Resolution or an
instrument signed in the name of the Company by the Chairman, the President or
any Vice President and by the Secretary or an Assistant Secretary or the Chief
Accounting Officer thereof (unless other evidence in respect thereof is
specifically prescribed herein);
(c) The Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken or suffered or omitted hereunder
in good faith and in reliance thereon;
(d) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Securityholders, pursuant to the provisions of this
Indenture, unless such Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby; nothing contained herein shall,
however, relieve the Trustee of the obligation, upon the occurrence of an Event
of Default (that has not been cured or waived) to exercise such of the rights
and powers vested in it by this Indenture, and to use the same degree of care
and skill in their exercise as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs;
(e) The Trustee shall not be liable for any action taken or omitted
to be taken by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture;
(f) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
security, or other papers or documents, unless requested in writing so to do by
the Holders of not less than a majority in principal amount of the
31
<PAGE> 39
Outstanding Junior Subordinated Debentures (determined as provided in Section
10.4); provided, however, that if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely to be incurred by it in the
making of such investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms of this
Indenture, the Trustee may require reasonable indemnity against such costs,
expenses or liabilities as a condition to so proceeding. The reasonable expense
of every such examination shall be paid by the Company or, if paid by the
Trustee, shall be repaid by the Company upon demand;
(g) The Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed in good faith by it
hereunder; and
(h) The Trustee shall not be deemed to have knowledge of default or
an Event of Default, unless and until it receives written notification of such
Event of Default from the Company or by the holders of at least 25% of the
aggregate principal amount of Junior Subordinated Debentures at the tie
outstanding.
9.3 TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF THE JUNIOR
SUBORDINATED DEBENTURES.
(a) The recitals contained herein and in the Junior Subordinated
Debentures shall be taken as the statements of the Company and the Trustee
assumes no responsibility for the correctness of the same.
(b) The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Junior Subordinated Debentures.
(c) The Trustee shall not be accountable for the use or application
by the Company of any of the Junior Subordinated Debentures or of the proceeds
of such Junior Subordinated Debentures, or for the use or application of any
moneys paid over by the Trustee in accordance with any provision of this
Indenture, or for the use or application of any moneys received by any paying
agent other than the Trustee.
9.4 MAY HOLD JUNIOR SUBORDINATED DEBENTURES.
The Trustee or any paying agent or Securities Registrar, in its
individual or any other capacity, may become the owner or pledgee of Junior
Subordinated Debentures with the same rights it would have if it were not
Trustee, paying agent or Securities Registrar.
9.5 MONEYS HELD IN TRUST.
Subject to the provisions of Section 13.5, all moneys received by the
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any moneys received by it hereunder except such as it
may agree with the Company to pay thereon.
32
<PAGE> 40
9.6 COMPENSATION AND REIMBURSEMENT.
(a) The Company covenants and agrees to pay to the Trustee, and the
Trustee shall be entitled to, such reasonable compensation (which shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust), as the Company and the Trustee shall agree in writing in a
separate fee agreement, for all services rendered by it in the execution of the
trusts hereby created and in the exercise and performance of any of the powers
and duties hereunder of the Trustee, and, except as otherwise expressly provided
herein, the Company will pay or reimburse the Trustee upon its request for all
reasonable costs, expenses, disbursements and advances incurred or made by the
Trustee in accordance with any of the provisions of this Indenture (including
the reasonable compensation and the expenses and disbursements of its counsel
and of all Persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence or bad faith. The
Company also covenants to indemnify the Trustee, including in its individual
capacity, (and its officers, agents, directors and employees) for, and to hold
it harmless against, any loss, liability, claim or expense incurred without
negligence or bad faith on the part of the Trustee and arising out of or in
connection with the acceptance or administration of this trust, including the
costs and expenses of defending itself against any claim of liability in the
premises.
(b) The obligations of the Company under this Section to compensate
and indemnify the Trustee and to pay or reimburse the Trustee for expenses,
disbursements and advances shall constitute additional indebtedness hereunder
and shall continue beyond the termination of this Indenture. Such additional
indebtedness shall be secured by a lien prior to that of the Junior Subordinated
Debentures upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the benefit of the Holders of the Junior
Subordinated Debentures.
9.7 RELIANCE ON OFFICERS' CERTIFICATE.
Except as otherwise provided in Section 9.1, whenever in the
administration of the provisions of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking or
suffering or omitting to take any action hereunder, such matter (unless other
evidence in respect thereof be herein specifically prescribed) may, in the
absence of negligence or bad faith on the part of the Trustee, be deemed to be
conclusively proved and established by an Officers' Certificate delivered to the
Trustee and such certificate, in the absence of negligence or bad faith on the
part of the Trustee, shall be full warrant to the Trustee for any action taken,
suffered or omitted to be taken by it under the provisions of this Indenture
upon the faith thereof.
9.8 DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee has or shall acquire any "conflicting interest" within
the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the
Company shall in all respects comply with the provisions of Section 310(b) of
the Trust Indenture Act.
33
<PAGE> 41
9.9 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee with respect to the Junior
Subordinated Debentures issued hereunder which shall at all times be a
corporation organized and doing business under the laws of the United States of
America or any state or territory thereof or of the District of Columbia, or a
corporation or other Person permitted to act as trustee by the Commission,
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of at least $50,000,000, and subject to supervision or
examination by federal, state, territorial, or District of Columbia authority.
If such corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. The
Company may not, nor may any Person directly or indirectly controlling,
controlled by, or under common control with the Company, serve as Trustee. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Trustee shall resign immediately in the manner
and with the effect specified in Section 9.10.
9.10 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) The Trustee, or any successor hereafter appointed, may at any
time resign by giving written notice thereof to the Company and by transmitting
notice of resignation by mail, first-class postage prepaid, to the
Securityholders, as their names and addresses appear upon the Securities
Register. Upon receiving such notice of resignation, the Company shall promptly
appoint a successor trustee by written instrument, in duplicate, executed by
order of the Board of Directors, one copy of which instrument shall be delivered
to the resigning Trustee and one copy to the successor trustee. If no successor
trustee shall have been so appointed and have accepted appointment within 30
days after the mailing of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
trustee, or any Securityholder who has been a bona fide Holder of Junior
Subordinated Debentures for at least six months may, subject to the provisions
of Section 7.7, on behalf of such Securityholder and all other Holders, petition
any such court for the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
appoint a successor trustee.
(b) In case at any time any one of the following shall occur:
(i) the Trustee shall fail to comply with the provisions of
Section 9.8 after written request therefor by the Company or by any
Securityholder who has been a bona fide Holder of Junior Subordinated Debentures
for at least six months; or
(ii) the Trustee shall cease to be eligible in accordance with
the provisions of Section 9.9 and shall fail to resign after written request
therefor by the Company or by any such Securityholder; or
(iii) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or commence a voluntary bankruptcy proceeding,
or a receiver of the
34
<PAGE> 42
Trustee or of its property shall be appointed or consented to, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then, in
any such case, the Company may remove the Trustee and appoint a successor
trustee by written instrument, in duplicate, executed by order of the Board of
Directors, one copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor trustee, or, subject to the provisions of
Section 7.7, unless the Trustee's duty to resign is stayed as provided herein,
any Securityholder who has been a bona fide Holder of Junior Subordinated
Debentures for at least six months may, on behalf of that Holder and all other
Holders, petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor trustee. Such court may thereupon
after such notice, if any, as it may deem proper and prescribe, remove the
Trustee and appoint a successor trustee.
(c) The Holders of a majority in aggregate principal amount of the
Junior Subordinated Debentures at the time Outstanding may at any time remove
the Trustee by so notifying the Trustee and the Company and may appoint a
successor Trustee with the consent of the Company.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall become
effective upon acceptance of appointment by the successor trustee as provided in
Section 9.11.
(e) Any successor trustee appointed pursuant to this Section may be
appointed with respect to the Junior Subordinated Debentures, and at any time
there shall be only one Trustee with respect to the Junior Subordinated
Debentures.
9.11 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor trustee,
every such successor trustee so appointed shall execute, acknowledge and deliver
to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on the request of the Company or the
successor trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor trustee all the
rights, powers, and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor trustee all property and money held by
such retiring Trustee hereunder.
(b) Upon request of any such successor trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor trustee all such rights, powers and trusts referred
to in paragraph (a) of this Section.
(c) No successor trustee shall accept its appointment unless at the
time of such acceptance such successor trustee shall be qualified and eligible
under this Article IX.
35
<PAGE> 43
(d) Upon acceptance of appointment by a successor trustee as
provided in this Section, the Company shall transmit notice of the succession of
such trustee hereunder by mail, first-class postage prepaid, to the
Securityholders, as their names and addresses appear upon the Securities
Register. If the Company fails to transmit such notice within ten days after
acceptance of appointment by the successor trustee, the successor trustee shall
cause such notice to be transmitted at the expense of the Company.
9.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the corporate trust business of the Trustee, shall be
the successor of the Trustee hereunder, provided that such corporation shall be
qualified and eligible under the provisions of this Article Nine, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding. In case any
Junior Subordinated Debentures shall have been authenticated, but not delivered,
by the Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such authentication and
deliver the Junior Subordinated Debentures so authenticated with the same effect
as if such successor Trustee had itself authenticated such Junior Subordinated
Debentures.
9.13 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with Section 311(a) of the Trust Indenture
Act, excluding any creditor relationship described in Section 311(b) of the
Trust Indenture Act. A Trustee who has resigned or been removed shall be subject
to Section 311(a) of the Trust Indenture Act to the extent included therein.
9.14 APPOINTMENT OF AUTHENTICATING AGENT.
At any time when any of the Junior Subordinated Debentures remain
Outstanding, the Trustee may appoint an Authenticating Agent or Agents which
shall be authorized to act on behalf of the Trustee to authenticate Junior
Subordinated Debentures issued upon original issuance, exchange, registration of
transfer or partial redemption thereof or pursuant to Section 2.8, and Junior
Subordinated Debentures so authenticated shall be entitled to the benefits of
this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Junior Subordinated Debentures
by the Trustee or the Trustee's certificate of authentication, such reference
shall be deemed to include authentication and delivery on behalf of the Trustee
by an Authenticating Agent and a certificate of authentication executed on
behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent
shall be acceptable to the Company and shall at all times be a corporation
organized and doing business under the laws of the United States of America, any
state thereof or the District of Columbia, authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of not less than
$10,000,000 and subject to supervision or examination by federal or state
authority. If such Authenticating Agent publishes reports of condition at least
annually, pursuant to law or to the requirements of such
36
<PAGE> 44
supervision or examining authority, for the purposes of this Section, the
combined capital and surplus of such Authenticating Agent shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section, such Authenticating
Agent shall resign immediately in the manner and with the effect specified in
this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such notice of
resignation or upon such termination, or in case at any time such Authenticating
Agent shall cease to be eligible in accordance with the provisions of this
Section, the Trustee may appoint a successor Authenticating Agent which shall be
acceptable to the Company and shall mail written notice of such appointment by
first-class mail, postage prepaid, to all Securityholders as their names and
addresses appear in the Securities Register. Any successor Authenticating Agent
upon acceptance of its appointment hereunder shall become vested with all the
rights, powers and duties of its predecessor hereunder, with the like effect as
if originally named as an Authenticating Agent herein. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section, and to the
extent such fees are paid by the Trustee the Trustee shall be entitled to be
reimbursed for such payments, subject to the provisions of Section 9.6.
If an appointment is made pursuant to this Section, the Junior
Subordinated Debentures may have endorsed thereon, in lieu of the form of
certificate of authentication set forth in Section 8.1, a certificate of
authentication in the following form:
"This is one of the Junior Subordinated Debentures described in the
within mentioned Indenture."
WILMINGTON TRUST COMPANY,
As Trustee
By:
----------------------
As Authenticating Agent
37
<PAGE> 45
By:______________________
Authorized Signature
ARTICLE X. CONCERNING THE SECURITYHOLDERS
10.1 EVIDENCE OF ACTION BY SECURITYHOLDERS.
Whenever in this Indenture it is provided that the Holders of a
majority or specified percentage in aggregate principal amount of the Junior
Subordinated Debentures may take any action (including the making of any demand
or request, the giving of any notice, consent or waiver or the taking of any
other action), the fact that at the time of taking any such action the Holders
of such majority or specified percentage have joined therein may be evidenced by
any instrument or any number of instruments of similar tenor executed by such
Holders in Person or by agent or proxy appointed in writing.
If the Company shall solicit from the Securityholders any request,
demand, authorization, direction, notice, consent, waiver or other action, the
Company may, at its option, as evidenced by an Officers' Certificate, fix in
advance a record date for the determination of Securityholders entitled to give
such request, demand, authorization, direction, notice, consent, waiver or other
action, but the Company shall have no obligation to do so. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other action may be given before or after the record date, but only
the Securityholders of record at the close of business on the record date shall
be deemed to be Securityholders for the purposes of determining whether
Securityholders of the requisite proportion of Outstanding Junior Subordinated
Debentures have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other action, and for that
purpose the Outstanding Junior Subordinated Debentures shall be computed as of
the record date; provided, however, that no such authorization, agreement or
consent by such Securityholders on the record date shall be deemed effective
unless it shall become effective pursuant to the provisions of this Indenture
not later than six months after the record date.
10.2 PROOF OF EXECUTION BY SECURITYHOLDERS.
Subject to the provisions of Section 6.1, proof of the execution of any
instrument by a Securityholder (such proof will not require notarization) or his
agent or proxy and proof of the holding by any Person of any of the Junior
Subordinated Debentures shall be sufficient if made in the following manner:
(a) The fact and date of the execution by any such Person of any
instrument may be proved in any reasonable manner acceptable to the Trustee.
(b) The ownership of Junior Subordinated Debentures shall be proved
by the Securities Register or by a certificate of the Securities Registrar
thereof.
38
<PAGE> 46
(c) The Trustee may require such additional proof of any matter
referred to in this Section as it shall deem necessary.
10.3 WHO MAY BE DEEMED OWNERS.
Prior to the due presentment for registration of transfer of any Junior
Subordinated Debenture, the Company, the Trustee, any paying agent and any
Securities Registrar may deem and treat the Person in whose name such Junior
Subordinated Debenture shall be registered upon the books of the Company as the
absolute owner of such Junior Subordinated Debenture (whether or not such Junior
Subordinated Debenture shall be overdue and notwithstanding any notice of
ownership or writing thereon made by anyone other than the Securities Registrar)
for the purpose of receiving payment of or on account of the principal of and
(subject to Section 2.3) interest on such Junior Subordinated Debenture and for
all other purposes; and neither the Company nor the Trustee nor any paying agent
nor any Securities Registrar shall be affected by any notice to the contrary.
10.4 CERTAIN JUNIOR SUBORDINATED DEBENTURES OWNED BY COMPANY
DISREGARDED.
In determining whether the Holders of the requisite aggregate principal
amount of Junior Subordinated Debentures have concurred in any direction,
consent or waiver under this Indenture, the Junior Subordinated Debentures that
are owned by the Company or any other obligor on the Junior Subordinated
Debentures or by any Person directly or indirectly controlling or controlled by
or under common control with the Company or any other obligor on the Junior
Subordinated Debentures shall be disregarded and deemed not to be Outstanding
for the purpose of any such determination, except that for the purpose of
determining whether the Trustee shall be protected in relying on any such
direction, consent or waiver, only Junior Subordinated Debentures that the
Trustee has been notified are so owned shall be so disregarded. In case of a
dispute as to such right, any decision by the Trustee taken upon the advice of
counsel shall be full protection to the Trustee.
10.5 ACTIONS BINDING ON FUTURE SECURITYHOLDERS.
At any time prior to (but not after) the evidencing to the Trustee, as
provided in Section 10.1, of the taking of any action by the Holders of the
majority or percentage in aggregate principal amount of the Junior Subordinated
Debentures specified in this Indenture in connection with such action, any
Holder who is shown by the evidence to have consented to such action may, by
filing written notice with the Trustee, and upon proof of holding as provided in
Section 10.2, revoke such action so far as concerns such Holder's Junior
Subordinated Debentures. Except as aforesaid any such action taken by the Holder
shall be conclusive and binding upon such Holder and upon all future Holders and
owners of such Holder's Junior Subordinated Debentures, and of any Junior
Subordinated Debentures issued in exchange therefor, on registration of transfer
thereof or in place thereof, irrespective of whether or not any notation in
regard thereto is made upon such Junior Subordinated Debentures. Any action
taken by the Holders of the majority or percentage in aggregate principal amount
of the Junior Subordinated Debentures specified in this Indenture in connection
with such action shall be conclusively
39
<PAGE> 47
binding upon the Company, the Trustee and the Holders of all the Junior
Subordinated Debentures.
ARTICLE XI. SUPPLEMENTAL INDENTURES
11.1 SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF SECURITYHOLDERS.
In addition to any supplemental indenture otherwise authorized by this
Indenture, the Company and the Trustee may from time to time and at any time
enter into an indenture or indentures supplemental hereto (which shall conform
to the provisions of the Trust Indenture Act as then in effect), without the
consent of the Securityholders, for one or more of the following purposes:
(a) to cure any ambiguity, defect, or inconsistency herein, or in
the Junior Subordinated Debentures, provided that any such action does not
materially adversely affect the interests of the Holders or the holders of the
Preferred Securities so long as they remain outstanding;
(b) to comply with Article XII;
(c) to provide for uncertificated Junior Subordinated Debentures in
addition to or in place of certificated Junior Subordinated Debentures;
(d) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the Company;
(e) to add to, delete from, or revise the conditions, limitations,
and restrictions on the authorized amount, terms, or purposes of issue,
authentication, and delivery of Junior Subordinated Debentures, as herein set
forth;
(f) to make any change that does not adversely affect the rights of
any Securityholder in any material respect;
(g) to establish the form of any certifications required to be
furnished pursuant to the terms of this Indenture or to add to the rights of the
Holders; or
(h) qualify or maintain the qualification of this Indenture under
the Trust Indenture Act.
The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into any such supplemental indenture
that affects the Trustee's own rights, duties or immunities under this Indenture
or otherwise.
40
<PAGE> 48
Any supplemental indenture authorized by the provisions of this Section
may be executed by the Company and the Trustee without the consent of the
Holders of any of the Junior Subordinated Debentures at the time Outstanding,
notwithstanding any of the provisions of Section 11.2.
11.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF SECURITYHOLDERS.
With the consent (evidenced as provided in Section 10.1) of the Holders
of not less than a majority in aggregate principal amount of the Junior
Subordinated Debentures at the time Outstanding, the Company, when authorized by
Board Resolutions, and the Trustee may from time to time and at any time enter
into an indenture or indentures supplemental hereto (which shall conform to the
provisions of the Trust Indenture Act as then in effect) for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of any supplemental indenture or of modifying in
any manner not covered by Section 11.1 the rights of the Holders of the Junior
Subordinated Debentures under this Indenture; provided, however, that no such
supplemental indenture shall without the consent of the Holders of each Junior
Subordinated Debenture then Outstanding, (i) change (except as expressly
provided herein pursuant to Section 2.2) the stated maturity of the Junior
Subordinated Debentures or reduce the principal amount thereof; or reduce the
rate or extend (except as expressly provided herein pursuant to Section 4.1) the
time of payment of interest thereon; or (ii) reduce the percentage of principal
amount of Junior Subordinated Debentures, the Holders of which are required to
consent to any such supplemental indenture; provided, further, that if the
Junior Subordinated Debentures are held by the Trust or a trustee of the Trust,
such supplemental indenture shall not be effective until the holders of a
majority in aggregate Liquidation Amount of Preferred Securities shall have
consented to such supplemental indenture; provided further, that if the consent
of the Holder of each Outstanding Junior Subordinated Debenture is required,
such supplemental indenture shall not be effective until each Holder of the
Trust Securities shall have consented to such supplemental indenture.
It shall not be necessary for the consent of the Securityholders to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such consent shall approve the substance thereof.
11.3 EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture pursuant to the
provisions of this Article or of Section 12.1, this Indenture shall be deemed to
be modified and amended in accordance therewith.
11.4 JUNIOR SUBORDINATED DEBENTURES AFFECTED BY SUPPLEMENTAL INDENTURES.
Junior Subordinated Debentures, affected by a supplemental indenture,
authenticated and delivered after the execution of such supplemental indenture
pursuant to the provisions of this Article or of Section 12.1, may bear a
notation in form approved by the Company, as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new
41
<PAGE> 49
Junior Subordinated Debentures so modified as to conform, in the opinion of the
Board of Directors, to any modification of this Indenture contained in any such
supplemental indenture may be prepared by the Company, authenticated by the
Trustee and delivered in exchange for the Junior Subordinated Debentures then
Outstanding.
11.5 EXECUTION OF SUPPLEMENTAL INDENTURES.
Upon the request of the Company, accompanied by Board Resolutions
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of Securityholders required
to consent thereto as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion but shall not be
obligated to enter into such supplemental indenture. The Trustee, subject to the
provisions of Section 9.1, may receive an Opinion of Counsel as conclusive
evidence that any supplemental indenture executed pursuant to this Article is
authorized or permitted by, and conforms to, the terms of this Article and that
it is proper for the Trustee under the provisions of this Article to join in the
execution thereof.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the Company
shall transmit by mail, first-class postage prepaid, a notice, setting forth in
general terms the substance of such supplemental indenture, to the
Securityholders as their names and addresses appear upon the Securities
Register. Any failure of the Company to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture.
ARTICLE XII. SUCCESSOR CORPORATION
12.1 COMPANY MAY CONSOLIDATE, ETC.
The Company shall not consolidate with or merge into any other Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, and no Person shall consolidate with or merge into the
Company or convey, transfer or lease its properties and assets substantially as
an entirety to the Company, unless (i) in case the Company consolidates with or
merges into another Person or conveys or transfers its properties and assets
substantially as an entirety to any Person, the successor Person is organized
under the laws of the United States or any state or the District of Columbia,
and such successor Person expressly assumes the Company's obligations on the
Junior Subordinated Debentures issued under this Indenture; (ii) immediately
after giving effect thereto, no Event of Default, and no event which, after
notice or lapse of time or both, would become an Event of Default, shall have
occurred and be continuing; and (iii) such successor Person expressly assumes
the due and punctual performance and observance of all the covenants and
conditions of this Indenture to be kept and performed by the Company by
executing and delivering a supplemental indenture in form and substance
satisfactory to the Trustee.
42
<PAGE> 50
12.2 SUCCESSOR SUBSTITUTED.
(a) In case of any such consolidation, merger, sale, conveyance,
transfer or other disposition and upon consent of the Trustee and the assumption
by the successor Person by supplemental indenture, executed and delivered to the
Trustee and satisfactory in form to the Trustee, of the due and punctual payment
of the principal of and interest on all of the Junior Subordinated Debentures
Outstanding and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Company, such successor
Person shall succeed to and be substituted for the Company, with the same effect
as if it had been named as the Company herein, and thereupon the predecessor
corporation shall be relieved of all obligations and covenants under this
Indenture and the Junior Subordinated Debentures.
(b) In case of any such consolidation, merger, sale, conveyance,
transfer or other disposition such changes in phraseology and form (but not in
substance) may be made in the Junior Subordinated Debentures thereafter to be
issued as may be appropriate.
(c) Nothing contained in this Indenture or in any of the Junior
Subordinated Debentures will prevent the Company from merging into itself or
acquiring by purchase or otherwise all or any part of the property of any other
Person (whether or not affiliated with the Company).
12.3 EVIDENCE OF CONSOLIDATION, ETC., TO TRUSTEE.
The Trustee, subject to the provisions of Section 9.1, may receive an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, conveyance, transfer or other disposition, and any such assumption, comply
with the provisions of this Article.
ARTICLE XIII. SATISFACTION AND DISCHARGE
13.1 SATISFACTION AND DISCHARGE OF INDENTURE.
If at any time: (a) the Company shall have delivered to the Trustee for
cancellation all Junior Subordinated Debentures theretofore authenticated (other
than any Junior Subordinated Debentures that shall have been destroyed, lost or
stolen and that shall have been replaced or paid as provided in Section 2.8) and
Junior Subordinated Debentures for whose payment money or Governmental
Obligations have theretofore been deposited in trust or segregated and held in
trust by the Company (and thereupon repaid to the Company or discharged from
such trust, as provided in Section 13.5); or (b) all such Junior Subordinated
Debentures not theretofore delivered to the Trustee for cancellation shall have
become due and payable, or are by their terms to become due and payable within
one year or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and the
Company shall deposit or cause to be deposited with the Trustee as trust funds
the entire amount in moneys or Governmental Obligations sufficient or a
combination thereof sufficient, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay at maturity or upon redemption all Junior
43
<PAGE> 51
Subordinated Debentures not theretofore delivered to the Trustee for
cancellation, including principal and interest due or to become due to such date
of maturity or date fixed for redemption, as the case may be, and if the Company
shall also pay or cause to be paid all other sums payable hereunder by the
Company; then this Indenture shall thereupon cease to be of further effect
except for the provisions of Sections 2.2, 2.3, 2.4, 2.5, 4.1, 4.2, 4.3 and
9.10, that shall survive until the date of maturity or redemption date, as the
case may be, and Sections 9.6 and 13.5, that shall survive to such date and
thereafter, and the Trustee, on demand of the Company and at the cost and
expense of the Company, shall execute proper instruments acknowledging
satisfaction of and discharging this Indenture.
13.2 DISCHARGE OF OBLIGATIONS.
If at any time all such Junior Subordinated Debentures not theretofore
delivered to the Trustee for cancellation or that have not become due and
payable as described in Section 13.1 shall have been paid by the Company by
depositing irrevocably with the Trustee, as trust funds, moneys or an amount of
Governmental Obligations sufficient to pay at maturity or upon redemption all
such Junior Subordinated Debentures not theretofore delivered to the Trustee for
cancellation, including principal and interest due or to become due to such date
of maturity or date fixed for redemption, as the case may be, and if the Company
shall also pay or cause to be paid all other sums payable hereunder by the
Company, then after the date such moneys or Governmental Obligations, as the
case may be, are deposited with the Trustee the obligations of the Company under
this Indenture shall cease to be of further effect except for the provisions of
Sections 2.2, 2.3, 2.4, 2.5, 4.1, 4.2, 4.3, 9.6, 9.10 and 13.5 hereof that shall
survive until such Junior Subordinated Debentures shall mature and be paid.
Thereafter, Sections 9.6 and 13.5 shall survive.
13.3 DEPOSITED MONEYS TO BE HELD IN TRUST.
All monies or Governmental Obligations deposited with the Trustee
pursuant to Sections 13.1 or 13.2 shall be held in trust and shall be available
for payment as due, either directly or through any paying agent (including the
Company acting as its own paying agent), to the Holders of the Junior
Subordinated Debentures for the payment or redemption of which such moneys or
Governmental Obligations have been deposited with the Trustee.
13.4 PAYMENT OF MONIES HELD BY PAYING AGENTS.
In connection with the satisfaction and discharge of this Indenture all
moneys or Governmental Obligations then held by any paying agent under the
provisions of this Indenture shall, upon demand of the Company, be paid to the
Trustee and thereupon such paying agent shall be released from all further
liability with respect to such moneys or Governmental Obligations.
13.5 REPAYMENT TO COMPANY.
Any monies or Governmental Obligations deposited with any paying agent
or the Trustee, or then held by the Company in trust for payment of principal of
or interest on the Junior Subordinated Debentures that are not applied but
remain unclaimed by the Holders of
44
<PAGE> 52
such Junior Subordinated Debentures for at least two years after the date upon
which the principal of or interest on such Junior Subordinated Debentures shall
have respectively become due and payable, shall be repaid to the Company
on of each year or (if then held by the Company) shall be discharged
from such trust; and thereupon the paying agent and the Trustee shall be
released from all further liability with respect to such moneys or Governmental
Obligations, and the Holder of any of the Junior Subordinated Debentures
entitled to receive such payment shall thereafter, as an unsecured general
creditor, look only to the Company for the payment thereof.
ARTICLE XIV. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
14.1 NO RECOURSE.
No recourse under or upon any obligation, covenant or agreement of this
Indenture, or of any Junior Subordinated Debenture, or for any claim based
thereon or otherwise in respect thereof, shall be had against any incorporator,
stockholder, officer or director as such, past, present or future, of the
Company or of any predecessor or successor corporation, either directly or
through the Company or any such predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly understood that this
Indenture and the obligations issued hereunder are solely corporate obligations,
and that no such personal liability whatever shall attach to, or is or shall be
incurred by, the incorporators, stockholders, officers or directors as such, of
the Company or of any predecessor or successor corporation, or any of them,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or in any of the Junior Subordinated Debentures or implied therefrom; and that
any and all such personal liability of every name and nature, either at common
law or in equity or by constitution or statute, of, and any and all such rights
and claims against, every such incorporator, stockholder, officer or director as
such, because of the creation of the indebtedness hereby authorized, or under or
by reason of the obligations, covenants or agreements contained in this
Indenture or in any of the Junior Subordinated Debentures or implied therefrom,
are hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issuance of such
Junior Subordinated Debentures.
ARTICLE XV. MISCELLANEOUS PROVISIONS
15.1 EFFECT ON SUCCESSORS AND ASSIGNS.
All the covenants, stipulations, promises and agreements in this
Indenture contained by or on behalf of the Company or the Trustee shall bind
their respective successors and assigns, whether so expressed or not.
45
<PAGE> 53
15.2 ACTIONS BY SUCCESSOR.
Any act or proceeding by any provision of this Indenture authorized or
required to be done or performed by any board, committee or officer of the
Company shall and may be done and performed with like force and effect by the
corresponding board, committee or officer of any corporation that shall at the
time be the lawful sole successor of the Company.
15.3 SURRENDER OF COMPANY POWERS.
The Company by instrument in writing executed by authority of 2/3
(two-thirds) of its Board of Directors and delivered to the Trustee may
surrender any of the powers reserved to the Company, and thereupon such power so
surrendered shall terminate both as to the Company and as to any successor
corporation.
15.4 NOTICES.
Except as otherwise expressly provided herein any notice or demand that
by any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the Holders of Junior Subordinated Debentures to or
on the Company may be given or served by being deposited first-class postage
prepaid in a post-office letterbox addressed (until another address is filed in
writing by the Company with the Trustee), as follows: c/o Mercantile Bank
Corporation, 216 North Division Avenue, Grand Rapids, Michigan, 49503 Attention:
Chairman. Any notice, election, request or demand by the Company or any
Securityholder to or upon the Trustee shall be deemed to have been sufficiently
given or made, for all purposes, if given or made in writing at the Corporate
Trust Office of the Trustee.
15.5 GOVERNING LAW.
This Indenture and each Junior Subordinated Debenture shall be deemed
to be a contract made under the internal laws of the State of Michigan and for
all purposes shall be construed in accordance with the laws of said state,
provided that the duties, rights, immunities and the standard of care of the
Trustee shall be governed by Delaware law.
15.6 TREATMENT OF JUNIOR SUBORDINATED DEBENTURES AS DEBT.
It is intended that the Junior Subordinated Debentures will be treated
as indebtedness and not as equity for federal income tax purposes. The
provisions of this Indenture shall be interpreted to further this intention.
15.7 COMPLIANCE CERTIFICATES AND OPINIONS.
(a) Upon any application or demand by the Company to the Trustee to
take any action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent provided for in this Indenture relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent have been complied with, except that in
the case of any such application or demand as to which the furnishing of such
documents
46
<PAGE> 54
is specifically required by any provision of this Indenture relating to such
particular application or demand, no additional certificate or opinion
need be furnished.
(b) Every certificate or opinion delivered to the Trustee with respect
to compliance with a condition or covenant in this Indenture shall include (1) a
statement that the Person making such certificate or opinion has read such
covenant or condition; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based; (3) a statement that, in the opinion of
such Person, such Person has made such examination or investigation as is
necessary to enable such Person to express an informed opinion as to whether or
not such covenant or condition has been complied with; and (4) a statement as to
whether or not, in the opinion of such Person, such condition or covenant has
been complied with; provided, however, that each such certificate shall comply
with the provisions of Section 314 of the Trust Indenture Act.
15.8 PAYMENTS ON BUSINESS DAYS.
In any case where the date of maturity of interest or principal of the
Junior Subordinated Debentures or the date of redemption of the Junior
Subordinated Debentures shall not be a Business Day, then payment of interest or
principal will be made on the next succeeding Business Day (without any
additional interest or other payment in respect of any such delay), except that,
if such Business Day is in the next succeeding calendar year, such payment shall
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on the date such payment was originally payable.
15.9 CONFLICT WITH TRUST INDENTURE ACT.
If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
15.10 COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute but
one and the same instrument.
15.11 SEPARABILITY.
In case any one or more of the provisions contained in this Indenture
or in the Junior Subordinated Debentures shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Indenture or of
the Junior Subordinated Debentures, but this Indenture and the Junior
Subordinated Debentures shall be construed as if such invalid or illegal or
unenforceable provision had never been contained herein or therein.
47
<PAGE> 55
15.12 ASSIGNMENT.
The Company will have the right at all times to assign any of its
respective rights or obligations under this Indenture to a direct or indirect
wholly-owned Subsidiary of the Company, provided that, in the event of any such
assignment, the Company will remain liable for all such obligations. Subject to
the foregoing, this Indenture is binding upon and inures to the benefit of the
parties thereto and their respective successors and assigns. This Indenture may
not otherwise be assigned by the parties hereto.
15.13 ACKNOWLEDGMENT OF RIGHTS.
The Company acknowledges that, with respect to any Junior Subordinated
Debentures held by the Trust or a trustee of the Trust, if the Property Trustee
of the Trust fails to enforce its rights under this Indenture as the Holder of
the Junior Subordinated Debentures held as the assets of the Trust, any holder
of Preferred Securities may institute legal proceedings directly against the
Company to enforce such Property Trustee's rights under this Indenture without
first instituting any legal proceedings against such Property Trustee or any
other Person or entity. Notwithstanding the foregoing, if an Event of Default
has occurred and is continuing and such event is attributable to the failure of
the Company to pay interest or principal on the Junior Subordinated Debentures
on the date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date), the Company acknowledges that a holder of
Preferred Securities may directly institute a proceeding for enforcement of
payment to such holder of the principal of or interest on the Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such holder on or after the
respective due date specified in the Junior Subordinated Debentures. This
Section 15.13 may not be amended without the prior written consent of the
holders of all of the Preferred Securities.
ARTICLE XVI. SUBORDINATION OF JUNIOR SUBORDINATED DEBENTURES
16.1 AGREEMENT TO SUBORDINATE.
The Company covenants and agrees, and each Holder of Junior
Subordinated Debentures issued hereunder by such Holder's acceptance thereof
likewise covenants and agrees, that all Junior Subordinated Debentures shall be
issued subject to the provisions of this Article Sixteen; and each Holder,
whether upon original issue or upon transfer or assignment thereof, accepts and
agrees to be bound by such provisions.
The payment by the Company of the principal of and interest on all
Junior Subordinated Debentures issued hereunder shall, to the extent and in the
manner hereinafter set forth, be subordinated and junior in right of payment to
the prior payment in full of all Senior and Subordinated Debt, whether
outstanding at the date of this Indenture or thereafter incurred.
No provision of this Article XVI shall prevent the occurrence of any
default or Event of Default hereunder.
48
<PAGE> 56
16.2 DEFAULT ON SENIOR AND SUBORDINATED DEBT.
In the event and during the continuation of any default by the Company
in the payment of principal, premium, interest or any other payment due on any
Senior and Subordinated Debt of the Company or in the event that the maturity of
any Senior and Subordinated Debt of the Company has been accelerated because of
a default, then, in either case, no payment shall be made by the Company with
respect to the principal of or interest on the Junior Subordinated Debentures.
In the event that, notwithstanding the foregoing, any payment shall be
received by the Trustee when such payment is prohibited by the preceding
paragraph of this Section 16.2, such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Senior and
Subordinated Debt or their respective representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Senior and
Subordinated Debt may have been issued, as their respective interests may
appear, but only to the extent that the holders of the Senior and Subordinated
Debt (or their representative or representatives or a trustee) notify the
Trustee in writing within 90 days of such payment of the amounts then due and
owing on the Senior and Subordinated Debt and only the amounts specified in such
notice to the Trustee shall be paid to the holders of Senior and Subordinated
Debt.
16.3 LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any payment by the Company or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding-up or liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due upon all Senior and
Subordinated Debt of the Company shall first be paid in full, or payment thereof
provided for in money in accordance with its terms, before any payment is made
by the Company on account of the principal or interest on the Junior
Subordinated Debentures; and upon any such dissolution or winding-up or
liquidation or reorganization, any payment by the Company, or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the Holders or the Trustee would be entitled to receive
from the Company, except for the provisions of this Article Sixteen, shall be
paid by the Company or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other Person making such payment or distribution, or by the
Holders or by the Trustee under the Indenture if received by them or it,
directly to the holders of Senior and Subordinated Debt of the Company (pro rata
to such holders on the basis of the respective amounts of Senior and
Subordinated Debt held by such holders, as calculated by the Company) or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior and
Subordinated Debt may have been issued, as their respective interests may
appear, to the extent necessary to pay such Senior and Subordinated Debt in
full, in money or money's worth, after giving effect to any concurrent payment
or distribution to or for the holders of such Senior and Subordinated Debt,
before any payment or distribution is made to the Holders or to the Trustee.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee before all Senior and Subordinated Debt of the
49
<PAGE> 57
Company is paid in full, or provision is made for such payment in money in
accordance with its terms, such payment or distribution shall be held in trust
for the benefit of and shall be paid over or delivered to the holders of such
Senior and Subordinated Debt or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing such Senior and Subordinated Debt may have been issued, and their
respective interests may appear, as calculated by the Company, for application
to the payment of all Senior and Subordinated Debt of the Company, as the case
may be, remaining unpaid to the extent necessary to pay such Senior and
Subordinated Debt in full in money in accordance with its terms, after giving
effect to any concurrent payment or distribution to or for the benefit of the
holders of such Senior and Subordinated Debt.
For purposes of this Article XVI, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article Sixteen with
respect to the Junior Subordinated Debentures to the payment of all Senior and
Subordinated Debt of the Company, as the case may be, that may at the time be
outstanding, provided that (i) such Senior and Subordinated Debt is assumed by
the new corporation, if any, resulting from any such reorganization or
readjustment, and (ii) the rights of the holders of such Senior and Subordinated
Debt are not, without the consent of such holders, altered by such
reorganization or readjustment. The consolidation of the Company with, or the
merger of the Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of its property
as an entirety, or substantially as an entirety, to another corporation upon the
terms and conditions provided for in Article XII of this Indenture shall not be
deemed a dissolution, winding-up, liquidation or reorganization for the purposes
of this Section 16.3 if such other corporation shall, as a part of such
consolidation, merger, conveyance or transfer, comply with the conditions stated
in Article Twelve of this Indenture. Nothing in Section 16.2 or in this Section
16.3 shall apply to claims of, or payments to, the Trustee under or pursuant to
Section 9.6 of this Indenture.
16.4 SUBROGATION.
Subject to the payment in full of all Senior and Subordinated Debt of
the Company, the rights of the Holders of the Junior Subordinated Debentures
shall be subrogated to the rights of the holders of such Senior and Subordinated
Debt to receive payments or distributions of cash, property or securities of the
Company, as the case may be, applicable to such Senior and Subordinated Debt
until the principal of and interest on the Junior Subordinated Debentures shall
be paid in full; and, for the purposes of such subrogation, no payments or
distributions to the holders of such Senior and Subordinated Debt of any cash,
property or securities to which the Holders of the Junior Subordinated
Debentures or the Trustee would be entitled except for the provisions of this
Article XVI, and no payment over pursuant to the provisions of this Article XVI
to or for the benefit of the holders of such Senior and Subordinated Debt by
Holders of the Junior Subordinated Debentures or the Trustee, shall, as between
the Company, its creditors other than holders of Senior and Subordinated Debt of
the Company, and the Holders of the Junior Subordinated Debentures, be deemed to
be a payment by the Company to or on account of such Senior and Subordinated
Debt. It is understood that the provisions of this Article XVI are and are
intended solely for the purposes of defining the relative rights of the Holders
of the
50
<PAGE> 58
Junior Subordinated Debentures, on the one hand, and the holders of such Senior
and Subordinated Debt on the other hand.
Nothing contained in this Article XVI or elsewhere in this Indenture or
in the Junior Subordinated Debentures is intended to or shall impair, as between
the Company, its creditors other than the holders of Senior and Subordinated
Debt of the Company, and the Holders of the Junior Subordinated Debentures, the
obligation of the Company, which is absolute and unconditional, to pay to the
Holders of the Junior Subordinated Debentures the principal of and interest on
the Junior Subordinated Debentures as and when the same shall become due and
payable in accordance with their terms, or is intended to or shall affect the
relative rights of the Holders of the Junior Subordinated Debentures and
creditors of the Company, other than the holders of Senior and Subordinated Debt
of the Company, nor shall anything herein or therein prevent the Trustee or the
Holder of any Junior Subordinated Debenture from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article Sixteen of the holders of such Senior
and Subordinated Debt in respect of cash, property or securities of the Company,
as the case may be, received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to
in this Article XVI, the Trustee, subject to the provisions of Section 9.1, and
the Holders of the Junior Subordinated Debentures shall be entitled to
conclusively rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding-up, liquidation or
reorganization proceedings are pending, or a certificate of the receiver,
trustee in bankruptcy, liquidation trustee, agent or other Person making such
payment or distribution, delivered to the Trustee or to the Holders of the
Junior Subordinated Debentures, for the purposes of ascertaining the Persons
entitled to participate in such distribution, the holders of Senior and
Subordinated Debt and other indebtedness of the Company, as the case may be, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article XVI.
16.5 TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder of Junior Subordinated Debentures by such Holder's
acceptance thereof authorizes and directs the Trustee on such Holder's behalf to
take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article XVI and appoints the Trustee such
Holder's attorney-in-fact for any and all such purposes.
16.6 NOTICE BY THE COMPANY.
The Company shall give prompt written notice to a Responsible Officer
of the Trustee of any fact known to the Company that would prohibit the making
of any payment of monies to or by the Trustee in respect of the Junior
Subordinated Debentures pursuant to the provisions of this Article XVI.
Notwithstanding the provisions of this Article Sixteen or any other provision of
this Indenture, the Trustee shall not be charged with knowledge of the existence
of any facts that would prohibit the making of any payment of monies to or by
the Trustee in respect of the Junior Subordinated Debentures pursuant to the
provisions of this Article XVI, unless and until a Responsible Officer of the
Trustee shall have received written notice thereof from the Company
51
<PAGE> 59
or a holder or holders of Senior and Subordinated Debt or from any trustee
therefor; and before the receipt of any such written notice, the Trustee,
subject to the provisions of Section 9.1, shall be entitled in all respects to
assume that no such facts exist; provided, however, that if the Trustee shall
not have received the notice provided for in this Section 16.6 at least two
Business Days prior to the date upon which by the terms hereof any money may
become payable for any purpose (including, without limitation, the payment of
the principal of or interest on any Junior Subordinated Debenture), then,
anything herein contained to the contrary notwithstanding, the Trustee shall
have full power and authority to receive such money and to apply the same to
the purposes for which they were received, and shall not be affected by any
notice to the contrary that may be received by it within two Business Days prior
to such date.
The Trustee, subject to the provisions of Section 9.1, shall be
entitled to conclusively rely on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior and Subordinated Debt of
the Company (or a trustee on behalf of such holder), to establish that such
notice has been given by a holder of such Senior and Subordinated Debt or a
trustee on behalf of any such holder or holders. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of such Senior and Subordinated Debt to
participate in any payment or distribution pursuant to this Article XVI, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of such Senior and Subordinated
Debt held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article XVI, and, if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
16.7 RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR AND SUBORDINATED
DEBT.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XVI in respect of any Senior and Subordinated
Debt at any time held by it, to the same extent as any other holder of Senior
and Subordinated Debt, and nothing in this Indenture shall deprive the Trustee
of any of its rights as such holder.
With respect to the holders of Senior and Subordinated Debt of the
Company, the Trustee undertakes to perform or to observe only such of its
covenants and obligations as are specifically set forth in this Article XVI, and
no implied covenants or obligations with respect to the holders of such Senior
and Subordinated Debt shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of such
Senior and Subordinated Debt and, subject to the provisions of Section 9.1, the
Trustee shall not be liable to any holder of such Senior and Subordinated Debt
if it shall pay over or deliver to Holders of Junior Subordinated Debentures,
the Company or any other Person money or assets to which any holder of such
Senior and Subordinated Debt shall be entitled by virtue of this Article XVI or
otherwise.
52
<PAGE> 60
16.8 SUBORDINATION MAY NOT BE IMPAIRED.
No right of any present or future holder of any Senior and Subordinated
Debt of the Company to enforce subordination as herein provided shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Company with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof that any such
holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior and Subordinated Debt of the Company may, at any time and
from time to time, without the consent of or notice to the Trustee or the
Holders of the Junior Subordinated Debentures, without incurring responsibility
to the Holders of the Junior Subordinated Debentures and without impairing or
releasing the subordination provided in this Article XVI or the obligations
hereunder of the Holders of the Junior Subordinated Debentures to the holders of
such Senior and Subordinated Debt, do any one or more of the following:(i)
change the manner, place or terms of payment or extend the time of payment of,
or renew or alter, such Senior and Subordinated Debt, or otherwise amend or
supplement in any manner such Senior and Subordinated Debt or any instrument
evidencing the same or any agreement under which such Senior and Subordinated
Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any
property pledged, mortgaged or otherwise securing such Senior and Subordinated
Debt; (iii) release any Person liable in any manner for the collection of such
Senior and Subordinated Debt; and (iv) exercise or refrain from exercising any
rights against the Company and any other Person.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
MERCANTILE BANK CORPORATION
By:_________________________________
Name: Gerald R. Johnson, Jr.
Title: Chairman of the
Board and Chief
Executive Officer
WILMINGTON TRUST COMPANY,
AS TRUSTEE
By:____________________________
Name:__________________________
Title:_________________________
53
<PAGE> 61
STATE OF MICHIGAN )
)ss:
COUNTY OF KENT )
On the day of , 1999, before me personally came
Gerald R. Johnson, Jr., to me known, who, being by me duly sworn, did depose and
say that he is the Chairman of MERCANTILE BANK CORPORATION, one of the
corporations described in and which executed the above instrument; and that he
signed his name thereto on behalf of said corporation by authority of the Board
of Directors of said corporation.
Witness my hand and official seal:
_________________________________
Notary Public
My Commission Expires:________________________
54
<PAGE> 62
STATE OF DELAWARE )
)ss:
COUNTY OF NEWCASTLE )
On the day of , 1999, before me personally came
, to me known, who, being by me duly sworn, did depose and
say that he/she is the of WILMINGTON TRUST COMPANY, a
Delaware banking corporation described in and which executed the above
instrument; and that he/she signed his/her name thereto on behalf of said
entity.
Witness my hand and official seal:
__________________________________
Notary Public
My Commission Expires:________________________
55
<PAGE> 63
EXHIBIT A
(FORM OF FACE OF JUNIOR SUBORDINATED DEBENTURE)
This Junior Subordinated Debenture is a [Global] Subordinated Debenture
within the meaning of the Indenture hereinafter referred to and is registered in
the name of [ ] a Depositary or a nominee of a Depositary]. This Junior
Subordinated Debenture is exchangeable for Junior Subordinated Debentures
registered in the name of a person other than [ ] the Depositary or its
nominee] only in the limited circumstances described in the Indenture, and no
transfer of this Junior Subordinated Debenture [(other than a transfer of this
Junior Subordinated Debenture as a whole by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary)] may be registered except in such limited
circumstances.
[Unless this Junior Subordinated Debenture is presented by an
authorized representative of Wilmington Trust Company (Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890-0001) to the issuer or its agent
for registration of transfer, exchange or payment, and any Junior Subordinated
Debenture issued is registered in the name of Cede & Co. or in such other name
as requested by an authorized representative of Wilmington Trust Company (and
any payment hereon is made to Cede & Co. or to such other entity as is requested
by an authorized representative of Wilmington Trust Company), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch the registered owner hereof, Cede & Co., has an interest
herein.]
Certificate No. Registered Principal Amount
_____________ $14,000,000
CUSIP No.
MERCANTILE BANK CORPORATION
% JUNIOR SUBORDINATED DEBENTURE
DUE 2029
Mercantile Bank Corporation, a Michigan corporation (the "Company",
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to Wilmington Trust
Company, as Property Trustee, or registered assigns, the principal sum of
Fourteen Million Dollars ($14,000,000) on , 2029 (which date may be
shortened as provided in the Indenture, the "Stated Maturity"), and to pay
interest on said principal sum from , 1999, or from the most recent
interest payment date (each such date, an "Interest Payment Date") to which
interest has been paid or duly provided for, quarterly (subject to deferral as
set forth herein) in arrears on the 15th day of October, January, April and
July in each year commencing October 15, 1999, at the rate of % per annum
until the principal hereof shall have become due and payable, and on any overdue
principal and (without duplication and to the extent that payment of such
interest is enforceable under applicable law) on any overdue installment of
interest at the same rate per
A-
<PAGE> 64
annum compounded quarterly. The amount of each interest payment due with respect
to the Junior Subordinated Debentures will include amounts accrued and unpaid
through the date the interest payment is due. The amount of interest payable on
any Interest Payment Date shall be computed on the basis of a 360-day year of
twelve 30-day months. In the event that any date on which interest is payable on
this Junior Subordinated Debenture is not a Business Day (as defined in the
Indenture), then payment of interest payable on such date will be made on the
next succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. The interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the person in whose name this Junior Subordinated Debenture (or one
or more Predecessor Junior Subordinated Debentures, as defined in the Indenture)
is registered at the close of business on the regular record date for such
interest installment, which shall be the close of business on the business day
next preceding such Interest Payment Date unless otherwise provided in the
Indenture. The principal of and the interest on this Junior Subordinated
Debenture shall be payable at the office or agency of the Trustee (as defined in
the Indenture) maintained for that purpose in any coin or currency of the United
States of America that at the time of payment is legal tender for payment of
public and private debts; provided, however, that payment of interest may be
made at the option of the Company by check mailed to the Registered Holder (as
defined in the Indenture) at such address as shall appear in the Securities
Register (as defined in the Indenture).Notwithstanding the foregoing, so long as
the Holder of this Junior Subordinated Debenture is the Property Trustee (as
defined in the Indenture), the payment of the principal of and interest on this
Junior Subordinated Debenture will be made at such place and to such account as
may be designated by the Property Trustee.
The Stated Maturity may be shortened at any time by the Company to any
date not earlier than , 2004, subject to the Company having received
prior approval of the Federal Reserve (as defined in the Indenture) if then
required under applicable capital guidelines or policies of the Federal Reserve.
The indebtedness evidenced by this Junior Subordinated Debenture is, to
the extent provided in the Indenture, subordinate and junior in right of payment
to the prior payment in full of all Senior and Subordinated Debt (as defined in
the Indenture), and this Junior Subordinated Debenture is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Junior
Subordinated Debenture, by accepting the same, (a) agrees to and shall be bound
by such provisions, (b) authorizes and directs the Trustee on his or her behalf
to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination so provided and (c) appoints the Trustee his or her
attorney-in-fact for any and all such purposes. Each Holder hereof, by his or
her acceptance hereof, hereby waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each holder of
Senior and Subordinated Debt, whether now outstanding or hereafter incurred, and
waives reliance by each such holder upon said provisions.
A-
<PAGE> 65
This Junior Subordinated Debenture shall not be entitled to any benefit
under the Indenture, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
The provisions of this Junior Subordinated Debenture are continued on
the reverse side hereof and such continued provisions shall for all purposes
have the same effect as though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed.
Dated: __________, 1999 MERCANTILE BANK CORPORATION
By:____________________________
Name: Gerald R. Johnson, Jr.
Title: Chairman of the
Board and Chief
Executive Officer
ATTEST:
By:___________________________________
Name: Robert B. Kaminski
Title: Secretary
[FORM OF CERTIFICATE OF AUTHENTICATION]
A-
<PAGE> 66
CERTIFICATE OF AUTHENTICATION
This is one of the Junior Subordinated Debentures described in the
within-mentioned Indenture.
Dated: __________, 1999 WILMINGTON TRUST COMPANY,
as Trustee
By:______________________
Authorized Signature
A-
<PAGE> 67
[FORM OF REVERSE OF JUNIOR SUBORDINATED DEBENTURE]
_____% JUNIOR SUBORDINATED DEBENTURE
(CONTINUED)
This Junior Subordinated Debenture is one of the junior subordinated
debentures of the Company (herein sometimes referred to as the "Junior
Subordinated Debentures"), specified in the Indenture, all issued under and
pursuant to a Subordinated Indenture dated as of , 1999 (the
"Indenture") duly executed and delivered between the Company and Wilmington
Trust Company, as Trustee (the "Trustee"), to which Indenture reference is
hereby made for a description of the rights, limitations of rights, obligations,
duties and immunities thereunder of the Trustee, the Company and the Holders of
the Junior Subordinated Debentures. The Junior Subordinated Debentures are
limited in aggregate principal amount as specified in the Indenture.
Because of the occurrence and continuation of a Special Event (as
defined in the Indenture), in certain circumstances, this Junior Subordinated
Debenture may become due and payable at the option of the Company at the
principal amount together with any interest accrued thereon (the "Redemption
Price").The Redemption Price shall be paid prior to 2:00 p.m. Detroit, Michigan
time, on the date of such redemption or at such earlier time as the Company
determines.
The Company shall have the right to redeem this Junior Subordinated
Debenture at the option of the Company, in whole or in part, from time to time,
on or after , 2004, at a redemption price equal to 100% of the
principal amount to be redeemed plus any accrued but unpaid interest thereon to
the date of such redemption. Any redemption pursuant to this paragraph will be
made upon not less than 30 days nor more than 60 days notice. If the Junior
Subordinated Debentures are only partially redeemed by the Company pursuant to
this paragraph, the Junior Subordinated Debentures will be redeemed pro rata or
by lot or by any other method utilized by the Trustee; provided that if, at the
time of redemption, the Junior Subordinated Debentures are registered as a
Global Subordinated Debenture (as defined in the Indenture), the Depositary (as
defined in the Indenture) shall determine the principal amount of such Junior
Subordinated Debentures held by each Junior Subordinated Debenture Holder to be
redeemed in accordance with its procedures.
In the event of redemption of this Junior Subordinated Debenture in
part only, a new Junior Subordinated Debenture for the unredeemed portion hereof
will be issued in the name of the Holder hereof upon the cancellation hereof.
In case an Event of Default (as defined in the Indenture), shall have
occurred and be continuing, the principal of all of the Junior Subordinated
Debentures may be declared, and upon such declaration shall become, due and
payable, in the manner, with the effect and subject to the conditions provided
in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the Holders of not less than a majority in
aggregate principal amount of the Junior Subordinated Debentures at the time
Outstanding, as defined in the Indenture, to execute supplemental indentures for
the purpose of adding any provisions to or changing in any manner
A-
<PAGE> 68
or eliminating any of the provisions of the Indenture or of any supplemental
indenture or of modifying in any manner the rights of the Holders of the Junior
Subordinated Debentures; provided, however, that no such supplemental indenture
shall (i) change the stated maturity of the Junior Subordinated Debentures
except as provided in the Indenture, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, without the
consent of the Holder of each Junior Subordinated Debenture so affected, or (ii)
reduce the aforesaid percentage of Junior Subordinated Debentures, the Holders
of which are required to consent to any such supplemental indenture, without the
consent of the Holders of each Junior Subordinated Debenture then Outstanding
and affected thereby. The Indenture also contains provisions permitting the
Holders of a majority in aggregate principal amount of the Junior Subordinated
Debentures at the time Outstanding, on behalf of all of the Holders of the
Junior Subordinated Debentures, to waive any past default in the performance of
any of the covenants contained in the Indenture, or established pursuant to the
Indenture, and its consequences, except a default in the payment of the
principal of or interest on any of the Junior Subordinated Debentures. Any such
consent or waiver by the registered Holder of this Junior Subordinated Debenture
(unless revoked as provided in the Indenture) shall be conclusive and binding
upon such Holder and upon all future Holders and owners of this Junior
Subordinated Debenture and of any Junior Subordinated Debenture issued in
exchange herefor or in place hereof (whether by registration of transfer or
otherwise), irrespective of whether or not any notation of such consent or
waiver is made upon this Junior Subordinated Debenture. No reference herein to
the Indenture and no provision of this Junior Subordinated Debenture or of the
Indenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of and interest on this Junior
Subordinated Debenture at the time and place and at the rate and in the money
herein prescribed.
The Company shall have the right at any time during the term of the
Junior Subordinated Debentures and from time to time to extend the interest
payment period of such Junior Subordinated Debentures for up to 20 consecutive
quarters (an "Extended Interest Payment Period"), at the end of which period the
Company shall pay all interest then accrued and unpaid (together with interest
thereon at the rate specified for the Junior Subordinated Debentures to the
extent that payment of such interest is enforceable under applicable law).Before
the termination of any such Extended Interest Payment Period, the Company may
further extend such Extended Interest Payment Period, provided that such
Extended Interest Payment Period together with all such further extensions
thereof shall not exceed 20 consecutive quarters or extend beyond the Stated
Maturity. At the termination of any such Extended Interest Payment Period and
upon the payment of all accrued and unpaid interest and any additional amounts
then due, the Company may commence a new Extended Interest Payment Period.
The Company has agreed that if at any time (i) there shall have
occurred any event of which the Company has actual knowledge that (a) with the
giving of notice or the lapse of time, or both, would constitute an Event of
Default and (b) in respect to which the Company shall not have taken reasonable
steps to cure, or (ii) the Company shall have given notice of its election of an
Extended Interest Payment Period as provided herein and shall not have rescinded
such notice, or such Extended Interest Payment Period, or any extension thereof,
shall be continuing; or (iii) while the Junior Subordinated Debentures are held
by the Trust, the Company shall be in default with respect to its payment of any
obligation under the Preferred Securities Guarantee,
A-
<PAGE> 69
then the Company will not (1) declare or pay any dividends or distributions on,
or redeem, purchase, acquire, or make a liquidation payment with respect to, any
of the Company's capital stock or (2) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company (including the Junior Subordinated Debentures) that rank pari passu with
or junior in interest to the Junior Subordinated Debentures or make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari passu
or junior in interest to the Junior Subordinated Debentures (other than (a)
dividends or distributions in common stock, (b) any declaration of a dividend in
connection with the implementation of a shareholders' rights plan, or the
issuance of stock under any such plan in the future or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the Preferred
Securities Guarantee and (d) purchases of common stock related to the issuance
of common stock or rights under any of the Company's benefit plans for its
directors, officers or employees).
As provided in the Indenture and subject to certain limitations therein
set forth, this Junior Subordinated Debenture is transferable by the registered
Holder hereof on the Securities Register of the Company, upon surrender of this
Junior Subordinated Debenture for registration of transfer at the office or
agency of the Trustee accompanied by a written instrument or instruments of
transfer in form satisfactory to the Company or the Trustee duly executed by the
registered Holder hereof or such Holder's attorney duly authorized in writing,
and thereupon one or more new Junior Subordinated Debentures of authorized
denominations and for the same aggregate principal amount will be issued to the
designated transferee or transferees. No service charge will be made for any
such transfer, but the Trustee and the Company may require payment of a sum
sufficient to cover any expense, tax or other governmental charge payable in
relation thereto.
Prior to due presentment for registration of transfer of this Junior
Subordinated Debenture, the Company, the Trustee, any paying agent and the
Securities Registrar (as defined in the Indenture) may deem and treat the
Registered Holder hereof as the absolute owner hereof (whether or not this
Junior Subordinated Debenture shall be overdue and notwithstanding any notice of
ownership or writing hereon made by anyone other than the Securities Registrar)
for the purpose of receiving payment of or on account of the principal hereof
and interest due hereon and for all other purposes, and neither the Company nor
the Trustee nor any paying agent nor any Securities Registrar shall be affected
by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Junior Subordinated Debenture, or for any claim based hereon,
or otherwise in respect hereof, or based on or in respect of the Indenture,
against any incorporator, stockholder, officer or director, past, present or
future, as such, of the Company or of any predecessor or successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issuance
hereof, expressly waived and released.
The Junior Subordinated Debentures are issuable only in registered form
without coupons in denominations of $10 and any integral multiple thereof.[This
Global Subordinated Debenture is exchangeable for Junior Subordinated Debentures
in definitive form only under certain limited
A-
<PAGE> 70
circumstances set forth in the Indenture. Junior Subordinated Debentures so
issued are issuable only in registered form without coupons in denominations of
$10 and any integral multiple thereof.]
All terms used in this Junior Subordinated Debenture that are defined
in the Indenture shall have the meanings assigned to them in the Indenture.
A-
<PAGE> 1
EXHIBIT 4.5
MBWM CAPITAL TRUST I
AMENDED AND RESTATED
TRUST AGREEMENT
AMONG
MERCANTILE BANK CORPORATION, AS DEPOSITOR
WILMINGTON TRUST COMPANY, AS PROPERTY TRUSTEE
WILMINGTON TRUST COMPANY, AS DELAWARE TRUSTEE
AND
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINED TERMS.................................................. 2
Section 101 Definitions.................................................... 2
ARTICLE II ESTABLISHMENT OF THE TRUST.....................................10
Section 201 Name .......................................................10
Section 202 Office of The Delaware Trustee; Principal
Place of Business......................................10
Section 203 Initial Contribution of Trust Property;
Organizational Expenses................................10
Section 204 Issuance of The Preferred Securities...........................10
Section 205 Issuance of the Common Securities; Subscription and
Purchase of Junior Subordinated Debentures.............11
Section 206 Declaration of Trust...........................................11
Section 207 Authorization to Enter into Certain Transactions...............12
Section 208 Assets of Trust................................................15
Section 209 Title to Trust Property........................................15
ARTICLE III PAYMENT ACCOUNT................................................15
Section 301 Payment Account................................................15
ARTICLE IV DISTRIBUTIONS; REDEMPTION......................................16
Section 401 Distributions..................................................16
Section 402 Redemption.....................................................17
Section 403 Subordination of Common Securities.............................19
Section 404 Payment Procedures.............................................19
Section 405 Tax Returns and Reports........................................19
Section 406 Payment of Taxes, Duties, Etc. of the Trust....................20
Section 407 Payments Under Indenture.......................................20
Section 408 Taxes; Withholding.............................................20
ARTICLE V TRUST SECURITIES CERTIFICATES..................................21
Section 501 Initial Ownership..............................................21
Section 502 The Trust Securities Certificates..............................21
Section 503 Execution and Delivery of Trust Securities Certificates........21
Section 504 Registration of Transfer and Exchange of Trust
Securities Certificates................................21
Section 505 Mutilated, Destroyed, Lost or Stolen Trust
Securities Certificates................................22
Section 506 Persons Deemed SecurityHolders.................................23
Section 507 Access to List of Securityholders' Names and Addresses.........23
Section 508 Maintenance of Office or Agency................................23
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <S>
Section 509 Appointment of Paying Agent....................................23
Section 510 Ownership of Common Securities By Depositor....................24
Section 511 Book-Entry Preferred Securities Certificates;
Common Securities Certificate..........................24
Section 512 Notices to Clearing Agency.....................................25
Section 513 Definitive Preferred Securities Certificates...................25
Section 514 Rights of SecurityHolders......................................26
ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS;
VOTING.................................................27
Section 601 Limitations on Voting Rights...................................27
Section 602 Notice of Meetings.............................................28
Section 603 Meetings of Holders of Preferred Securities....................28
Section 604 Voting Rights..................................................29
Section 605 Proxies, Etc...................................................28
Section 606 Securityholder Action by Written Consent.......................29
Section 607 Record Date For Voting and Other Purposes......................29
Section 608 Acts of Securityholders........................................29
Section 609 Inspection of Records..........................................30
ARTICLE VII REPRESENTATIONS AND WARRANTIES.................................30
Section 701 Representations and Warranties of the Bank and
The Property Trustee...................................30
Section 702 Representations and Warranties of The Delaware Bank
and The Delaware Trustee...............................31
Section 703 Representations and Warranties of Depositor....................32
ARTICLE VIII THE TRUSTEES
Section 801 Certain Duties and Responsibilities............................33
Section 802 Certain Notices................................................34
Section 803 Certain Rights of Property Trustee.............................35
Section 804 Not Responsible For Recitals or Issuance of Securities.........37
Section 805 May Hold Securities............................................37
Section 806 Compensation; Indemnity; Fees..................................37
Section 807 Corporate Property Trustee Required; Eligibility of Trustees...38
Section 808 Conflicting Interests..........................................38
Section 809 Co-Trustees and Separate Trustee...............................38
Section 810 Resignation and Removal; Appointment of Successor..............40
Section 811 Acceptance of Appointment By Successor.........................41
Section 812 Merger, Conversion, Consolidation or Succession
to Business............................................42
Section 813 Preferential Collection of Claims Against Depositor
or Trust...............................................42
Section 814 Reports By Property Trustee....................................42
Section 815 Reports to the Property Trustee................................42
Section 816 Evidence of Compliance with Conditions Precedent...............43
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 817 Number of Trustees.............................................43
Section 818 Delegation of Power............................................43
Section 819 Voting .......................................................43
ARTICLE IX TERMINATION, LIQUIDATION AND MERGER............................44
Section 901 Termination Upon Expiration Date...............................44
Section 902 Early Termination..............................................44
Section 903 Termination....................................................44
Section 904 Liquidation....................................................44
Section 905 Mergers, Consolidations, Amalgamations or Replacements
of the Trust...........................................46
ARTICLE X MISCELLANEOUS PROVISIONS.......................................47
Section 1001 Limitation of Rights of Securityholders........................47
Section 1002 Amendment......................................................47
Section 1003 Separability...................................................48
Section 1004 Governing Law..................................................48
Section 1005 Payments Due on Non-Business Day...............................48
Section 1006 Successors.....................................................49
Section 1007 Headings.......................................................49
Section 1008 Reports, Notices and Demands...................................49
Section 1009 Agreement Not to Petition......................................49
Section 1010 Trust Indenture Act; Conflict with Trust Indenture Act.........50
Section 1011 Acceptance of Terms of Trust Agreement,
Guarantee and Indenture................................50
Exhibit A CERTIFICATE OF TRUST....................................................52
Exhibit C CERTIFICATE EVIDENCING COMMON SECURITIES................................54
Exhibit D AGREEMENT AS TO EXPENSES AND LIABILITIES................................55
Exhibit E CERTIFICATE EVIDENCING PREFERRED SECURITIES.............................58
</TABLE>
iii
<PAGE> 5
AMENDED AND RESTATED TRUST AGREEMENT, dated as of September , 1999,
among (i) Mercantile Bank Corporation, a Michigan corporation (including any
successors or assigns, the "Depositor"), (ii) Wilmington Trust Company, a
Delaware banking corporation duly organized and existing under the laws of the
State of Delaware, as property trustee (the "Property Trustee" and, in its
separate corporate capacity and not in its capacity as Property Trustee, the
"Bank"), (iii) Wilmington Trust Company, a Delaware banking corporation duly
organized and existing under the laws of the State of Delaware, as Delaware
trustee (the "Delaware Trustee," and, in its separate corporate capacity and not
in its capacity as Delaware Trustee, the "Delaware Bank"), (iv) Gerald R.
Johnson, Jr., an individual, Michael H. Price, an individual, and Charles E.
Christmas, an individual, each of whose address is c/o Mercantile Bank
Corporation (each an "Administrative Trustee" and, collectively the
"Administrative Trustees") (the Property Trustee, the Delaware Trustee and the
Administrative Trustees referred to collectively as the "Trustees") and (v) the
several Holders, as hereinafter defined.
WITNESSETH:
WHEREAS, the Depositor, the Delaware Bank, and the Administrative
Trustees have heretofore duly declared and established MBWM Capital Trust I, a
business trust (the "Trust"), pursuant to the Delaware Business Trust Act by the
entering into of that certain Trust Agreement, dated as of July 23, 1999 (the
"Original Trust Agreement"), and by the execution and filing by the Delaware
Trustee with the Secretary of State of the State of Delaware of the Certificate
of Trust, filed on July 26, 1999, the form of which is attached as EXHIBIT A;
and
WHEREAS, the Depositor and the Trustees desire to amend and restate the
Original Trust Agreement in its entirety as set forth herein to provide for,
among other things, (i) the issuance of the Common Securities (as defined below)
by the Trust to the Depositor, (ii) the issuance and sale of the Preferred
Securities (as defined below) by the Trust pursuant to the Underwriting
Agreement (as defined below), (iii) the acquisition by the Trust from the
Depositor of all of the right, title and interest in the Junior Subordinated
Debentures (as defined below), and (iv) the appointment of the Property Trustee;
NOW THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the sufficiency of
which is hereby acknowledged, each party, for the benefit of the other parties
and for the benefit of the Securityholders (as defined below), hereby amends and
restates the Original Trust Agreement in its entirety and agrees as follows:
1
<PAGE> 6
ARTICLE I.
DEFINED TERMS
SECTION 101. DEFINITIONS. For all purposes of this Trust Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may be,
of this Trust Agreement; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Accelerated Maturity Date" has the meaning set forth in Section 2.2 of
the Indenture.
"Act" has the meaning specified in Section 608.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of additional interest
accrued on interest in arrears and paid by the Depositor on a Like Amount of
Junior Subordinated Debentures for such period.
"Additional Sums" has the meaning specified in Section 2.5 of the
Indenture.
"Administrative Trustee" means each of Gerald R. Johnson, Jr., Michael
H. Price and Charles E. Christmas, solely in such person's capacity as
Administrative Trustee of the Trust formed and continued hereunder and not in
such person's individual capacity, or such Administrative Trustee's successor in
interest in such capacity, or any successor Administrative Trustee appointed as
herein provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Bank" has the meaning specified in the preamble to this Trust
Agreement.
2
<PAGE> 7
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in
the premises adjudging such Person a bankrupt or insolvent, or approving as
properly filed a petition seeking liquidation or reorganization of or in respect
of such Person under the Federal Bankruptcy Code or any other similar applicable
federal or state law, and the continuance of any such decree or order unvacated
and unstayed for a period of 90 days; or the commencement of an involuntary case
under the Federal Bankruptcy Code in respect of such Person, which shall
continue undismissed for a period of 90 days or entry of an order for relief in
such case; or the entry of a decree or order of a court having jurisdiction in
the premises for the appointment on the ground of insolvency or bankruptcy of a
receiver, custodian, liquidator, trustee or assignee in bankruptcy or insolvency
of such Person or of its property, or for the winding up or liquidation of its
affairs, and such decree or order shall have remained in force unvacated and
unstayed for a period of 90 days; or
(b) the institution by such Person of proceedings to be adjudicated a
voluntary bankrupt, or the consent by such Person to the filing of a bankruptcy
proceeding against it, or the filing by such Person of a petition or answer or
consent seeking liquidation or reorganization under the Federal Bankruptcy Code
or other similar applicable federal or state law, or the consent by such Person
to the filing of any such petition or to the appointment on the ground of
insolvency or bankruptcy of a receiver or custodian or liquidator or trustee or
assignee in bankruptcy or insolvency of such Person or of its property, or such
Person shall make a general assignment for the benefit of creditors.
"Bankruptcy Laws" has the meaning specified in Section 1009.
"Book-Entry Preferred Securities Certificates" means certificates
representing Preferred Securities issued in global, fully registered form to the
Clearing Agency as described in Section 511.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a
day on which banking institutions in the State of Michigan are authorized or
required by law or executive order to remain closed, or (c) a day on which the
Property Trustee's Corporate Trust Office or the Corporate Trust Office of the
Debenture Trustee is closed for business.
"Certificate Depository Agreement" means the agreement among the Trust,
the Depositor and The Depository Trust Company, as the initial Clearing Agency,
dated as of the Closing Date, relating to the Trust Securities Certificates,
substantially in the form attached as EXHIBIT B, as the same may be amended and
supplemented from time to time.
"Certificate of Trust" means, as stated in the recitals to this Trust
Agreement, the certificate of trust filed with the Secretary of State of the
State of Delaware with respect to the Trust, in the form attached as EXHIBIT A,
as the same may be amended or restated from time to time.
3
<PAGE> 8
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. The Depository Trust Company will be the initial Clearing Agency.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means the date of execution and delivery of this Trust
Agreement.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, as
amended, or, if at any time after the execution of this Trust Agreement such
Commission is not existing and performing the duties now assigned to it under
the Trust Indenture Act, then the body performing such duties at such time.
"Common Security" means a common undivided beneficial interest in the
assets of the Trust, having a Liquidation Amount of $10 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
"Common Securities Certificate" means a certificate evidencing
ownership of Common Securities, substantially in the form attached as EXHIBIT C.
"Corporate Trust Office" means the principal corporate trust office of
the Property Trustee located at Rodney Square North, 1100 North Market Street,
Wilmington, Delaware, 19890-0001, Attn: Corporate Trust Administration.
"Debenture Event of Default" means an "Event of Default" as defined in
the Indenture.
"Debenture Redemption Date" means, with respect to any Junior
Subordinated Debentures to be redeemed under the Indenture, the date fixed for
redemption under the Indenture.
"Debenture Trustee" means Wilmington Trust Company, a Delaware banking
corporation organized under the laws of the State of Delaware and any successor
thereto, not in its individual capacity but solely as trustee under the
Indenture.
"Definitive Preferred Securities Certificates" means either or both (as
the context requires) of (a) Preferred Securities Certificates issued as
Book-Entry Preferred Securities Certificates as provided in Section 511(a), and
(b) Preferred Securities Certificates issued in certificated, fully registered
form as provided in Section 513.
"Delaware Bank" has the meaning specified in the preamble to this Trust
Agreement.
4
<PAGE> 9
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Delaware Code Sections 3801 et. seq. as it may be amended from
time to time.
"Delaware Trustee" means the commercial bank or trust company
identified as the "Delaware Trustee" in the preamble to this Trust Agreement
solely in its capacity as Delaware Trustee of the Trust formed and continued
hereunder and not in its individual capacity, or its successor in interest in
such capacity, or any successor Delaware Trustee appointed as herein provided.
"Depositor" has the meaning specified in the preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 401(a).
"Distributions" means amounts payable in respect of the Trust
Securities as provided in Section 401.
"Event of Default" means any one of the following events that shall
have occurred and be continuing (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the Trust in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of 30
days; or
(c) default by the Trust in the payment of any Redemption Price of any
Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Trustees in this Trust Agreement (other than a
covenant or warranty, a default in the performance of which or the breach of
which is dealt with in clause (b) or (c), above) and continuation of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the defaulting Property Trustee by the Holders
of at least 25% in aggregate Liquidation Amount of the Outstanding Preferred
Securities a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default" hereunder;
or
(e) the occurrence of a Bankruptcy Event with respect to the Property
Trustee and the failure by the Depositor to appoint a successor Property Trustee
within 60 days thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
EXHIBIT D, as amended from time to time.
5
<PAGE> 10
"Expiration Date" has the meaning specified in Section 901.
"Extension Period" means the "Extended Interest Payment Period" as
defined in the Indenture.
"Global Subordinated Debenture" has the meaning specified in the
Indenture.
"Guarantee" means the Preferred Securities Guarantee Agreement executed
and delivered by the Depositor and Wilmington Trust Company as trustee,
contemporaneously with the execution and delivery of this Trust Agreement, for
the benefit of the Holders of the Preferred Securities, as amended from time to
time.
"Holder" means a Securityholder.
"Indenture" means the Subordinated Indenture, dated as of September __,
1999, between the Depositor and the Debenture Trustee, as trustee, as amended or
supplemented from time to time.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"Junior Subordinated Debentures" means the $14,432,990, and a possible
additional amount of up to $2,061,860 related to the Underwriters'
Over-Allotment Option with respect to the Preferred Securities, for a total of
up to $16,494,850 aggregate principal amount of the Depositor's _____% Junior
Subordinated Debentures due 2029, issued pursuant to the Indenture.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Junior Subordinated Debentures to be contemporaneously redeemed in
accordance with the Indenture and the proceeds of which will be used to pay the
Redemption Price of such Trust Securities and (b) with respect to a distribution
of Junior Subordinated Debentures to Holders of Trust Securities in connection
with a termination or liquidation of the Trust, Junior Subordinated Debentures
having a principal amount equal to the Liquidation Amount of the Trust
Securities of the Holder to whom such Junior Subordinated Debentures are
distributed.
"Liquidation Amount" means the stated amount of $10 per Trust Security.
"Liquidation Date" means the date on which Junior Subordinated
Debentures are to be distributed to Holders of Trust Securities in connection
with a termination and liquidation of the Trust pursuant to Section 904(a).
"Liquidation Distribution" has the meaning specified in Section 904(d).
6
<PAGE> 11
"Maturity Date" has the meaning set forth in Section 2.2 of the
Indenture.
"Officers' Certificate" means a certificate signed by the Chairman, the
President, a Senior Vice President, the Chief Financial Officer, a Vice
President, the Chief Accounting Officer or the Controller or an Assistant
Controller or the Secretary or an Assistant Secretary, of the Depositor, and
delivered to the appropriate Trustee. One of the officers signing an Officers'
Certificate given pursuant to Section 816 shall be the principal executive,
financial or accounting officer of the Depositor. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Trust Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Trust, the Property Trustee, the Delaware Trustee or the
Depositor, but not an employee of any thereof, and who shall be reasonably
acceptable to the Property Trustee.
"Original Trust Agreement" has the meaning specified in the recitals to
this Trust Agreement.
"Outstanding," when used with respect to Preferred Securities, means,
as of the date of determination, all Preferred Securities theretofore executed
and delivered under this Trust Agreement, except:
(a) Preferred Securities theretofore canceled by the Property Trustee
or delivered to the Property Trustee for cancellation;
(b) Preferred Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Property Trustee or any
Paying Agent for the Holders of such Preferred Securities; provided that, if
such Preferred Securities are to be redeemed, notice of such redemption has been
duly given pursuant to this Trust Agreement; and
(c) Preferred Securities which have been paid or in exchange for or in
lieu of which other Preferred Securities have been executed and delivered
pursuant to Sections 504, 505, 511 and 513; provided, however, that in
determining whether the Holders of the requisite Liquidation Amount of the
Outstanding Preferred Securities have given any request, demand, authorization,
7
<PAGE> 12
direction, notice, consent or waiver hereunder, Preferred Securities owned by
the Depositor, any Trustee or any Affiliate of the Depositor or any Trustee
shall be disregarded and deemed not to be Outstanding, except that (i) in
determining whether any Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Preferred Securities that such Trustee knows to be so owned shall be so
disregarded and (ii) the foregoing shall not apply at any time when all of the
Outstanding Preferred Securities are owned by the Depositor, one or more of the
Trustees and/or any such Affiliate. Preferred Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Administrative Trustees the pledgee's
right as to such Preferred Securities so owned.
"Owner" means each Person who is the beneficial owner of a Book-Entry
Preferred Securities Certificate as reflected in the records of the Clearing
Agency or, if a Clearing Agency Participant is not the Owner, then as reflected
in the records of a Person maintaining an account with such Clearing Agency
(directly or indirectly, in accordance with the rules of such Clearing Agency).
"Paying Agent" means any paying agent or co-paying agent appointed
pursuant to Section 509 and shall initially be the Property Trustee.
"Payment Account" means a segregated non-interest-bearing corporate
trust account maintained by the Property Trustee with the Bank in its trust
department for the benefit of the Securityholders in which all amounts paid in
respect of the Junior Subordinated Debentures will be held and from which the
Property Trustee shall make payments to the Securityholders in accordance with
Sections 401 and 402.
"Person" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Security" means an undivided beneficial interest in the
assets of the Trust, designated "_____% Cumulative Preferred Securities," having
a Liquidation Amount of $10 and having the rights provided therefor in this
Trust Agreement, including the right to receive Distributions and a Liquidation
Distribution as provided herein.
"Preferred Securities Certificate" means a certificate evidencing
ownership of Preferred Securities, substantially in the form attached as EXHIBIT
E.
"Property Trustee" means the commercial bank or trust company
identified as the "Property Trustee" in the preamble to this Trust Agreement
solely in its capacity as Property Trustee of the Trust heretofore formed and
continued hereunder and not in its individual capacity, or its successor in
interest in such capacity, or any successor Property Trustee appointed as herein
provided.
"Redemption Date" means, with respect to any Trust Security to be
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each Debenture
8
<PAGE> 13
Redemption Date and the Maturity Date of the Junior Subordinated
Debentures shall be a Redemption Date for a Like Amount of Trust Securities.
"Redemption Price" means, with respect to any Trust Security to be
redeemed, the Liquidation Amount of such Trust Security, plus accumulated and
unpaid Distributions to the Redemption Date allocated on a pro rata basis (based
on Liquidation Amounts) among the Trust Securities to be redeemed.
"Relevant Trustee" shall have the meaning specified in Section 810.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 504.
"Securityholder" means a Person in whose name a Trust Security or
Securities is registered in the Securities Register; any such Person is a
beneficial owner within the meaning of the Delaware Business Trust Act.
"Trust" means MBWM Trust, the Delaware business trust continued hereby
and which was created as stated in the recitals to this Trust Agreement.
"Trust Agreement" means this Amended and Restated Trust Agreement, as
the same may be modified, amended or supplemented in accordance with the
applicable provisions hereof, including all exhibits hereto, including, for all
purposes of this Trust Agreement and any such modification, amendment or
supplement, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this Trust Agreement and any such modification, amendment or
supplement, respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
at the date as of which this Trust Agreement was executed; provided, however,
that in the event the Trust Indenture Act of 1939 is amended after such date,
"Trust Indenture Act" means, to the extent required by any such amendment, the
Trust Indenture Act of 1939 as so amended.
"Trust Property" means (a) the Junior Subordinated Debentures, (b) the
rights of the Property Trustee under the Guarantee, (c) any cash on deposit in,
or owing to, the Payment Account and (d) all proceeds and rights in respect of
the foregoing and any other property and assets for the time being held or
deemed to be held by the Property Trustee pursuant to the trusts of this Trust
Agreement.
"Trust Security" means any one of the Common Securities or the
Preferred Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.
"Trustee" or "Trustees" means, individually or collectively, any of the
Property Trustee, the Delaware Trustee and the Administrative Trustees.
9
<PAGE> 14
"Underwriting Agreement" means the Underwriting Agreement dated as of
September , 1999, among the Trust, the Depositor and the underwriter named
therein.
"Underwriters' Over-Allotment Option" means the option, exercisable
within 30 days after the date of the prospectus, granted to the underwriters in
the offering to the public of Preferred Securities, to purchase up to $2,000,000
in Liquidation Amount of additional Preferred Securities at the same price per
Preferred Security as paid for the other Preferred Securities issued pursuant to
the prospectus.
ARTICLE II.
ESTABLISHMENT OF THE TRUST
SECTION 201. NAME. The Trust created pursuant to the Certificate of
Trust and continued hereby shall continue to be known as "MBWM Capital Trust I,"
as such name may be modified from time to time by the Administrative Trustees
following written notice to the Holders of Trust Securities and the other
Trustees, and amendment of the Certificate of Trust, in which name the Trustees
may engage in the transactions contemplated hereby, make and execute contracts
and other instruments on behalf of the Trust and sue and be sued.
SECTION 202. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF
BUSINESS. The address of the Delaware Trustee in the State of Delaware is c/o
Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890, Attention: Corporate Trust Administration, or such
other address in the State of Delaware as the Delaware Trustee may designate by
written notice to the Securityholders and the Depositor. The principal executive
office of the Trust is c/o Mercantile Bank Corporation, 216 North Division
Avenue N.W., Grand Rapids, Michigan 49503.
SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL
EXPENSES. The Trustees acknowledge receipt in trust from the Depositor in
connection with the Original Trust Agreement of the sum of $10, which
constituted the initial Trust Property. The Depositor shall pay organizational
expenses of the Trust as they arise or shall, upon request of any Trustee,
promptly reimburse such Trustee for any such expenses paid by such Trustee. The
Depositor shall make no claim upon the Trust Property for the payment of such
expenses.
SECTION 204. ISSUANCE OF THE PREFERRED SECURITIES. On September ___,
1999, the Depositor and an Administrative Trustee, on behalf of the Trust and
pursuant to the Original Trust Agreement, executed and delivered the
Underwriting Agreement. Contemporaneously with the execution and delivery of
this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall
execute in accordance with Section 502 and deliver, in accordance with the
Underwriting Agreement, a Preferred Securities Certificate, registered in the
name of the nominee of the initial Clearing Agency, in an aggregate amount of
Preferred Securities having an aggregate Liquidation Amount of $14,000,000
against receipt of the
10
<PAGE> 15
aggregate purchase price of such Preferred Securities of $14,000,000, which
amount such Administrative Trustee shall promptly deliver to the Property
Trustee.
Contemporaneously with the exercise of the Underwriter's Over-Allotment
Option, an Administrative Trustee, on behalf of the Trust, shall execute in
accordance with Section 502 and deliver, in accordance with the Underwriting
Agreement, a Preferred Securities Certificate, registered in the name of the
nominee of the initial Clearing Agency, in an aggregate amount of Preferred
Securities having an aggregate Liquidation Amount of $10 for each Preferred
Security as to which the option is being exercised, up to $2,000,000, against
receipt of the aggregate purchase price of such Preferred Securities in such
Liquidation Amount, which amount such Administrative Trustee shall promptly
deliver to the Property Trustee.
SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND
PURCHASE OF JUNIOR SUBORDINATED DEBENTURES. Contemporaneously with the execution
and delivery of this Trust Agreement, an Administrative Trustee, on behalf of
the Trust, shall execute in accordance with Section 502 and deliver to the
Depositor a Common Securities Certificate, registered in the name of the
Depositor, in an aggregate amount of Common Securities having an aggregate
Liquidation Amount of $432,990 against payment by the Depositor of such amount.
Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust,
shall subscribe to and purchase from the Depositor Junior Subordinated
Debentures, registered in the name of the Property Trustee on behalf of the
Trust and having an aggregate principal amount equal to $14,432,990 and, in
satisfaction of the purchase price for such Junior Subordinated Debentures, the
Property Trustee, on behalf of the Trust, shall deliver to the Depositor the sum
of $14,432,990.
Contemporaneously with the exercise of the Underwriter's Over-Allotment
Option, an Administrative Trustee, on behalf of the Trust, shall execute in
accordance with Section 502 and deliver to the Depositor a Common Securities
Certificate, registered in the name of the Depositor, in an aggregate amount of
Common Securities having an aggregate Liquidation Amount equal to quotient of
the Liquidation Amount of Preferred Securities purchased upon exercise of the
option divided by 32.333, rounded up to the nearest $10, up to $61,860 in such
Liquidation Amount, against payment by the Depositor of such amount.
Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust,
shall subscribe to and purchase from the Depositor Junior Subordinated
Debentures, registered in the name of the Property Trustee on behalf of the
Trust and having an aggregate principal amount equal to the sum of the
Liquidation Amount of the Common Securities determined in accordance with the
foregoing sentence and the Liquidation Amount of the Preferred Securities
purchased upon exercise of the Underwriters' Over-Allotment Option, and, in
satisfaction of the purchase price for such Junior Subordinated Debentures, the
Property Trustee, on behalf of the Trust, shall deliver to the Depositor such
sum.
SECTION 206. DECLARATION OF TRUST. The exclusive purposes and functions
of the Trust are (a) to issue and sell Trust Securities and use the proceeds
from such sale to acquire the Junior Subordinated Debentures, and (b) to engage
in those activities necessary, convenient or incidental thereto. The Depositor
hereby appoints the Trustees as trustees of the Trust, to have all the rights,
powers and duties to the extent set forth herein, and the Trustees
11
<PAGE> 16
hereby accept such appointment. The Property Trustee hereby declares that it
will hold the Trust Property in trust upon and subject to the conditions set
forth herein for the benefit of the Securityholders. The Administrative
Trustees shall have all rights, powers and duties set forth herein and in
accordance with applicable law with respect to accomplishing the purposes of the
Trust. The Delaware Trustee shall not be entitled to exercise any powers, nor
shall the Delaware Trustee have any of the duties and responsibilities, of the
Property Trustee or the Administrative Trustees set forth herein. The Delaware
Trustee shall be one of the Trustees of the Trust for the sole and limited
purpose of fulfilling the requirements of Section 3807 of the Delaware Business
Trust Act.
SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS.
(a) The Trustees shall conduct the affairs of the Trust in accordance
with the terms of this Trust Agreement. Subject to the limitations set forth in
paragraph (b) of this Section and Article VIII, and in accordance with the
following provisions (i) and (ii), the Administrative Trustees shall have the
authority to enter into all transactions and agreements determined by the
Administrative Trustees to be appropriate in exercising the authority, express
or implied, otherwise granted to the Administrative Trustees under this Trust
Agreement, and to perform all acts in furtherance thereof, including without
limitation, the acts set forth in the following provision (i) and the Property
Trustee shall have the authority to act, each as set forth below:
(i) As among the Trustees, each Administrative Trustee, acting singly
or jointly, shall have the power and authority to act on behalf of the Trust
with respect to the following matters:
(A) the issuance and sale of the Trust Securities and the
compliance with the Underwriting Agreement in connection therewith;
(B) to cause the Trust to enter into, and to execute, deliver
and perform on behalf of the Trust, the Expense Agreement and the Certificate
Depository Agreement and such other agreements or documents as may be necessary
or desirable in connection with the purposes and function of the Trust;
(C) assisting in the registration of the Preferred Securities
under the Securities Act of 1933, as amended, and under state securities or blue
sky laws, and the qualification of this Trust Agreement as a trust indenture
under the Trust Indenture Act;
(D) assisting in the listing of the Preferred Securities upon
the Nasdaq National Market or such securities exchange, or exchanges or
quotation systems as shall be determined by the Depositor and, if required, the
registration of the Preferred Securities under the Securities Exchange Act of
1934, as amended, and the preparation and filing of all periodic and other
reports and other documents pursuant to the foregoing;
(E) the sending of notices (other than notices of default) and
other information regarding the Trust Securities and the Junior Subordinated
Debentures to the Securityholders in accordance with this Trust Agreement;
12
<PAGE> 17
(F) the appointment of a Paying Agent, authenticating agent
and Securities Registrar in accordance with this Trust Agreement;
(G) to the extent provided in this Trust Agreement, the
winding up of the affairs of and liquidation of the Trust and the preparation,
execution and filing of the certificate of cancellation with the Secretary of
State of the State of Delaware;
(H) to take all action that may be necessary or appropriate
for the preservation and the continuation of the Trust's valid existence,
rights, franchises and privileges as a statutory business trust under the laws
of the State of Delaware and of each other jurisdiction in which such existence
is necessary to protect the limited liability of the Holders of the Preferred
Securities or to enable the Trust to effect the purposes for which the Trust was
created; and
(I) the taking of any action incidental to the foregoing as
the Administrative Trustees may from time to time determine is necessary or
advisable to give effect to the terms of this Trust Agreement for the benefit of
the Securityholders (without consideration of the effect of any such action on
any particular Securityholder).
(ii) As among the Trustees, the Property Trustee shall have the
power, duty and authority to act on behalf of the Trust with respect to the
following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Junior Subordinated Debentures;
(C) the collection of interest, principal and any other
payments made in respect of the Junior Subordinated debentures in the Payment
Account;
(D) the distribution of amounts owed to the Securityholders in
respect of the Trust Securities in accordance with the terms of this Trust
Agreement;
(E) the exercise of all of the rights, powers and privileges
of a holder of the Junior Subordinated Debentures;
(F) the sending of notices of default and other information
regarding the Trust Securities and the Junior Subordinated Debentures to the
Securityholders in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in accordance with
the terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the
winding up of the affairs of and liquidation of the Trust;
13
<PAGE> 18
(I) after an Event of Default the taking of any action
incidental to the foregoing as the Property Trustee may from time to time
determine is necessary or advisable to give effect to the terms of this Trust
Agreement and protect and conserve the Trust Property for the benefit of the
Security holders (without consideration of the effect of any such action on any
particular Securityholder);
(J) so long as the Property Trustee is the Securities
Registrar, registering transfers of the Trust Securities in accordance with this
Trust Agreement; and
(K) except as otherwise provided in this Section 207(a)(ii),
the Property Trustee shall have none of the duties, liabilities, powers or the
authority of the Administrative Trustees set forth in Section 207(a)(i).
(b) So long as this Trust Agreement remains in effect, the Trust (or
the Trustees acting on behalf of the Trust) shall not undertake any business,
activities or transaction except as expressly provided herein or contemplated
hereby. In particular, the Trustees shall not (i) acquire any investments or
engage in any activities not authorized by this Trust Agreement, (ii) sell,
assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of
any of the Trust Property or interests therein, including to Securityholders,
except as expressly provided herein, (iii) take any action that would cause the
Trust to fail or cease to qualify as a "grantor trust" for United States federal
income tax purposes, (iv) incur any indebtedness for borrowed money or issue any
other debt or (v) take or consent to any action that would result in the
placement of a Lien on any of the Trust Property. The Administrative Trustees
shall defend all claims and demands of all Persons at any time claiming any Lien
on any of the Trust Property adverse to the interest of the Trust or the
Securityholders in their capacity as Securityholders.
(c) In connection with the issue and sale of the Preferred Securities,
the Depositor shall have the right and responsibility to assist the Trust with
respect to, or effect on behalf of the Trust, the following (and any actions
taken by the Depositor in furtherance of the following prior to the date of this
Trust Agreement are hereby ratified and confirmed in all respects):
(i) the preparation and filing by the Trust with the Commission and the
execution on behalf of the Trust of a registration statement on the appropriate
form in relation to the Preferred Securities and the Junior Subordinated
Debentures, including any amendments thereto;
(ii) the determination of the states in which to take appropriate
action to qualify or register for sale all or part of the Preferred Securities
and to do any and all such acts, other than actions which must be taken by or on
behalf of the Trust, and advise the Trustees of actions they must take on behalf
of the Trust, and prepare for execution and filing any documents to be executed
and filed by the Trust or on behalf of the Trust, as the Depositor deems
necessary or advisable in order to comply with the applicable laws of any such
states;
(iii) the preparation for filing by the Trust and execution on behalf
of the Trust of an application to the Nasdaq National Market or other national
stock exchange or other organizations for listing upon notice of issuance of any
Preferred Securities and to file or cause
14
<PAGE> 19
an Administrative Trustee to file thereafter with such exchange or organization
such notifications and documents as may be necessary from time to time;
(iv) if required, the preparation for filing by the Trust with the
Commission and the execution on behalf of the Trust of a registration statement
on Form 8-A relating to the registration of the Preferred Securities under
Section 12(b) or 12(g) of the Exchange Act, including any amendments thereto;
(v) the negotiation of the terms of, and the execution and delivery of,
the Underwriting Agreement providing for the sale of the Preferred Securities;
and
(vi) the taking of any other actions necessary or desirable to carry
out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the Administrative
Trustees are authorized and directed to conduct the affairs of the Trust and to
operate the Trust so that the Trust will not be deemed to be an "investment
company" required to be registered under the Investment Company Act, will be
classified as a "grantor trust" and not as an association taxable as a
corporation for United States federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of the Depositor for
United States federal income tax purposes. In this connection, subject to
Section 1002, the Depositor and the Administrative Trustees are authorized to
take any action, not inconsistent with applicable law or this Trust Agreement,
that each of the Depositor and the Administrative Trustees determines in their
discretion to be necessary or desirable for such purposes.
SECTION 208. ASSETS OF TRUST. The assets of the Trust shall consist of
the Trust Property.
SECTION 209. TITLE TO TRUST PROPERTY. Legal title to all Trust Property
shall be vested at all times in the Property Trustee (in its capacity as such)
and shall be held and administered by the Property Trustee for the benefit of
the Securityholders in accordance with this Trust Agreement.
ARTICLE III.
PAYMENT ACCOUNT
SECTION 301. PAYMENT ACCOUNT.
(a) On or prior to the Closing Date, the Property Trustee shall
establish the Payment Account. The Property Trustee and any agent of the
Property Trustee shall have exclusive control and sole right of withdrawal with
respect to the Payment Account for the purpose of making deposits and
withdrawals from the Payment Account in accordance with this Trust Agreement.
All monies and other property deposited or held from time to time in the Payment
Account shall be held by the Property Trustee in the Payment Account for the
exclusive benefit
15
<PAGE> 20
of the Securityholders and for distribution as herein provided, including (and
subject to) any priority of payments provided for herein.
(b) The Property Trustee shall deposit in the Payment Account, promptly
upon receipt, all payments of principal of or interest on, and any other
payments or proceeds with respect to, the Junior Subordinated Debentures.
Amounts held in the Payment Account shall not be invested by the Property
Trustee pending distribution thereof.
ARTICLE IV.
DISTRIBUTIONS; REDEMPTION
SECTION 401. DISTRIBUTIONS.
(a) Distributions on the Trust Securities shall be cumulative, and will
accumulate whether or not there are funds of the Trust available for the payment
of Distributions. Distributions shall accumulate from , 1999, and,
except during any Extension Period with respect to the Junior Subordinated
Debentures, shall be payable quarterly in arrears on the 15th day of October,
January, April, and July in each year, commencing October 15, 1999. The amount
of each Distribution due with respect to the Trust Securities will include
amounts accrued and unpaid through the date the Distribution is due. If any date
on which a Distribution is otherwise payable on the Trust Securities is not a
Business Day, then the payment of such Distribution shall be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay) except that, if such Business Day is in the next
succeeding calendar year, payment of such Distribution shall be made on the
immediately preceding Business Day (and without any reduction of interest or any
other payment in respect of any such acceleration), in each case with the same
force and effect as if made on such date (each date on which Distributions are
payable in accordance with this Section 401(a) is a "Distribution Date").
(b) The Trust Securities represent undivided beneficial interests in
the Trust Property, and, as a practical matter, the Distributions on the Trust
Securities shall be payable at a rate of % per annum of the Liquidation
Amount of the Trust Securities. The amount of Distributions payable for any full
period shall be computed on the basis of a 360-day year of twelve 30-day months.
The amount of Distributions for any partial period shall be computed on the
basis of the number of days elapsed in a 360-day year of twelve 30-day months.
During any Extension Period with respect to the Junior Subordinated Debentures,
Distributions on the Preferred Securities will be deferred for a period equal to
the Extension Period. The amount of Distributions payable for any period shall
include the Additional Amounts, if any.
(c) Distributions on the Trust Securities shall be made by the Property
Trustee solely from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Trust has funds then on hand and
immediately available in the Payment Account for the payment of such
Distributions.
16
<PAGE> 21
(d) Distributions on the Trust Securities with respect to a
Distribution Date shall be payable to the Holders thereof as they appear on the
Securities Register for the Trust Securities on the relevant record date, which
shall be one Business Day prior to such Distribution Date; provided, however,
that in the event that the Preferred Securities do not remain in book-entry-only
form, the relevant record date shall be the 1st day of the month in which the
relevant Distribution Date occurs.
SECTION 402. REDEMPTION.
(a) On each Debenture Redemption Date and on the Maturity Date of the
Junior Subordinated Debentures, the Trust will be required to redeem a Like
Amount of Trust Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee upon
instruction from the Administrative Trustees by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date to each Holder of Trust Securities to be redeemed, at such Holder's address
appearing in the Securities Register. The Property Trustee shall have no
responsibility for the accuracy of any CUSIP number contained in such notice.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the aggregate Liquidation Amount of the
particular Trust Securities to be redeemed; and
(v) that, on the Redemption Date, the Redemption Price will become
due and payable upon each such Trust Security to be redeemed and that
Distributions thereon will cease to accumulate on and after said date.
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of Junior Subordinated Debentures. Redemptions of the Trust
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Trust has immediately available
funds then on hand and available in the Payment Account for the payment of such
Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect of
any Preferred Securities, then, by 12:00 noon, Detroit, Michigan time, on the
Redemption Date, subject to Section 402(c), the Property Trustee will, so long
as the Preferred Securities are in book-entry-only form, deposit with the
Clearing Agency for the Preferred Securities funds sufficient to pay
17
<PAGE> 22
the applicable Redemption Price and will give such Clearing Agency irrevocable
instructions and authority to pay the Redemption Price to the Holders thereof.
If the Preferred Securities are no longer in book-entry-only form, the Property
Trustee, subject to Section 402(c), will deposit with the Paying Agent funds
sufficient to pay the applicable Redemption Price and will give the Paying Agent
irrevocable instructions and authority to pay the Redemption Price to the
Holders thereof upon surrender of their Preferred Securities Certificates.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Trust Securities called for redemption shall be payable
to the Holders of such Trust Securities as they appear on the Securities
Register for the Trust Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of
Securityholders holding Trust Securities so called for redemption will cease,
except the right of such Securityholders to receive the Redemption Price, but
without interest on such Redemption Price, and such Securities will cease to be
Outstanding. In the event that any date on which any Redemption Price is payable
is not a Business Day, then payment of the Redemption Price payable on such date
will be made on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day, in each case, with the same force and effect
as if made on such date. In the event that payment of the Redemption Price in
respect of any Trust Securities called for redemption is improperly withheld or
refused and not paid either by the Trust or by the Depositor pursuant to the
Guarantee, Distributions on such Trust Securities will continue to accumulate,
at the then applicable rate, from the Redemption Date originally established by
the Trust for such Trust Securities to the date such Redemption Price is
actually paid, in which case the actual payment date will be the date fixed for
redemption for purposes of calculating the Redemption Price.
(e) Payment of the Redemption Price on the Trust Securities shall be
made to the record Holders thereof as they appear on the Securities Register for
the Trust Securities on the relevant record date, which shall be one Business
Day prior to the relevant Redemption Date; provided, however, that in the event
that the Preferred Securities do not remain in book-entry-only form, the
relevant record date shall be the date fifteen days prior to the relevant
Redemption Date.
(f) Subject to Section 403(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the Common Securities and
the Preferred Securities. The particular Preferred Securities to be redeemed
shall be selected not more than 60 days prior to the Redemption Date by the
Property Trustee from the outstanding Preferred Securities not previously called
for redemption, by such method (including, without limitation, by lot) as the
Property Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions (equal to $10 or an integral multiple of
$10 in excess thereof) of the Liquidation Amount of Preferred Securities of a
denomination larger than $10. The Property Trustee shall promptly notify the
Securities Registrar in writing of the Preferred Securities selected for
redemption and, in the case of any Preferred Securities selected for partial
redemption, the Liquidation Amount thereof to be redeemed. For all purposes of
this Trust Agreement, unless the context otherwise requires, all
18
<PAGE> 23
provisions relating to the redemption of Preferred Securities shall relate, in
the case of any Preferred Securities redeemed or to be redeemed only in part, to
the portion of the Liquidation Amount of Preferred Securities which has been or
is to be redeemed.
SECTION 403. SUBORDINATION OF COMMON SECURITIES.
(a) Payment of Distributions (including Additional Amounts, if
applicable) on, and the Redemption Price of, the Trust Securities, as
applicable, shall be made, subject to Section 402(f), pro rata among the Common
Securities and the Preferred Securities based on the Liquidation Amount of the
Trust Securities; provided, however, that if on any Distribution Date or
Redemption Date any Event of Default resulting from a Debenture Event of Default
shall have occurred and be continuing, no payment of any Distribution (including
Additional Amounts, if applicable) on, or Redemption Price of, any Common
Security, and no other payment on account of the redemption, liquidation or
other acquisition of Common Securities, shall be made unless payment in full in
cash of all accumulated and unpaid Distributions (including Additional Amounts,
if applicable) on all Outstanding Preferred Securities for all Distribution
periods terminating on or prior thereto, or in the case of payment of the
Redemption Price the full amount of such Redemption Price on all Outstanding
Preferred Securities then called for redemption, shall have been made or
provided for, and all funds immediately available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions (including
Additional Amounts, if applicable) on, or the Redemption Price of, Preferred
Securities then due and payable.
(b) In the case of the occurrence of any Event of Default resulting
from a Debenture Event of Default, the Holder of Common Securities will be
deemed to have waived any right to act with respect to any such Event of Default
under this Trust Agreement until the effect of all such Events of Default with
respect to the Preferred Securities shall have been cured, waived or otherwise
eliminated. Until any such Event of Default under this Trust Agreement with
respect to the Preferred Securities shall have been so cured, waived or
otherwise eliminated, the Property Trustee shall take direction from the Holders
of the Preferred Securities and not the Holder of the Common Securities, and
only the Holders of the Preferred Securities will have the right to direct the
Property Trustee to act on their behalf.
SECTION 404. PAYMENT PROCEDURES. Payments of Distributions (including
Additional Amounts, if applicable) in respect of the Preferred Securities shall
be made by check mailed to the address of the Person entitled thereto as such
address shall appear on the Securities Register or, if the Preferred Securities
are held by a Clearing Agency, such Distributions shall be made to the Clearing
Agency in immediately available funds, which shall credit the relevant Persons'
accounts at such Clearing Agency on the applicable Distribution Dates. Payments
in respect of the Common Securities shall be made in such manner as shall be
mutually agreed between the Property Trustee and the Holder of the Common
Securities.
SECTION 405. TAX RETURNS AND REPORTS. The Administrative Trustees shall
prepare (or cause to be prepared), at the Depositor's expense, and file all
United States federal, state and local tax and information returns and reports
required to be filed by or in respect of the Trust. In this regard, the
Administrative Trustees shall (a) prepare and file (or cause to be
19
<PAGE> 24
prepared and filed) the appropriate Internal Revenue Service Form required to be
filed in respect of the Trust in each taxable year of the Trust and (b) prepare
and furnish (or cause to be prepared and furnished) to each Securityholder the
appropriate Internal Revenue Service form required to be furnished to such
Securityholder or the information required to be provided on such form. The
Administrative Trustees shall provide the Depositor with a copy of all such
returns and reports promptly after such filing or furnishing. The Property
Trustee shall comply with United States federal withholding and backup
withholding tax laws and information reporting requirements with respect to any
payments to Securityholders under the Trust Securities.
SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST. Upon receipt
under the Junior Subordinated Debentures of Additional Sums, the Property
Trustee, at the direction of an Administrative Trustee or the Depositor, shall
promptly pay any taxes, duties or governmental charges of whatsoever nature
(other than withholding taxes) imposed on the Trust by the United States or any
other taxing authority.
SECTION 407. PAYMENTS UNDER INDENTURE. Any amount payable hereunder to
any Holder of Preferred Securities shall be reduced by the amount of any
corresponding payment such Holder has directly received under the Indenture
pursuant to Section 514(b) or (c) hereof.
SECTION 408. TAXES; WITHHOLDING The Property Trustee agrees, to the
extent required by the Internal Revenue Code of 1986, as amended (the "Code"),
and applicable federal regulations thereunder, to withhold from each payment due
hereunder or under any Trust Securities, United States withholding taxes at the
appropriate rate, and, on a timely basis, to deposit such amounts with an
authorized depository and make such returns, filings and other reports in
connection therewith as are required by the Code. In the event that any
withholding tax is imposed on a payment to a Securityholder, such tax shall
reduce the amount otherwise distributable to the Securityholder in accordance
with this Section. Any Securityholder which is organized under the laws of a
jurisdiction outside the United State shall, on or prior to the date such
Securityholder becomes a Securityholder, (a) so notify the Property Trustee,
(b)(i) provide the Property Trustee with Internal Revenue Service form 1001,
4224, 8709 or W-8, as appropriate, or (ii) notify the Property Trustee that it
is not entitled to an exemption from United States withholding tax or a
reduction in the rate thereof on payments of interest. Any such Securityholder
agrees by its acceptance of a Trust Security, on an ongoing basis, to provide
like certification for each taxable year and to notify the Property Trustee in
clauses (a) and (b) above. The Property Trustee shall be fully protected in
relying upon, and each Securityholder by its acceptance of a Security agrees to
indemnify and hold the Property Trustee harmless against all claims or liability
of any kind arising in connection with or related to the Property Trustee's
reliance upon any documents, forms or information provided by any Securityholder
to the Property Trustee. In addition, if the Property Trustee has not withheld
taxes on any payment made to any Securityholder, and the Property Trustee is
subsequently required to remit to any taxing authority any such amount not
withheld, such Securityholder shall return such amount to the Property Trustee
upon written demand by the Property Trustee. The Property Trustee shall be
liable only for direct (but not consequential) damages to any Securityholder due
to the Property Trustee's violation of the Code and only to the extent such
liability is caused by the Property Trustee's gross negligence or willful
misconduct.
20
<PAGE> 25
ARTICLE V.
TRUST SECURITIES CERTIFICATES
SECTION 501. INITIAL OWNERSHIP. Upon the creation of the Trust and the
contribution by the Depositor pursuant to Section 203 and until the issuance of
the Trust Securities, and at any time during which no Trust Securities are
outstanding, the Depositor shall be the sole beneficial owner of the Trust.
SECTION 502. THE TRUST SECURITIES CERTIFICATES. The Preferred
Securities Certificates shall be issued in minimum denominations of $10
Liquidation Amount and integral multiples of $10 in excess thereof, and the
Common Securities Certificates shall be issued in denominations of $10
Liquidation Amount and integral multiples of $10 in excess thereof. The Trust
Securities Certificates shall be executed on behalf of the Trust by manual
signature of at least one Administrative Trustee. Trust Securities Certificates
bearing the manual signatures of individuals who were, at the time when such
signatures shall have been affixed, authorized to sign on behalf of the Trust,
shall be validly issued and entitled to the benefits of this Trust Agreement,
notwithstanding that such individuals or any of them shall have ceased to be so
authorized prior to the delivery of such Trust Securities Certificates or did
not hold such offices at the date of delivery of such Trust Securities
Certificates. A transferee of a Trust Securities Certificate shall become a
Securityholder, and shall be entitled to the rights and subject to the
obligations of a Securityholder hereunder, upon due registration of such Trust
Securities Certificate in such transferee's name pursuant to Sections 504, 511
and 513.
SECTION 503. EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES.
On the Closing Date, the Administrative Trustees shall cause Trust Securities
Certificates, in an aggregate Liquidation Amount as provided in Sections 204 and
205, to be executed on behalf of the Trust by at least one of the Administrative
Trustees and delivered to or upon the written order of the Depositor, signed by
its Chairman, its President, any Senior Vice President or any Vice President
without further corporate action by the Depositor, in authorized denominations.
SECTION 504. REGISTRATION OF TRANSFER AND EXCHANGE OF TRUST SECURITIES
CERTIFICATES. The Depositor shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 508, a register or registers for the
purpose of registering Trust Securities Certificates and transfers and exchanges
of Preferred Securities Certificates (herein referred to as the "Securities
Register") in which the registrar designated by the Depositor (the "Securities
Registrar"), subject to such reasonable regulations as it may prescribe, shall
provide for the registration of Preferred Securities Certificates and Common
Securities Certificates (subject to Section 510 in the case of the Common
Securities Certificates) and registration of transfers and exchanges of
Preferred Securities Certificates as herein provided. The Property Trustee shall
be the initial Securities Registrar.
21
<PAGE> 26
Upon surrender for registration of transfer of any Preferred Securities
Certificate at the office or agency maintained pursuant to Section 508, the
Administrative Trustees or any one of them shall execute and deliver, in the
name of the designated transferee or transferees, one or more new Preferred
Securities Certificates in authorized denominations of a like aggregate
Liquidation Amount dated the date of execution by such Administrative Trustee or
Trustees. The Securities Registrar shall not be required to register the
transfer of any Preferred Securities that have been called for redemption. At
the option of a Holder, Preferred Securities Certificates may be exchanged for
other Preferred Securities Certificates in authorized denominations of the same
class and of a like aggregate Liquidation Amount upon surrender of the Preferred
Securities Certificates to be exchanged at the office or agency maintained
pursuant to Section 508.
Every Preferred Securities Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Property Trustee and the
Securities Registrar duly executed by the Holder or such Holder's attorney duly
authorized in writing. Each Preferred Securities Certificate surrendered for
registration of transfer or exchange shall be canceled and subsequently disposed
of by the Property Trustee in accordance with its customary practice. The Trust
shall not be required to (i) issue, register the transfer of, or exchange any
Preferred Securities during a period beginning at the opening of business 15
calendar days before the date of mailing of a notice of redemption of any
Preferred Securities called for redemption and ending at the close of business
on the day of such mailing or (ii) register the transfer of or exchange any
Preferred Securities so selected for redemption, in whole or in part, except the
unredeemed portion of any such Preferred Securities being redeemed in part.
No service charge shall be made for any registration of transfer or
exchange of Preferred Securities Certificates, but the Securities Registrar may
require payment of a sum sufficient to cover any expense, tax or governmental
charge that may be imposed in connection with any transfer or exchange of
Preferred Securities Certificates.
Preferred Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions of this Trust Agreement. Any transfer
or purported transfer of any Preferred Securities not made in accordance with
this Trust Agreement shall be null and void.
SECTION 505. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES
CERTIFICATES. If (a) any mutilated Trust Securities Certificate shall be
surrendered to the Securities Registrar, or if the Securities Registrar shall
receive evidence to its satisfaction of the destruction, loss or theft of any
Trust Securities Certificate and (b) there shall be delivered to the Securities
Registrar and the Administrative Trustees such security or indemnity as may be
required by them to save each of them harmless, then in the absence of notice
that such Trust Securities Certificate shall have been acquired by a bona fide
purchaser, the Administrative Trustees, or any one of them, on behalf of the
Trust shall execute and make available for delivery, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a
new Trust Securities Certificate of like class, tenor and denomination. In
connection with the issuance of any new Trust Securities Certificate under this
Section, the Administrative Trustees or the Securities Registrar may require the
payment of a
22
<PAGE> 27
sum sufficient to cover any tax or other governmental charge that may
be imposed in connection therewith. Any duplicate Trust Securities Certificate
issued pursuant to this Section shall constitute conclusive evidence of an
undivided beneficial interest in the assets of the Trust, as if originally
issued, whether or not the lost, stolen or destroyed Trust Securities
Certificate shall be found at any time.
SECTION 506. PERSONS DEEMED SECURITYHOLDERS. The Trustees, the Paying
Agent and the Securities Registrar shall treat the Person in whose name any
Trust Securities Certificate shall be registered in the Securities Register as
the owner of such Trust Securities Certificate for the purpose of receiving
Distributions and for all other purposes whatsoever, and neither the Trustees
nor the Securities Registrar shall be bound by any notice to the contrary.
SECTION 507. ACCESS TO LIST OF SECURITYHOLDERS' NAMES AND ADDRESSES. At
any time when the Property Trustee is not also acting as the Securities
Registrar, the Administrative Trustees or the Depositor shall furnish or cause
to be furnished to the Property Trustee (a) semi-annually on or before January
15 and July 15 in each year, a list, in such form as the Property Trustee may
reasonably require, of the names and addresses of the Securityholders as of the
most recent regular record date (as provided in Section 401(d)) and (b) promptly
after receipt by any Administrative Trustee or the Depositor of a request
therefor from the Property Trustee, such other information as the Property
Trustee may reasonably require in order to enable the Property Trustee to
discharge its obligations under this Trust Agreement, in each case to the extent
such information is in the possession or control of the Administrative Trustees
or the Depositor and is not identical to a previously supplied list or has not
otherwise been received by the Property Trustee in its capacity as Securities
Registrar. The rights of Securityholders to communicate with other
Securityholders with respect to their rights under this Trust Agreement or under
the Trust Securities, and the corresponding rights of the Trustee shall be as
provided in the Trust Indenture Act. Each Holder, by receiving and holding a
Trust Securities Certificate, and each Owner shall be deemed to have agreed not
to hold the Depositor, the Property Trustee or the Administrative Trustees
accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.
SECTION 508. MAINTENANCE OF OFFICE OR AGENCY. The Administrative
Trustees shall maintain an office or offices or agency or agencies where
Preferred Securities Certificates may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Trustees in
respect of the Trust Securities Certificates may be served. The Administrative
Trustees initially designate the principal corporate trust office of the
Property Trustee, Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890-0001, Attn: Corporate Trust Administration, as the principal
corporate trust office for such purposes. The Administrative Trustees shall give
prompt written notice to the Depositor and to the Securityholders of any change
in the location of the Securities Register or any such office or agency.
SECTION 509. APPOINTMENT OF PAYING AGENT. The Paying Agent shall make
Distributions to Securityholders from the Payment Account and shall report the
amounts of such Distributions to the Property Trustee and the Administrative
Trustees. Any Paying Agent
23
<PAGE> 28
shall have the revocable power to withdraw funds from the Payment Account for
the purpose of making the Distributions referred to above. The Administrative
Trustees may revoke such power and remove the Paying Agent if such Trustees
determine in their sole discretion that the Paying Agent shall have failed to
perform its obligations under this Trust Agreement in any material respect. The
Paying Agent shall initially be the Property Trustee, and any co-paying agent
chosen by the Property Trustee, and acceptable to the Administrative Trustees
and the Depositor. Any Person acting as Paying Agent shall be permitted to
resign as Paying Agent upon 30 days' written notice to the Administrative
Trustees, the Property Trustee and the Depositor. In the event that the Property
Trustee shall no longer be the Paying Agent or a successor Paying Agent shall
resign or its authority to act be revoked, the Administrative Trustees shall
appoint a successor that is acceptable to the Property Trustee and the Depositor
to act as Paying Agent (which shall be a bank or trust company). The
Administrative Trustees shall cause such successor Paying Agent or any
additional Paying Agent appointed by the Administrative Trustees to execute and
deliver to the Trustees an instrument in which such successor Paying Agent or
additional Paying Agent shall agree with the Trustees that as Paying Agent, such
successor Paying Agent or additional Paying Agent will hold all sums, if any,
held by it for payment to the Securityholders in trust for the benefit of the
Securityholders entitled thereto until such sums shall be paid to such
Securityholders. The Paying Agent shall return all unclaimed funds to the
Property Trustee and upon removal of a Paying Agent such Paying Agent shall also
return all funds in its possession to the Property Trustee. The provisions of
Sections 801, 803 and 806 shall apply to the Property Trustee also in its role
as Paying Agent, for so long as the Property Trustee shall act as Paying Agent
and, to the extent applicable, to any other Paying Agent appointed hereunder.
Any reference in this Agreement to the Paying Agent shall include any co-paying
agent unless the context requires otherwise.
SECTION 510. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR. On the
Closing Date, the Depositor shall acquire and retain beneficial and record
ownership of the Common Securities. To the fullest extent permitted by law, any
attempted transfer of the Common Securities (other than a transfer in connection
with a merger or consolidation of the Depositor into another corporation
pursuant to Section 12.1 of the Indenture) shall be void. The Administrative
Trustees shall cause each Common Securities Certificate issued to the Depositor
to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE".
SECTION 511. BOOK-ENTRY PREFERRED SECURITIES CERTIFICATES; COMMON
SECURITIES CERTIFICATE.
(a) The Preferred Securities Certificates, upon original issuance, will
be issued in the form of a typewritten Preferred Securities Certificate or
Certificates representing Book-Entry Preferred Securities Certificates, to be
delivered to or held on behalf of The Depository Trust Company, the initial
Clearing Agency, by, or on behalf of, the Trust. Such Book-Entry Preferred
Securities Certificate or Certificates shall initially be registered on the
Securities Register in the name of Cede & Co., the nominee of the initial
Clearing Agency, and no beneficial owner will receive a Definitive Preferred
Securities Certificate representing such beneficial owner's interest in such
Preferred Securities, except as provided in Section 513. Unless and until
Definitive Preferred Securities Certificates have been issued to beneficial
owners pursuant to Section 513:
24
<PAGE> 29
(i) the provisions of this Section 511(a) shall be in full force and
effect;
(ii) the Securities Registrar, the Paying Agent and the Trustees shall
be entitled to deal with the Clearing Agency for all purposes of this Trust
Agreement relating to the Book-Entry Preferred Securities Certificates
(including the payment of the Liquidation Amount of and Distributions on the
Book-Entry Preferred Securities) as the sole Holder of Book-Entry Preferred
Securities and shall have no obligations to the Owners thereof;
(iii) to the extent that the provisions of this Section 511 conflict
with any other provisions of this Trust Agreement, the provisions of this
Section 511 shall control; and
(iv) the rights of the Owners of the Book-Entry Preferred Securities
Certificates shall be exercised only through the Clearing Agency and shall be
limited to those established by law and agreements between such Owners and the
Clearing Agency and/or the Clearing Agency Participants. Pursuant to the
Certificate Depository Agreement, unless and until Definitive Preferred
Securities Certificates are issued pursuant to Section 513, the initial Clearing
Agency will make book-entry transfers among the Clearing Agency Participants and
will receive and transmit payments on the Preferred Securities to such Clearing
Agency Participants. Any Clearing Agency designated pursuant hereto will not be
deemed an agent of the Trustees for any purpose.
(b) Upon the execution and delivery of this Trust Agreement, a single
Common Securities Certificate representing the Common Securities shall be issued
to the Depositor in the form of a definitive Common Securities Certificate. Upon
exercise of the Underwriters' Over-Allotment Option, an additional, single
Common Securities Certificate representing the Common Securities shall be issued
to the Depositor in the form of a definitive Common Securities Certificate.
SECTION 512. NOTICES TO CLEARING AGENCY. To the extent that a notice or
other communication to the Owners is required under this Trust Agreement, unless
and until Definitive Preferred Securities Certificates shall have been issued to
Owners pursuant to Section 513, the Trustees shall give all such notices and
communications specified herein to be given to Owners to the Clearing Agency,
and shall have no obligations to the Owners.
SECTION 513. DEFINITIVE PREFERRED SECURITIES CERTIFICATES. If (a) the
Depositor advises the Trustees in writing that the Clearing Agency is no longer
willing, or eligible to properly discharge its responsibilities with respect to
the Preferred Securities Certificates, and the Depositor is unable to locate a
qualified successor within 90 days, (b) the Depositor at its option advises the
Trustees in writing that it elects to terminate the book-entry system through
the Clearing Agency, or (c) after the occurrence of a Debenture Event of
Default, Owners of Preferred Securities Certificates representing beneficial
interests aggregating at least a majority of the Liquidation Amount advise the
Property Trustee in writing that the continuation of a book-entry system through
the Clearing Agency is no longer in the best interests of the Owners of
Preferred Securities Certificates, then the Property Trustee shall notify the
Clearing Agency, and the Clearing Agency shall notify all Owners of Preferred
Securities Certificates, of the occurrence of any such event and of the
availability of the Definitive Preferred Securities
25
<PAGE> 30
Certificates to Owners of such class or classes, as applicable, requesting the
same. Upon surrender to the Property Trustee of the typewritten Preferred
Securities Certificate or Certificates representing the Book-Entry Preferred
Securities Certificates by the Clearing Agency, accompanied by registration
instructions, the Administrative Trustees, or any one of them, shall execute the
Definitive Preferred Securities Certificates in accordance with the instructions
of the Clearing Agency. Neither the Securities Registrar nor the Trustees shall
be liable for any delay in delivery of such instructions and may conclusively
rely on, and shall be protected in relying on, such instructions. Upon the
issuance of Definitive Preferred Securities Certificates, the Trustees shall
recognize the Holders of the Definitive Preferred Securities Certificates as
Securityholders. The Definitive Preferred Securities Certificates shall be
printed, lithographed or engraved or may be produced in any other manner as is
reasonably acceptable to the Administrative Trustees, as evidenced by the
execution thereof by the Administrative Trustees or any one of them.
SECTION 514. RIGHTS OF SECURITYHOLDERS.
(a) The legal title to the Trust Property is vested exclusively in the
Property Trustee (in its capacity as such) in accordance with Section 209, and
the Securityholders shall not have any right or title therein other than the
undivided beneficial interest in the assets of the Trust conferred by their
Trust Securities and they shall have no right to call for any partition or
division of property, profits or rights of the Trust except as described below.
The Trust Securities shall be personal property giving only the rights
specifically set forth therein and in this Trust Agreement. The Trust Securities
shall have no preemptive or similar rights. When issued and delivered to Holders
of the Preferred Securities against payment of the purchase price therefor, the
Preferred Securities will be fully paid and nonassessable interests in the
Trust. The Holders of the Preferred Securities, in their capacities as such,
shall be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware.
(b) For so long as any Preferred Securities remain Outstanding, if,
upon a Debenture Event of Default, the Debenture Trustee fails or the holders of
not less than 25% in principal amount of the outstanding Junior Subordinated
Debentures fail to declare the principal of all of the Junior Subordinated
Debentures to be immediately due and payable, the Holders of at least 25% in
Liquidation Amount of the Preferred Securities then Outstanding shall have such
right by a notice in writing to the Depositor and the Debenture Trustee; and
upon any such declaration such principal amount of and the accrued interest on
all of the Junior Subordinated Debentures shall become immediately due and
payable, provided that the payment of principal and interest on such Junior
Subordinated Debentures shall remain subordinated to the extent provided in the
Indenture. If, as a result of a Debenture Event of Default, the Debenture
Trustee or the holders of not less than 25% in aggregate outstanding principal
amount of the Junior Subordinated Debentures have declared the Junior
Subordinated Debentures due and payable and if such default has been cured and a
sum sufficient to pay all matured installments due (otherwise than by
acceleration) under the Junior Subordinated Debentures has been deposited with
the Debenture Trustee, then (if the holders of not less than a majority in
aggregate outstanding principal amount of Junior Subordinated Debentures have
not annulled such declaration and
26
<PAGE> 31
waived such default) the Holders of a majority in aggregate Liquidation Amount
of the Preferred Securities may annul such declaration and waive such default.
(c) For so long as any Preferred Securities remain outstanding, upon a
Debenture Event of Default arising from the failure to pay interest or principal
on the Junior Subordinated Debentures, the Holders of any Preferred Securities
then Outstanding shall, to the fullest extent permitted by law, have the right
to directly institute proceedings for enforcement of payment to such Holders of
principal of or interest on the Junior Subordinated Debentures having a
principal amount equal to the Liquidation Amount of the Preferred Securities of
such Holders.
ARTICLE VI.
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
SECTION 601. LIMITATIONS ON VOTING RIGHTS.
(a) Except as provided herein and in the Indenture and as otherwise
required by law, no Holder of Preferred Securities shall have any right to vote
or in any manner otherwise control the administration, operation and management
of the Trust or the obligations of the parties hereto, nor shall anything herein
set forth, or contained in the terms of the Trust Securities Certificates, be
construed so as to constitute the Securityholders from time to time as partners
or members of an association.
(b) So long as any Junior Subordinated Debentures are held by the
Property Trustee, the Trustees shall not (i) direct the time, method and place
of conducting any proceeding for any remedy available to the Debenture Trustee,
or executing any trust or power conferred on the Debenture Trustee with respect
to such Junior Subordinated Debentures, (ii) waive any past default which is
waivable under Article Seven of the Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the Junior Subordinated
Debentures shall be due and payable or (iv) consent to any amendment,
modification or termination of the Indenture or the Junior Subordinated
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of at least a majority in
Liquidation Amount of all Outstanding Preferred Securities; provided, however,
that where a consent under the Indenture would require the consent of each
holder of outstanding Junior Subordinated Debentures affected thereby, no such
consent shall be given by the Property Trustee without the prior written consent
of each Holder of Preferred Securities. The Trustees shall not revoke any action
previously authorized or approved by a vote of the Holders of the Outstanding
Preferred Securities, except by a subsequent vote of the Holders of the
Outstanding Preferred Securities. The Property Trustee shall notify each Holder
of the Outstanding Preferred Securities of any notice of default received from
the Debenture Trustee with respect to the Junior Subordinated Debentures. In
addition to obtaining the foregoing approvals of the Holders of the Preferred
Securities, prior to taking any of the foregoing actions, the Trustees shall, at
the expense of the Depositor, obtain an Opinion of Counsel experienced in such
matters to the effect that the Trust will not, as a consequence of the proposed
actions by the Property Trustee, cease to be classified as a grantor
27
<PAGE> 32
trust and not as an association taxable as a corporation for United States
federal income tax purposes on account of such action.
(c) If any proposed amendment to the Trust Agreement provides for, or
the Trustees otherwise propose to effect, (i) any action that would adversely
affect in any material respect the powers, preferences or special rights of the
Preferred Securities, whether by way of amendment to the Trust Agreement or
otherwise, or (ii) the dissolution, winding-up or termination of the Trust,
other than pursuant to the terms of this Trust Agreement, then the Holders of
Outstanding Preferred Securities as a class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of the Holders of at least a majority in Liquidation
Amount of the Outstanding Preferred Securities. No amendment to this Trust
Agreement may be made if, as a result of such amendment, the Trust would cease
to be classified as a grantor trust or would be classified as an association
taxable as a corporation for United States federal income tax purposes.
SECTION 602. NOTICE OF MEETINGS. Notice of all meetings of the Holders
of Preferred Securities, stating the time, place and purpose of the meeting,
shall be given by one of the Administrative Trustees pursuant to Section 1008 to
each Holder of Preferred Securities of record, at such Securityholder's
registered address, at least 15 days and not more than 90 days before the
meeting. At any such meeting, any business properly before the meeting may be so
considered whether or not stated in the notice of the meeting. Any adjourned
meeting may be held as adjourned without further notice.
SECTION 603. MEETINGS OF HOLDERS OF PREFERRED SECURITIES. No annual
meeting of Securityholders is required to be held. The Administrative Trustees,
however, shall call a meeting of Securityholders to vote on any matter upon the
written request of the Holders of 25% of the Outstanding Preferred Securities
(based upon their aggregate Liquidation Amount) and the Administrative Trustees
or the Property Trustee may, at any time in their discretion, call a meeting of
Holders of the Preferred Securities to vote on any matters as to which the
Holders of the Preferred Securities are entitled to vote.
Holders of at least 50% of the Outstanding Preferred Securities (based
upon their aggregate Liquidation Amount), present in person or by proxy, shall
constitute a quorum at any meeting of such Securityholders.
If a quorum is present at a meeting, an affirmative vote by the Holders
of record present, in person or by proxy, holding more than a majority of the
Preferred Securities (based upon their aggregate Liquidation Amount) held by the
Holders of Preferred Securities of record present, either in person or by proxy,
at such meeting shall constitute the action of the Holders of the Preferred
Securities, unless this Trust Agreement requires a greater number of affirmative
votes.
SECTION 604. VOTING RIGHTS. Securityholders shall be entitled to one
vote for each $10 of Liquidation Amount represented by their Trust Securities in
respect of any matter as to which such Securityholders are entitled to vote.
28
<PAGE> 33
SECTION 605. PROXIES, ETC. At any meeting of Securityholders, any
Securityholder entitled to vote thereat may vote by proxy, provided that no
proxy shall be voted at any meeting unless it shall have been placed on file
with the Administrative Trustees, or with such other officer or agent of the
Trust as the Administrative Trustees may direct, for verification prior to the
time at which such vote shall be taken. When Trust Securities are held jointly
by several persons, any one of them may vote at any meeting in person or by
proxy in respect of such Trust Securities, but if more than one of them shall be
present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Trust Securities. A proxy purporting to be executed
by or on behalf of a Securityholder shall be deemed valid unless challenged at
or prior to its exercise, and, the burden of proving invalidity shall rest on
the challenger. No proxy shall be valid more than three years after its date of
execution.
SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT. Any action which
may be taken by Securityholders at a meeting may be taken without a meeting if
Securityholders holding more than a majority of all Outstanding Trust Securities
(based upon their aggregate Liquidation Amount) entitled to vote in respect of
such action (or such larger proportion thereof as shall be required by any
express provision of this Trust Agreement) shall consent to the action in
writing (based upon their aggregate Liquidation Amount).
SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES. For the
purposes of determining the Securityholders who are entitled to notice of and to
vote at any meeting or by written consent, or to participate in any distribution
on the Trust Securities in respect of which a record date is not otherwise
provided for in this Trust Agreement, or for the purpose of any other action,
the Administrative Trustees may from time to time fix a date, not more than 90
days prior to the date of any meeting of Securityholders or the payment of any
distribution or other action, as the case may be, as a record date for the
determination of the identity of the Securityholders of record for such
purposes.
SECTION 608. ACTS OF SECURITYHOLDERS. Any request, demand,
authorization, direction, notice, consent, waiver or other action provided or
permitted by this Trust Agreement to be given, made or taken by Securityholders
or Owners may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders or Owners in person
or by an agent duly appointed in writing; and, except as otherwise expressly
provided herein, such action shall become effective when such instrument or
instruments are delivered to an Administrative Trustee. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Securityholders or Owners signing such
instrument or instruments. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose of this
Trust Agreement and (subject to Section 801) conclusive in favor of the
Trustees, if made in the manner provided in this Section.
The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him or her the execution thereof. Where
29
<PAGE> 34
such execution is by a signer acting in a capacity other than such signer's
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of such signer's authority. The fact and date of the execution
of any such instrument or writing, or the authority of the Person executing the
same, may also be proved in any other manner which any Trustee receiving the
same deems sufficient.
The ownership of Preferred Securities shall be proved by the Securities
Register.
Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Securityholder of any Trust Security shall bind every future
Securityholder of the same Trust Security and the Securityholder of every Trust
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
Without limiting the foregoing, a Securityholder entitled hereunder to
take any action hereunder with regard to any particular Trust Security may do so
with regard to all or any part of the Liquidation Amount of such Trust Security
or by one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.
A Holder of Preferred Securities may institute a legal proceeding
directly against the Depositor under the Guarantee to enforce its rights under
the Guarantee without first instituting a legal proceeding against the Guarantee
Trustee (as defined in the Guarantee), the Trust or any Person.
SECTION 609. INSPECTION OF RECORDS. Upon reasonable notice to the
Administrative Trustees and the Property Trustee, the records of the Trust shall
be open to inspection by Securityholders during normal business hours for any
purpose reasonably related to such Securityholder's interest as a
Securityholder.
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES
SECTION 701. REPRESENTATIONS AND WARRANTIES OF THE BANK AND THE
PROPERTY TRUSTEE. The Bank and Property Trustee, as of the date hereof, and each
successor Property Trustee at the time of the successor Property Trustee's
acceptance of its appointment as Property Trustee hereunder (the term "Bank"
being used hereafter in this Article VII to refer to such successor Property
Trustee in its separate corporate capacity and as Property Trustee), hereby
represents and warrants as to itself (as applicable) for the benefit of the
Depositor and the Securityholders that:
(a) the Bank is a Delaware banking corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware;
30
<PAGE> 35
(b) the Bank has full corporate power, authority and legal right to
execute, deliver and perform its obligations under this Trust Agreement and has
taken all necessary action to authorize the execution, delivery and performance
by it of this Trust Agreement;
(c) this Trust Agreement has been duly authorized, executed and
delivered by the Bank and constitutes the valid and legally binding agreement of
the Bank enforceable against it in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
(d) the execution, delivery and performance by the Bank of this Trust
Agreement has been duly authorized by all necessary corporate or other action on
the part of the Bank and does not require any approval of the stockholders of
the Bank and such execution, delivery and performance will not (i) violate the
Bank's charter or by-laws, (ii) violate any provision of, or constitute, with or
without notice or lapse of time, a default under, or result in the creation or
imposition of, any Lien on any properties included in the Trust Property
pursuant to the provisions of, any indenture, mortgage, credit agreement,
license or other agreement or instrument to which the Bank is a party or by
which it is bound, or (iii) violate any law, governmental rule or regulation of
the United States or the State of Delaware, as the case may be, governing the
banking or trust powers of the Bank, or any order, judgment or decree applicable
to the Bank;
(e) neither the authorization, execution or delivery by the Bank of
this Trust Agreement nor the consummation of any of the transactions by the Bank
contemplated herein or therein requires the consent or approval of, the giving
of notice to, the registration with or the taking of any other action with
respect to, any governmental authority or agency under any existing law of the
State of Delaware or federal law governing the banking or trust powers of the
Bank;
(f) there are no proceedings pending or, to the best of the Bank's
knowledge, threatened against or affecting the Bank in any court or before any
governmental authority, agency or arbitration board or tribunal which,
individually or in the aggregate, would materially and adversely affect the
Trust or would question the right, power and authority of the Bank to enter into
or perform its obligations as one of the Trustees under this Trust Agreement;
and
(g) The Bank is a person eligible pursuant to the Trust Indenture Act
to act as such and has combined capital and surplus of at least $50,000,000.
SECTION 702. REPRESENTATIONS AND WARRANTIES OF THE DELAWARE BANK AND
THE DELAWARE TRUSTEE. The Delaware Bank and the Delaware Trustee, each severally
on behalf of and as to itself, as of the date hereof, and each successor
Delaware Trustee at the time of the successor Delaware Trustee's acceptance of
its appointment as Delaware Trustee hereunder (the term "Delaware Bank" being
used hereafter in this Article VIII to refer to such successor Delaware Trustee
in its separate corporate capacity
31
<PAGE> 36
and as Delaware Trustee), hereby represents and warrants (as applicable) for the
benefit of the Depositor and the Securityholders that:
(a) the Delaware Bank is a Delaware banking corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
(b) the Delaware Bank has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(c) this Trust Agreement has been duly authorized, executed and
delivered by the Delaware Bank and constitutes the valid and legally binding
agreement of the Delaware Bank enforceable against it in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles;
(d) the execution, delivery and performance by the Delaware Bank of
this Trust Agreement has been duly authorized by all necessary corporate or
other action on the part of the Delaware Bank and does not require any approval
of the stockholders of the Delaware Bank and such execution, delivery and
performance will not (i) violate the Delaware Bank's charter or by-laws, (ii)
violate any provision of, or constitute, with or without notice or lapse of
time, a default under, or result in the creation or imposition of, any Lien on
any properties included in the Trust Property pursuant to the provisions of, any
indenture, mortgage, credit agreement, license or other agreement or instrument
to which the Delaware Bank is a party or by which it is bound, or (iii) violate
any law, governmental rule or regulation of the United States or the State of
Delaware, as the case may be, governing the banking or trust powers of the
Delaware Bank, or any order, judgment or decree applicable to the Delaware Bank;
(e) neither the authorization, execution or delivery by the Delaware
Bank of this Trust Agreement nor the consummation of any of the transactions by
the Delaware Bank contemplated herein or therein requires the consent or
approval of, the giving of notice to, the registration with or the taking of any
other action with respect to, any governmental authority or agency under any
existing law of the State of Delaware or any federal law governing the banking
or trust powers of the Delaware Bank; and
(f) there are no proceedings pending or, to the best of the Delaware
Bank's knowledge, threatened against or affecting the Delaware Bank in any court
or before any governmental authority, agency or arbitration board or tribunal
which, individually or in the aggregate, would materially and adversely affect
the Trust or the right, power and authority of the Delaware Bank to enter into
or perform its obligations as one of the Trustees under this Trust Agreement.
SECTION 703. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR. The Depositor
hereby represents and warrants for the benefit of the Securityholders that:
32
<PAGE> 37
(a) the Trust Securities Certificates issued on the Closing Date on
behalf of the Trust have been duly authorized and will have been duly and
validly executed, issued and delivered by the Administrative Trustees pursuant
to the terms and provisions of, and in accordance with the requirements of, this
Trust Agreement and the Securityholders will be, as of such date, entitled to
the benefits of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by
the Trust (or the Trustees on behalf of the Trust) under the laws of the State
of Delaware or any political subdivision thereof in connection with the
execution, delivery and performance by the Bank, the Property Trustee, the
Delaware Bank or the Delaware Trustee, as the case may be, of this Trust
Agreement.
ARTICLE VIII.
THE TRUSTEES
SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The duties and responsibilities of the Trustees shall be as
provided by this Trust Agreement and, in the case of the Property Trustee, by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Trust Agreement shall require the Trustees to expend or risk their own funds or
otherwise incur any financial liability in the performance of any of their
duties hereunder, or in the exercise of any of their rights or powers, if they
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it. No Administrative Trustee nor the Delaware Trustee shall be liable for such
Trustee's acts or omissions hereunder except as a result of such Trustee's own
gross negligence or willful misconduct. The Property Trustee's liability shall
be determined under the Trust Indenture Act. Whether or not therein expressly so
provided, every provision of this Trust Agreement relating to the conduct or
affecting the liability of or affording protection to the Trustees shall be
subject to the provisions of this Section. To the extent that, at law or in
equity, the Delaware Trustee or an Administrative Trustee has duties (including
fiduciary duties) and liabilities relating thereto to the Trust or to the
Securityholders, the Delaware Trustee or such Administrative Trustee shall not
be liable to the Trust or to any Securityholder for such Trustee's good faith
reliance on the provisions of this Trust Agreement. The provisions of this Trust
Agreement, to the extent that they restrict the duties and liabilities of the
Delaware Trustee or the Administrative Trustees otherwise existing at law or in
equity, are agreed by the Depositor and the Securityholders to replace such
other duties and liabilities of the Delaware Trustee and the Administrative
Trustees.
(b) All payments made by the Property Trustee or a Paying Agent in
respect of the Trust Securities shall be made only from the revenue and proceeds
from the Trust Property and only to the extent that there shall be sufficient
revenue or proceeds from the Trust Property to enable the Property Trustee or a
Paying Agent to make payments in accordance with the terms hereof. Each
Securityholder, by such Securityholder's acceptance of a Trust Security, agrees
that such Securityholder will look solely to the revenue and proceeds from the
Trust Property to the
33
<PAGE> 38
extent legally available for distribution to such Securityholder as herein
provided and that the Trustees are not personally liable to such Securityholder
for any amount distributable in respect of any Trust Security or for any other
liability in respect of any Trust Security. This Section 801(b) does not limit
the liability of the Trustees expressly set forth elsewhere in this Trust
Agreement or, in the case of the Property Trustee, in the Trust Indenture Act.
(c) No provision of this Trust Agreement shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(i) the Property Trustee shall not be liable for any error of
judgment made in good faith by an authorized officer of the Property Trustee,
unless it shall be proved that the Property Trustee was negligent in
ascertaining the pertinent facts;
(ii) the Property Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of not less than a majority in Liquidation Amount of
the Trust Securities relating to the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or exercising any
trust or power conferred upon the Property Trustee under this Trust Agreement;
(iii) the Property Trustee's sole duty with respect to the custody,
safe keeping and physical preservation of the Junior Subordinated Debentures and
the Payment Account shall be to deal with such Property in a manner as the
Property Trustee deals with similar property for its own account, subject to the
protections and limitations on liability afforded to the Property Trustee under
this Trust Agreement and the Trust Indenture Act;
(iv) the Property Trustee shall not be liable for any interest on
any money received by it except as it may otherwise agree with the Depositor and
money held by the Property Trustee need not be segregated from other funds held
by it except in relation to the Payment Account maintained by the Property
Trustee pursuant to Section 301 and except to the extent otherwise required by
law; and
(v) the Property Trustee shall not be responsible for monitoring
the compliance by the Administrative Trustees or the Depositor with their
respective duties under this Trust Agreement, nor shall the Property Trustee be
liable for the negligence, default or misconduct of the Administrative Trustees
or the Depositor.
SECTION 802. CERTAIN NOTICES.
(a) Within five Business Days after the occurrence of any Event of
Default actually known to an officer in the Corporate Trust Administration
office of the Property Trustee, the Property Trustee shall transmit, in the
manner and to the extent provided in Section 1008, notice of such Event of
Default to the Securityholders, the Administrative Trustees and the Depositor,
unless such Event of Default shall have been cured or waived. For purposes of
this Section the term "Event of Default" means any event that is, or after
notice or lapse of time or both would
34
<PAGE> 39
become, an Event of Default, and the Property Trustee will not be deemed to have
knowledge of such an event unless it has received notice thereof.
(b) The Administrative Trustees shall transmit, to the Securityholders
in the manner and to the extent provided in Section 1008, notice of the
Depositor's election to begin or further extend an Extension Period on the
Junior Subordinated Debentures (unless such election shall have been revoked)
within the time specified for transmitting such notice to the holders of the
Junior Subordinated Debentures pursuant to the Indenture as originally executed.
(c) In the event the Depositor elects to accelerate the Maturity Date
in accordance with Section 2.2 of the Indenture, upon request the Property
Trustee shall give notice to each Holder of Trust Securities of the acceleration
of the Maturity Date and the Accelerated Maturity Date not later than five
Business Days after the Property Trustee receives the notice provided in Section
2.2(c) of the Indenture.
SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE. Subject to the
provisions of Section 801:
(a) the Property Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, Opinion of Counsel,
certificate, written representation of a Holder or transferee, certificate of
auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) if (i) in performing its duties under this Trust Agreement the
Property Trustee is required to decide between alternative courses of action or
(ii) in construing any of the provisions of this Trust Agreement the Property
Trustee finds the same ambiguous or inconsistent with other provisions contained
herein or (iii) the Property Trustee is unsure of the application of any
provision of this Trust Agreement, then, except as to any matter as to which the
Holders of the Preferred Securities are entitled to vote under the terms of this
Trust Agreement, the Property Trustee shall deliver a notice to the Depositor
requesting written instructions of the Depositor as to the course of action to
be taken and the Property Trustee shall take such action, or refrain from taking
such action, as the Property Trustee shall be instructed in writing to take, or
to refrain from taking, by the Depositor; provided, however, that if the
Property Trustee does not receive such instructions of the Depositor within 10
Business Days after it has delivered such notice, or such reasonably shorter
period of time set forth in such notice (which to the extent practicable shall
not be less than two Business Days), it may, but shall be under no duty to, take
or refrain from taking such action not inconsistent with this Trust Agreement as
it shall deem advisable and in the best interests of the Securityholders, in
which event the Property Trustee shall have no liability except for its own bad
faith, negligence or willful misconduct;
(c) any direction or act of the Depositor or the Administrative
Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by
an Officers' Certificate;
35
<PAGE> 40
(d) whenever in the administration of this Trust Agreement, the
Property Trustee shall deem it desirable that a matter be established before
undertaking, suffering or omitting any action hereunder, the Property Trustee
(unless other evidence is herein specifically prescribed) may, in the absence of
bad faith on its part, request and conclusively rely upon an Officers'
Certificate which, upon receipt of such request, shall be promptly delivered by
the Depositor or the Administrative Trustees;
(e) the Property Trustee shall have no duty to see to any recording,
filing or registration of any instrument (including any financing or
continuation statement or any filing under tax or securities laws) or any
rerecording, refiling or reregistration thereof;
(f) the Property Trustee may consult with counsel of its choice and the
advice of such counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon and in accordance with such advice (such counsel
may be counsel to the Depositor or any of its Affiliates, and may include any of
its employees); the Property Trustee shall have the right at any time to seek
instructions concerning the administration of this Trust Agreement from any
court of competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Securityholders pursuant to this Trust Agreement, unless
such Securityholders shall have offered to the Property Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(h) the Property Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Securityholders, but the
Property Trustee may make such further inquiry or investigation into such facts
or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through its
agents or attorneys, provided that the Property Trustee shall be responsible for
its own bad faith respect to selection of any agent or attorney appointed by it
hereunder;
(j) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder, the Property
Trustee (i) may request instructions from the Holders of the Trust Securities
which instructions may only be given by the Holders of the same proportion in
Liquidation Amount of the Trust Securities as would be entitled to direct the
Property Trustee under the terms of the Trust Securities in respect of such
remedy, right or action, (ii) may refrain from enforcing such remedy or right or
taking such other action until such instructions are received, and (iii) shall
be protected in acting in accordance with such instructions; and
36
<PAGE> 41
(k) except as otherwise expressly provided by this Trust Agreement, the
Property Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Trust Agreement. No provision of this
Trust Agreement shall be deemed to impose any duty or obligation on the Property
Trustee to perform any act or acts or exercise any right, power, duty or
obligation conferred or imposed on it, in any jurisdiction in which it shall be
illegal, or in which the Property Trustee shall be unqualified or incompetent in
accordance with applicable law, to perform any such act or acts, or to exercise
any such right, power, duty or obligation. No permissive power or authority
available to the Property Trustee shall be construed to be a duty.
SECTION 804. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Trust Securities Certificates shall be
taken as the statements of the Trust, and the Trustees do not assume any
responsibility for their correctness. The Trustees shall not be accountable for
the use or application by the Depositor of the proceeds of the Junior
Subordinated Debentures.
SECTION 805. MAY HOLD SECURITIES. Any Trustee or any other agent of any
Trustee or the Trust, in its individual or any other capacity, may become the
owner or pledgee of Trust Securities and, subject to Sections 808 and 813 and
except as provided in the definition of the term "Outstanding" in Article I, may
otherwise deal with the Trust with the same rights it would have if it were not
a Trustee or such other agent.
SECTION 806. COMPENSATION; INDEMNITY; FEES. The Depositor agrees:
(a) to pay to the Bank and Delaware Bank such fees as are agreed to in
a separate fee agreement and to pay to the Administrative Trustees from time to
time reasonable compensation for all services rendered by them hereunder (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Bank, the Delaware Bank and the Trustees upon request for all reasonable
expenses, disbursements and advances incurred or made by the Trustees in
accordance with any provision of this Trust Agreement (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be attributable to such
Trustee's negligence, bad faith or willful misconduct (or, in the case of the
Administrative Trustees or the Delaware Trustee, any such expense, disbursement
or advance as may be attributable to its, his or her gross negligence, bad faith
or willful misconduct); and
(c) to indemnify each of the Trustees or any predecessor Trustee, the
Bank and the Delaware Bank including their officers, directors, employees,
agents and assigns for, and to hold the Trustees harmless against, any cost,
loss, damage, claim, liability, penalty or expense incurred without negligence
or bad faith on its part, arising out of or in connection with the acceptance or
administration of this Trust Agreement, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder, except any such cost or
expense as may be attributable to such Trustee's negligence, bad faith or
willful misconduct (or, in the case of the Administrative
37
<PAGE> 42
Trustees or the Delaware Trustee, any such cost or expense as may be
attributable to its, his or her gross negligence, bad faith or willful
misconduct).
No Trustee may claim any Lien on any Trust Property as a result of any
amount due pursuant to this Section 806.
SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF
TRUSTEES.
(a) There shall at all times be a Property Trustee hereunder with
respect to the Trust Securities. The Property Trustee shall be a Person that is
eligible pursuant to the Trust Indenture Act to act as such and has a combined
capital and surplus of at least $50,000,000. If any such Person publishes
reports of condition at least annually, pursuant to law or to the requirements
of its supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such Person shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Property Trustee with respect to the
Trust Securities shall cease to be eligible in accordance with the provisions of
this Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
(b) There shall at all times be one or more Administrative Trustees
hereunder with respect to the Trust Securities. Each Administrative Trustee
shall be either a natural person who is at least 21 years of age or a legal
entity that shall act through one or more persons authorized to bind that
entity.
(c) There shall at all times be a Delaware Trustee with respect to the
Trust Securities. The Delaware Trustee shall either be (i) a natural person who
is at least 21 years of age and a resident of the State of Delaware or (ii) a
legal entity with its principal place of business in the State of Delaware and
that otherwise meets the requirements of applicable Delaware law that shall act
through one or more persons authorized to bind such entity.
SECTION 808. CONFLICTING INTERESTS. If the Property Trustee has or
shall acquire a conflicting interest within the meaning of the Trust Indenture
Act, the Property Trustee shall either eliminate such interest or resign, to the
extent and in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and this Trust Agreement.
SECTION 809. CO-TRUSTEES AND SEPARATE TRUSTEE. Unless an Event of
Default shall have occurred and be continuing, at any time or times, for the
purpose of meeting the legal requirements of the Trust Indenture Act or of any
jurisdiction in which any part of the Trust Property may at the time be located,
the Depositor and the Administrative Trustees shall have power to appoint, and
upon the written request of the Property Trustee, the Depositor and the
Administrative Trustees shall for such purpose join with the Property Trustee in
the execution, delivery and performance of all instruments and agreements
necessary or proper to appoint, one or more Persons approved by the Property
Trustee either to act as co-trustee, jointly with the Property Trustee, of all
or any part of such Trust Property, or to the extent required by law to act as
separate trustee of any such property, in either case with such powers as may be
provided in the instrument of appointment, and to vest in such Person or Persons
in the capacity
38
<PAGE> 43
aforesaid, any property, title, right or power deemed necessary or desirable,
subject to the other provisions of this Section. If the Depositor and the
Administrative Trustees do not join in such appointment within 15 days after the
receipt by them of a request so to do, or in case a Debenture Event of Default
has occurred and is continuing, the Property Trustee alone shall have power to
make such appointment. Any co-trustee or separate trustee appointed pursuant to
this Section shall either be (i) a natural person who is at least 21 years of
age and a resident of the United States or (ii) a legal entity with its
principal place of business in the United States that shall act through one or
more persons authorized to bind such entity.
Should any written instrument from the Depositor be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right, or power, any and
all such instruments shall, on request, be executed, acknowledged, and delivered
by the Depositor.
Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms,
namely:
(a) The Trust Securities shall be executed and delivered and all
rights, powers, duties and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustees specified hereunder, shall be exercised,
solely by such Trustees and not by such co-trustee or separate trustee.
(b) The rights, powers, duties and obligations hereby conferred or
imposed upon the Property Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed by the
Property Trustee or by the Property Trustee and such co-trustee or separate
trustee jointly, as shall be provided in the instrument appointing such
co-trustee or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Property
Trustee shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and performed by
such co-trustee or separate trustee.
(c) The Property Trustee at any time, by an instrument in writing
executed by it, with the written concurrence of the Depositor, may accept the
resignation of or remove any co-trustee or separate trustee appointed under this
Section, and, in case a Debenture Event of Default has occurred and is
continuing, the Property Trustee shall have power to accept the resignation of,
or remove, any such co-trustee or separate trustee without the concurrence of
the Depositor. Upon the written request of the Property Trustee, the Depositor
shall join with the Property Trustee in the execution, delivery and performance
of all instruments and agreements necessary or proper to effectuate such
resignation or removal. A successor to any co-trustee or separate trustee so
resigned or removed may be appointed in the manner provided in this Section 809.
(d) No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Property Trustee or any other
trustee hereunder.
(e) The Trustees shall not be liable by reason of any act of a
co-trustee or separate trustee.
39
<PAGE> 44
(f) Any Act of Holders delivered to the Property Trustee shall be
deemed to have been delivered to each such co-trustee and separate trustee.
SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. No
resignation or removal of any Trustee (the "Relevant Trustee") and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 811.
Subject to the immediately preceding paragraph, the Relevant Trustee
may resign at any time with respect to the Trust Securities by giving written
notice thereof to the Securityholders. If the instrument of acceptance by the
successor Trustee required by Section 811 shall not have been delivered to the
Relevant Trustee within 30 days after the giving of such notice of resignation,
the Relevant Trustee may petition, at the expense of the Depositor, any court of
competent jurisdiction for the appointment of a successor Trustee with respect
to the Trust Securities.
Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by Act of the Holder of the
Common Securities. If a Debenture Event of Default shall have occurred and be
continuing, the Property Trustee or the Delaware Trustee, or both of them, may
be removed at such time by Act of the Holders of a majority in Liquidation
Amount of the Preferred Securities, delivered to such Relevant Trustee (in its
individual capacity and on behalf of the Trust). An Administrative Trustee may
be removed by the Holder of the Common Securities at any time. In no event will
the Holders of the Preferred Securities have the right to vote to appoint,
remove or replace the Administrative Trustees.
If the Relevant Trustee shall resign, be removed or become incapable of
acting as Trustee, or if a vacancy shall occur in the office of such Relevant
Trustee for any cause, at a time when no Debenture Event of Default shall have
occurred and be continuing, the Holder of the Common Securities, by Act of the
Holder of the Common Securities delivered to the retiring Relevant Trustee,
shall promptly appoint a successor Trustee or Trustees with respect to the Trust
Securities and the Trust, and the successor Trustee shall comply with the
applicable requirements of Section 811. If the Property Trustee or the Delaware
Trustee shall resign, be removed or become incapable of continuing to act as the
Property Trustee or the Delaware Trustee, as the case may be, at a time when a
Debenture Event of Default shall have occurred and is continuing, the Holders of
the Preferred Securities by Act of the Holders of a majority in Liquidation
Amount of the Preferred Securities then Outstanding delivered to the retiring
Relevant Trustee, shall promptly appoint a successor Trustee or Trustees with
respect to the Trust Securities and the Trust, and such successor Trustee shall
comply with the applicable requirements of Section 811. If an Administrative
Trustee shall resign, be removed or become incapable of acting as Administrative
Trustee, at a time when a Debenture Event of Default shall have occurred and be
continuing, the Holder of the Common Securities, by Act of the Holder of the
Common Securities delivered to an Administrative Trustee, shall promptly appoint
a successor Administrative Trustee or Administrative Trustees with respect to
the Trust Securities and the Trust, and such successor Administrative Trustee or
Administrative Trustees shall
40
<PAGE> 45
comply with the applicable requirements of Section 811. If no successor Trustee
with respect to the Trust Securities shall have been so appointed by the Holder
of the Common Securities or the Holders of the Preferred Securities and accepted
appointment in the manner required by Section 811, any Securityholder who has
been a Securityholder for at least six months may, on behalf of such
Securityholder and all others similarly situated, petition a court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Trust Securities.
The Property Trustee shall give notice of each resignation and each
removal of a Relevant Trustee and each appointment of a successor Trustee to all
Securityholders in the manner provided in Section 1008 and shall give notice to
the Depositor. Each notice shall include the name of the successor Trustee and
the address of its Corporate Trust office if it is the Property Trustee.
Notwithstanding, the foregoing or any other provision of this Trust
Agreement, in the event any Administrative Trustee or a Delaware Trustee who is
a natural person dies or becomes, in the opinion of the Depositor, incompetent
or incapacitated, the vacancy created by such death, incompetence or incapacity
may be filled by (a) the unanimous act of the remaining Administrative Trustees
if there are at least two of them or (b) otherwise by the Depositor (with the
successor in each case being a Person who satisfies the eligibility requirement
for Administrative Trustees or the Delaware Trustee, as the case may be, set
forth in Section 807).
SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. In case of the
appointment hereunder of a successor Trustee with respect to the Trust
Securities and the Trust, the retiring Relevant Trustee and each successor
Trustee with respect to the Trust Securities shall execute and deliver an
instrument hereto wherein each successor Trustee shall accept such appointment
and which shall contain such provisions as shall be necessary or desirable to
transfer and confirm to, and to vest in, each successor Trustee all the rights,
powers, trusts and duties of the retiring Relevant Trustee with respect to the
Trust Securities and the Trust, and upon the execution and delivery of such
instrument, the resignation or removal of the retiring Relevant Trustee shall
become effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Relevant Trustee with respect
to the Trust Securities and the Trust; but, on request of the Trust or any
successor Trustee such retiring Relevant Trustee shall duly assign, transfer and
deliver to such successor Trustee all Trust Property, all proceeds thereof and
money held by such retiring Relevant Trustee hereunder with respect to the Trust
Securities and the Trust.
Upon request of any such successor Trustee, the Trust shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all such rights, powers and trusts referred to in the
immediately preceding paragraph, as the case may be.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
41
<PAGE> 46
SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS. Any Person into which the Property Trustee, the Delaware Trustee or
any Administrative Trustee that is not a natural person may be merged or
converted or with which it may be consolidated, or any Person resulting from any
merger, conversion or consolidation to which such Relevant Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of such Relevant Trustee, shall be the successor of such Relevant
Trustee hereunder, provided such Person shall be otherwise qualified and
eligible under this Article, without the execution or filing of any paper or any
further act on the part of any of the parties hereto.
SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR
TRUST. If and when the Property Trustee or the Delaware Trustee shall be or
become a creditor of the Depositor or the Trust (or any other obligor upon the
Junior Subordinated Debentures or the Trust Securities), the Property Trustee or
the Delaware Trustee, as the case may be, shall be subject to and shall take all
actions necessary in order to comply with the provisions of the Trust Indenture
Act regarding the collection of claims against the Depositor or Trust (or any
such other obligor).
SECTION 814. REPORTS BY PROPERTY TRUSTEE.
(a) Not later than January 31 of each year commencing with January 31,
2000, the Property Trustee shall transmit to all Securityholders in accordance
with Section 1008, and to the Depositor, a brief report dated as of the
preceding December 31 with respect to:
(i) its eligibility under Section 807 or, in lieu thereof, if to
the best of its knowledge it has continued to be eligible under said Section, a
written statement to such effect; and
(ii) any change in the property and funds in its possession as
Property Trustee since the date of its last report.
(b) In addition the Property Trustee shall transmit to Securityholders
such reports concerning the Property Trustee and its actions under this Trust
Agreement as may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant thereto.
(c) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Depositor with each national securities exchange or
other organization upon which the Trust Securities may be listed, with the
Commission and with the Depositor.
SECTION 815. REPORTS TO THE PROPERTY TRUSTEE. The Depositor and the
Administrative Trustees on behalf of the Trust shall provide to the Property
Trustee such documents, reports and information as required by Section 314 of
the Trust Indenture Act (if any) and the compliance certificate required by
Section 314(a) of the Trust Indenture Act in the form, in the manner and at the
times required by Section 314 of the Trust Indenture Act.
42
<PAGE> 47
SECTION 816. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. Each of
the Depositor and the Administrative Trustees on behalf of the Trust shall
provide to the Property Trustee such evidence of compliance with the conditions
precedent, if any, provided for in this Trust Agreement that relate to any of
the matters set forth in Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers'
Certificate.
SECTION 817. NUMBER OF TRUSTEES.
(a) The initial number of Trustees shall be five, provided that the
Holder of the Common Securities by written instrument may increase or decrease
the number of Administrative Trustees. The Property Trustee and the Delaware
Trustee may be the same Person.
(b) If a Trustee ceases to hold office for any reason and the number of
Administrative Trustees is not reduced pursuant to Section 817(a), or if the
number of Trustees is increased pursuant to Section 817(a), a vacancy shall
occur. The vacancy shall be filled with a Trustee appointed in accordance with
Section 810.
(c) The death, resignation, retirement, removal, bankruptcy,
incompetence or incapacity to perform the duties of a Trustee shall not operate
to annul the Trust. Whenever a vacancy in the number of Administrative Trustees
shall occur, until such vacancy is filled by the appointment of an
Administrative Trustee in accordance with Section 810, the Administrative
Trustees in office, regardless of their number (and notwithstanding any other
provision of this Agreement), shall have all the powers granted to the
Administrative Trustees and shall discharge all the duties imposed upon the
Administrative Trustees by this Trust Agreement.
SECTION 818. DELEGATION OF POWER.
(a) Any Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21 his
or her power for the purpose of executing any documents contemplated in Section
207(a)(i); and
(b) The Administrative Trustees shall have power to delegate from time
to time to such of their number or to the Depositor the doing of such things and
the execution of such instruments either in the name of the Trust or the names
of the Administrative Trustees or otherwise as the Administrative Trustees may
deem expedient, to the extent such delegation is not prohibited by applicable
law or contrary to the provisions of the Trust, as set forth herein.
SECTION 819. VOTING. Except as otherwise provided in this Trust
Agreement, the consent or approval of the Administrative Trustees shall require
consent or approval by not less than a majority of the Administrative Trustees,
unless there are only two, in which case both must consent.
43
<PAGE> 48
ARTICLE IX.
TERMINATION, LIQUIDATION AND MERGER
SECTION 901. TERMINATION UPON EXPIRATION DATE. Unless earlier
dissolved, the Trust shall automatically dissolve on , 2029 (the
"Expiration Date") subject to distribution of the Trust Property in accordance
with Section 904.
SECTION 902. EARLY TERMINATION. The first to occur of any of the
following events is an "Early Termination Event":
(a) the occurrence of a Bankruptcy Event in respect of, or the
dissolution or liquidation of, the Depositor;
(b) delivery of written direction to the Property Trustee by the
Depositor at any time (which direction is wholly optional and within the
discretion of the Depositor, subject to Depositor having received prior approval
of the Board of Governors of the Federal Reserve System if so required under
applicable guidelines, policies or regulations thereof) to dissolve the Trust
and distribute the Junior Subordinated Debentures to Securityholders in exchange
for the Preferred Securities in accordance with Section 904;
(c) the redemption of all of the Preferred Securities in connection
with the redemption of all of the Junior Subordinated Debentures; or
(d) an order for dissolution of the Trust shall have been entered by a
court of competent jurisdiction.
SECTION 903. TERMINATION. The respective obligations and
responsibilities of the Trustees and the Trust created and continued hereby
shall terminate upon the latest to occur of the following: (a) the distribution
by the Property Trustee to Securityholders upon the liquidation of the Trust
pursuant to Section 904, or upon the redemption of all of the Trust Securities
pursuant to Section 402, of all amounts required to be distributed hereunder
upon the final payment of the Trust Securities; (b) the payment of any expenses
owed by the Trust; (c) the discharge of all administrative duties of the
Administrative Trustees, including the performance of any tax reporting
obligations with respect to the Trust or the Securityholders, and (d) the filing
of a certificate of cancellation by the Administrative Trustee under the
Delaware Business Trust Act.
SECTION 904. LIQUIDATION.
(a) If an Early Termination Event specified in clause (a), (b), or (d)
of Section 902 occurs or upon the Expiration Date, the Trust shall be liquidated
by the Trustees as expeditiously as the Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, to each Securityholder a Like Amount of Junior
Subordinated Debentures, subject to Section 904(d). Notice of liquidation shall
be given
44
<PAGE> 49
by the Property Trustee, pursuant to instruction from the Administrative
Trustees, by first-class mail, postage prepaid, mailed not later than 30 nor
more than 60 days prior to the Liquidation Date to each Holder of Trust
Securities at such Holder's address appearing in the Securities Register. All
notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities will no longer be deemed to be Outstanding and any Trust Securities
Certificates not surrendered for exchange will be deemed to represent a Like
Amount of Junior Subordinated Debentures; and
(iii) provide such information with respect to the mechanics by
which Holders may exchange Trust Securities certificates for Junior Subordinated
Debentures, or if Section 904(d) applies receive a Liquidation Distribution, as
the Administrative Trustees or the Property Trustee shall deem appropriate.
(b) Except where Section 902(c) or 904(d) applies, in order to effect
the liquidation of the Trust and distribution of the Junior Subordinated
Debentures to Securityholders, the Property Trustee shall establish a record
date for such distribution (which shall be not more than 45 days prior to the
Liquidation Date) and, either itself acting as exchange agent or through the
appointment of a separate exchange agent, shall establish such procedures as it
shall deem appropriate to effect the distribution of Junior Subordinated
Debentures in exchange for the Outstanding Trust Securities Certificates.
(c) Except where Section 902(c) or 904(d) applies, after the
Liquidation Date, (i) the Trust Securities will no longer be deemed to be
Outstanding, (ii) certificates (or, at the election of the Depositor a Global
Subordinated Debenture, subject to the provisions of the Indenture) representing
a Like Amount of Junior Subordinated Debentures will be issued to Holders of
Trust Securities Certificates upon surrender of such certificates to the
Administrative Trustees or their agent for exchange, (iii) the Depositor shall
use its reasonable efforts to have the Junior Subordinated Debentures listed on
a national securities exchange or quotation system, (iv) any Trust Securities
Certificates not so surrendered for exchange will be deemed to represent a Like
Amount of Junior Subordinated Debentures, accruing interest at the rate provided
for in the Junior Subordinated Debentures from the last Distribution Date on
which a Distribution was made on such Trust Securities Certificates until such
certificates are so surrendered (and until such certificates are so surrendered,
no payments of interest or principal will be made to Holders of Trust Securities
Certificates with respect to such Junior Subordinated Debentures) and (v) all
rights of Securityholders holding Trust Securities will cease, except the right
of such Securityholders to receive Junior Subordinated Debentures upon surrender
of Trust Securities Certificates.
(d) In the event that, notwithstanding the other provisions of this
Section 904, whether because of an order for dissolution entered by a court of
competent jurisdiction or otherwise, distribution of the Junior Subordinated
Debentures in the manner provided herein is determined by the Property Trustee
not to be practical, the Trust Property shall be liquidated, and the Trust shall
be dissolved, wound-up or terminated, by the Property Trustee in such manner as
45
<PAGE> 50
the Property Trustee determines. In such event, on the date of the dissolution,
winding-up or other termination of the Trust, Securityholders will be entitled
to receive out of the assets of the Trust available for distribution to
Securityholders, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, an amount equal to the Liquidation Amount per Trust
Security plus accumulated and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"). If, upon any such
dissolution, winding-up or termination, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then, subject to the next succeeding
sentence, the amounts payable by the Trust on the Trust Securities shall be paid
on a pro rata basis (based upon Liquidation Amounts). The Holder of the Common
Securities will be entitled to receive Liquidation Distributions upon any such
dissolution, winding-up or termination pro rata (determined as aforesaid) with
Holders of Preferred Securities, except that, if a Debenture Event of Default
has occurred and is continuing, the Preferred Securities shall have a priority
over the Common Securities.
SECTION 905. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF
THE TRUST. The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any trust or other Person, except pursuant to
this Section 905. At the request of the Depositor, with the consent of the
Administrative Trustees and without the consent of the Holders of the Preferred
Securities, the Property Trustee or the Delaware Trustee, the Trust may merge
with or into, consolidate, amalgamate, be replaced by or convey, transfer or
lease its properties and assets substantially as an entirety to a trust
organized as such under the laws of any state; provided, that (i) such successor
entity either (a) expressly assumes all of the obligations of the Trust with
respect to the Preferred Securities or (b) substitutes for the Preferred
Securities other securities having substantially the same terms as the Preferred
Securities (the "Successor Securities") so long as the Successor Securities rank
the same as the Preferred Securities rank in priority with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) the
Depositor expressly appoints a trustee of such successor entity possessing
substantially the same powers and duties as the Property Trustee as the holder
of the Junior Subordinated Debentures, (iii) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the Holders of the Preferred
Securities (including any Successor Securities) in any material respect, (iv)
such successor entity has a purpose identical to that of the Trust, (v) the
Successor Securities will be listed or traded on any national securities
exchange or other organization on which the Preferred Securities may then be
listed, (vi) prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the Depositor has received an Opinion of Counsel
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the Holders of the Preferred
Securities (including any Successor Securities) in any material respect, and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Trust nor such successor entity will be required
to register as an "investment company" under the Investment Company Act and
(vii) the Depositor owns all of the Common Securities of such successor entity
and guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Guarantee. Notwithstanding the
foregoing, the Trust shall not, except with the consent of
46
<PAGE> 51
Holders of 100% in Liquidation Amount of the Preferred Securities, consolidate,
amalgamate, merge with or into, or be replaced by or convey, transfer or lease
its properties and assets substantially as an entirety to any other Person or
permit any other Person to consolidate, amalgamate, merge with or into, or
replace it, if such consolidation, amalgamation, merger or replacement would
cause the Trust or the successor entity to be classified as other than a grantor
trust for United States federal income tax purposes.
ARTICLE X.
MISCELLANEOUS PROVISIONS
SECTION 1001. LIMITATION OF RIGHTS OF SECURITYHOLDERS. The death or
incapacity of any Person having an interest, beneficial or otherwise, in Trust
Securities shall not operate to terminate this Trust Agreement, nor entitle the
legal representatives or heirs of such Person, to claim an accounting, take any
action or bring any proceeding in any court for a partition or winding-up of the
arrangements contemplated hereby, nor otherwise affect the rights, obligations
and liabilities of the parties hereto or any of them.
SECTION 1002. AMENDMENT.
(a) This Trust Agreement may be amended from time to time by the
Trustees and the Depositor, without the consent of any Securityholders, (i) as
provided in Section 811 with respect to acceptance of appointment by a successor
Trustee, (ii) to cure any ambiguity, correct or supplement any provision herein
or therein which may be inconsistent with any other provision herein or therein,
or to make any other provisions with respect to matters or questions arising
under this Trust Agreement, that shall not be inconsistent with the other
provisions of this Trust Agreement, or (iii) to modify, eliminate or add to any
provisions of this Trust Agreement to such extent as shall be necessary to
ensure that the Trust will be classified for United States federal income tax
purposes as a grantor trust at all times that any Trust Securities are
Outstanding or to ensure that the Trust will not be required to register as an
"investment company" under the Investment Company Act; provided, however, that
in the case of clause (ii), such action shall not adversely affect in any
material respect the interests of any Securityholder, and any amendments of this
Trust Agreement shall become effective when notice thereof is given to the
Securityholders.
(b) Except as provided in Section 601(c) or Section 1002(c) hereof, any
provision of this Trust Agreement may be amended by the Trustees and the
Depositor (i) with the consent of Securityholders representing not less than a
majority (based upon Liquidation Amounts) of the Trust Securities then
Outstanding and (ii) upon receipt by the Trustees of an Opinion of Counsel to
the effect that such amendment or the exercise of any power granted to the
Trustees in accordance with such amendment will not affect the Trust's status as
a grantor trust for United States federal income tax purposes or the Trust's
exemption from status of an "investment company" under the Investment Company
Act.
(c) In addition to and notwithstanding any other provision in this
Trust Agreement, without the consent of each affected Securityholder (such
consent being obtained in accordance
47
<PAGE> 52
with Section 603 or 606 hereof), this Trust Agreement may not be amended to (i)
change the amount or timing of any distribution on the Trust Securities or
otherwise adversely affect the amount of any distribution required to be made in
respect of the Trust Securities as of a specified date or (ii) restrict the
right of a Securityholder to institute suit for the enforcement of any such
payment on or after such date; notwithstanding any other provision herein,
without the unanimous consent of the Securityholders (such consent being
obtained in accordance with Section 603 or 606 hereof), this paragraph (c) of
this Section 1002 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Trustee shall enter into or consent to any amendment to this Trust Agreement
which would cause the Trust to fail or cease to qualify for the exemption from
status of an "investment company" under the Investment Company Act or to fail or
cease to be classified as a grantor trust for United States federal income tax
purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor, this Trust Agreement may not be amended in
a manner which imposes any additional obligation on the Depositor.
(f) In the event that any amendment to this Trust Agreement is made,
the Administrative Trustees shall promptly provide to the Depositor a copy of
such amendment.
(g) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement which affects its
own rights, duties or immunities under this Trust Agreement. The Property
Trustee shall be entitled to receive an Opinion of Counsel and an Officers'
Certificate stating that any amendment to this Trust Agreement is in compliance
with this Trust Agreement.
SECTION 1003. SEPARABILITY. In case any provision in this Trust
Agreement or in the Trust Securities Certificates shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 1004. GOVERNING LAW. THIS TRUST AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF EACH OF THE SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH
RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES).
SECTION 1005. PAYMENTS DUE ON NON-BUSINESS DAY. If the date fixed for
any payment on any Trust Security shall be a day that is not a Business Day,
then such payment need not be made on such date but may be made on the next
succeeding day which is a Business Day (except as otherwise provided in Sections
401(a) and 402(d)), with the same force and effect as though made on the date
fixed for such payment, and no Distribution shall accumulate thereon for the
period after such date.
48
<PAGE> 53
SECTION 1006. SUCCESSORS. This Trust Agreement shall be binding upon
and shall inure to the benefit of any successor to the Depositor, the Trust or
the Relevant Trustee(s), including any successor by operation of law. Except in
connection with a consolidation, merger or sale involving the Depositor that is
permitted under Article XII of the Indenture and pursuant to which the assignee
agrees in writing to perform the Depositor's obligations hereunder, the
Depositor shall not assign its obligations hereunder.
SECTION 1007. HEADINGS. The Article and Section headings are for
convenience only and shall not affect the construction of this Trust Agreement.
SECTION 1008. REPORTS, NOTICES AND DEMANDS. Any report, notice, demand
or other communication which by any provision of this Trust Agreement is
required or permitted to be given or served to or upon any Securityholder or the
Depositor may be given or served in writing by deposit thereof, first-class
postage prepaid, in the United States mail, hand delivery or facsimile
transmission, in each case, addressed, (a) in the case of a Holder of Preferred
Securities, to such Securityholder as such Securityholder's name and address may
appear on the Securities Register; and (b) in the case of the Holder of the
Common Securities or the Depositor, to Mercantile Bank Corporation, 216 North
Division Avenue, N.W. Grand Rapids, MI 48503, Attention: Chairman; Fax: (616)
454-5815. Any notice to the Holders of the Preferred Securities shall also be
given to such Owners as have, within two years preceding the giving of such
notice, filed their names and addresses with the Property Trustee for that
purpose. Such notice, demand or other communication to or upon a Securityholder
shall be deemed to have been sufficiently given or made, for all purposes, upon
hand delivery, mailing or transmission.
Any notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
the Trust, the Property Trustee or the Administrative Trustees shall be given in
writing addressed (until another address is published by the Trust) as follows:
(a) with respect to the Property Trustee to Wilmington Trust Company, Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attention: Corporate Trust Administration; (b) with respect to the Delaware
Trustee, to Wilmington Trust Company, Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust
Administration; and (c) with respect to the Administrative Trustees, to them at
the address above for notices to the Depositor, marked "Attention:
Administrative Trustees of MBWM Trust." Such notice, demand or other
communication to or upon the Trust or the Property Trustee shall be deemed to
have been sufficiently given or made only upon actual receipt of the writing by
the Trust or the Property Trustee.
SECTION 1009. AGREEMENT NOT TO PETITION. Each of the Trustees and the
Depositor agree for the benefit of the Securityholders that, until at least one
year and one day after the Trust has been terminated in accordance with Article
IX, they shall not file, or join in the filing of, a petition against the Trust
under any bankruptcy, insolvency, reorganization or other similar law
(including, without limitation, the United States Bankruptcy Code)
(collectively, "Bankruptcy Laws") or otherwise join in the commencement of any
proceeding against the Trust under any Bankruptcy Law. In the event the
Depositor takes action in violation
49
<PAGE> 54
of this Section 1009, the Property Trustee agrees, for the benefit of
Securityholders, that at the expense of the Depositor (which expense shall be
paid prior to the filing), it shall file an answer with the bankruptcy court or
otherwise properly contest the filing of such petition by the Depositor against
the Trust or the commencement of such action and raise the defense that the
Depositor has agreed in writing not to take such action and should be stopped
and precluded therefrom. The provisions of this Section 1009 shall survive the
termination of this Trust Agreement.
SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT.
(a) This Trust Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Trust Agreement and shall, to
the extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a trustee
for the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Trust Agreement by any
of the provisions of the Trust Indenture Act, such required provision shall
control. If any provision of this Trust Agreement modifies or excludes any
provision of the Trust Indenture Act which may be so modified or excluded, the
latter provision shall be deemed to apply to this Trust Agreement as so modified
or to be excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust Agreement
shall not affect the nature of the Trust Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND
INDENTURE.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN
BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY
SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL
ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN
SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND
AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND
THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH
SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST
AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND
SUCH SECURITYHOLDER AND SUCH OTHERS.
50
<PAGE> 55
MERCANTILE BANK CORPORATION,
as Depositor
By: ________________________________
Name: ________________________________
Title: ________________________________
WILMINGTON TRUST COMPANY,
as Property Trustee
By: ________________________________
Name: ________________________________
Title: ________________________________
WILMINGTON TRUST COMPANY,
as Delaware Trustee
By: ___________________________________________________
Name: ___________________________________________________
Title: ___________________________________________________
____________________________________________________________
Gerald R. Johnson, Jr., as Administrative Trustee
____________________________________________________________
Michael H. Price, as Administrative Trustee
____________________________________________________________
Charles E. Christmas, as Administrative Trustee
51
<PAGE> 56
EXHIBIT A
CERTIFICATE OF TRUST
OF
MBWM CAPITAL TRUST I
This Certificate of Trust of MBWM Capital Trust I (the "Trust"), dated
July 23, 1999, is being duly executed and filed by the undersigned, as trustees,
to form a business trust under the Delaware Business Trust Act (12 Del. C.
Section 3801 et seq.) (the "Act").
1. NAME. The name of the business trust formed hereby is MBWM Capital
Trust I.
2. DELAWARE TRUSTEE. The name and business address of the trustee of
the Trust in the State of Delaware is Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attn:
Corporate Trust Administration.
3. EFFECTIVE DATE. This Certificate of Trust shall be effective upon
its filing.
IN WITNESS WHEREOF, the undersigned, being all the trustees of the
Trust, have executed this Certificate of Trust as of the date first above
written in accordance with Section 3811 of the Act.
WILMINGTON TRUST COMPANY,
not in its individual capacity, but solely
as trustee
By: ________________________________
Name: ________________________________
Title: ________________________________
52
<PAGE> 57
ADMINISTRATIVE TRUSTEES
____________________________________________
Gerald R. Johnson, Jr., not in his
individual capacity, but solely as trustee
____________________________________________
Michael H. Price, not in his individual
capacity, but solely as trustee
____________________________________________
Charles E. Christmas, not in his individual
capacity, but solely as trustee
53
<PAGE> 58
EXHIBIT C
THIS CERTIFICATE IS NOT TRANSFERABLE
CERTIFICATE NUMBER NUMBER OF SECURITIES
**1** 43,299
CERTIFICATE EVIDENCING COMMON SECURITIES
OF
MBWM CAPITAL TRUST I
% Common Securities
(liquidation amount $10 per Common Security)
MBWM Capital Trust I, a statutory business trust created under the laws
of the State of Delaware (the "Trust"), hereby certifies that Mercantile Bank
Corporation (the "Holder") is the registered owner of Forty-Three Thousand Two
Hundred and Ninety Nine (43,299) securities of the Trust representing undivided
beneficial interests in the assets of the Trust and designated the % Common
Securities (liquidation amount $10 per Common Security) (the "Common
Securities"). In accordance with Section 510 of the Trust Agreement (as defined
below), the Common Securities are not transferable and any attempted transfer
hereof shall be void. The designations, rights, privileges, restrictions,
preferences, and other terms and provisions of the Common Securities are set
forth in, and this certificate and the Common Securities represented hereby are
issued and shall in all respects be subject to the terms and provisions of, the
Amended and Restated Trust Agreement of the Trust dated as of September ,
1999, as the same may be amended from time to time (the "Trust Agreement"),
including the designation of the terms of Common Securities as set forth
therein. The Trust will furnish a copy of the Trust Agreement to the Holder
without charge upon written request to the Trust at its principal place of
business or registered office. Upon receipt of this certificate, the Holder is
bound by the Trust Agreement and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has
executed this certificate this day of September , 1999.
MERCANTILE BANK CORPORATION
By:
----------------------------
Name:
----------------------------
Title: Administrative Trustee
54
<PAGE> 59
EXHIBIT D
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT dated as of September , 1999, between Mercantile Bank
Corporation, a Michigan corporation (the "Company"), and MBWM Capital Trust I, a
Delaware business trust (the "Trust").
WHEREAS, the Trust intends to issue its Common Securities (the "Common
Securities") to, and receive % Junior Subordinated Debentures due 2029 (the
"Junior Subordinated Debentures") from, the Company and to issue and sell %
Cumulative Preferred Securities (the "Preferred Securities") with such powers,
preferences and special rights and restrictions as are set forth in the Amended
and Restated Trust Agreement of the Trust dated as of September , 1999, as
the same may be amended from time to time (the "Trust Agreement"); and
WHEREAS, the Company will directly or indirectly own all of the Common
Securities of the Trust and will issue the Junior Subordinated Debentures.
NOW, THEREFORE, in consideration of the purchase by each holder of the
Preferred Securities, which purchase the Company hereby agrees shall benefit the
Company and which purchase the Company acknowledges will be made in reliance
upon the execution and delivery of this Agreement, the Company, including in its
capacity as holder of the Common Securities, and the Trust hereby agree as
follows:
ARTICLE I
SECTION 1.1. GUARANTEE BY THE COMPANY. Subject to the terms and
conditions hereof, the Company, including in its capacity as holder of the
Common Securities, hereby irrevocably and unconditionally guarantees to each
person or entity to whom the Trust is now or hereafter becomes indebted or
liable (the "Beneficiaries") the full payment, when and as due, of any and all
Obligations (as hereinafter defined) to such Beneficiaries. As used herein,
"Obligations" means any costs, expenses or liabilities of the Trust other than
obligations of the Trust to pay to holders of any Preferred Securities or other
similar interests in the Trust the amounts due such holders pursuant to the
terms of the Preferred Securities or such other similar interests, as the case
may be. This Agreement is intended to be for the benefit of, and to be
enforceable by, all such Beneficiaries, whether or not such Beneficiaries have
received notice hereof.
SECTION 1.2. TERM OF AGREEMENT. This Agreement shall terminate and be
of no further force and effect upon the later of (a) the date on which full
payment has been made of all amounts payable to all holders of all the Preferred
Securities (whether upon redemption, liquidation, exchange or otherwise) and (b)
the date on which there are no Beneficiaries remaining; provided, however, that
this Agreement shall continue to be effective or shall be reinstated, as the
case may be, if at any time any holder of Preferred Securities or any
Beneficiary must restore payment of any sums paid under the Preferred
Securities, under any
55
<PAGE> 60
Obligation, under the Preferred Securities Guarantee Agreement dated the date
hereof by the Company and Wilmington Trust Company as guarantee trustee or under
this Agreement, for any reason whatsoever. This Agreement is continuing,
irrevocable, unconditional and absolute.
SECTION 1.3. WAIVER OF NOTICE. The Company hereby waives notice of
acceptance of this Agreement and of any Obligation to which it applies or may
apply, and the Company hereby waives presentment, demand for payment, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
SECTION 1.4. NO IMPAIRMENT. The obligations, covenants, agreements and
duties of the Company under this Agreement shall in no way be affected or
impaired by reason of the happening from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or any
portion of the Obligations or for the performance of any other obligation under,
arising out of, or in connection with, the Obligations;
(b) any failure, omission, delay or lack of diligence on the part of
the Beneficiaries to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Beneficiaries with respect to the Obligations or any
action on the part of the Trust granting indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust.
The Beneficiaries shall not be obligated to give notice to, or obtain
the consent of, the Company with respect to the happening of any of the
foregoing.
SECTION 1.5. ENFORCEMENT. A Beneficiary may enforce this Agreement
directly against the Company, and the Company waives any right or remedy to
require that any action be brought against the Trust or any other person or
entity before proceeding against the Company.
ARTICLE II
SECTION 2.1. BINDING EFFECT. All guarantees and agreements contained in
this Agreement shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the
Beneficiaries.
SECTION 2.2. AMENDMENT. So long as there remains any Beneficiary or any
Preferred Securities are outstanding, this Agreement shall not be modified or
amended in any manner adverse to such Beneficiary or to the holders of the
Preferred Securities.
SECTION 2.3. NOTICES. Any notice, request or other communication
required or permitted to be given hereunder shall be given in writing by
delivering the same by facsimile
56
<PAGE> 61
transmission (confirmed by mail), telex, or by registered or certified mail,
addressed as follows (and if so given, shall be deemed given when mailed or upon
receipt of an answer back, if sent by telex):
MBWM Capital Trust I
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0001
Facsimile No.: (302) 651-8882
Attention: Corporate Trust Administration
Mercantile Bank Corporation
216 North Division Avenue, N.W.
Grand Rapids, Michigan 49503
Facsimile No.: (616) 454-5815
Attention: Chairman
SECTION 2.4. GOVERNING LAW. This Agreement shall be governed by and
construed and interpreted in accordance with the laws of the State of Michigan
(without regard to conflict of laws principles).
THIS AGREEMENT is executed as of the day and year first above written.
MERCANTILE BANK CORPORATION,
By:
---------------------------------
Name:
---------------------------------
Title: Chairman
MBWM CAPITAL TRUST I
By:
---------------------------------
Name:
---------------------------------
Title: Administrative Trustee
57
<PAGE> 62
EXHIBIT E
This Preferred Security is a Book-Entry Preferred Securities
Certificate within the meaning of the Trust Agreement hereinafter referred to
and is registered in the name of The Depository Trust Company, a New York
corporation (the "Depositary") or a nominee of the Depositary. This Preferred
Security is exchangeable for Preferred Securities registered in the name of a
person other than the Depositary or its nominee only in the limited
circumstances described in the Trust Agreement (as defined below) and no
transfer of this Preferred Security (other than a transfer of this Preferred
Security as a whole by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the
Depositary) may be registered except in limited circumstances.
Unless this Preferred Security is presented by an authorized
representative of the Depositary to MBWM Capital Trust I or its agent for
registration of transfer, exchange or payment, and any Preferred Security issued
is registered in the name of Cede & Co., or in such other name as requested by
an authorized representative of the Depositary (and any payment is made to Cede
& Co. or to such other entity as is requested by an authorized representative of
the Depositary), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co. has an interest herein.
Certificate Number Number of Preferred Securities
**1** 1,400,000
CUSIP NO.______________
CERTIFICATE EVIDENCING PREFERRED SECURITIES
OF
MBWM CAPITAL TRUST I
% Cumulative Preferred Securities
(liquidation amount $10 per Preferred Security)
MBWM Capital Trust I, a statutory business trust created under the laws
of the State of Delaware (the "Trust"), hereby certifies that Cede & Co. (the
"Holder") is the registered owner of One Million Four Hundred Thousand
(1,400,000) preferred securities of the Trust representing undivided beneficial
interests in the assets of the Trust and designated the % Cumulative
Preferred Securities (liquidation amount $10 per Preferred Security) (the
"Preferred Securities"). The Preferred Securities are transferable on the books
and records of the Trust, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form for transfer as
provided in Section 504 of the Trust Agreement (as defined below). The
designations, rights, privileges, restrictions, preferences, and other terms and
provisions of the Preferred Securities are set forth in, and this certificate
and the Preferred Securities represented hereby are issued and shall in all
respects be subject to the terms and provisions of, the Amended and Restated
Trust Agreement of the Trust dated as of September , 1999, as the same may be
amended from time to time (the "Trust Agreement"), including the designation of
the terms of Preferred Securities as set forth therein. The Holder is entitled
to the benefits of the Preferred
58
<PAGE> 63
Securities Guarantee Agreement entered into by Mercantile Bank Corporation, a
Michigan corporation, and Wilmington Trust Company, as guarantee trustee, dated
as of September , 1999 (the "Guarantee"), to the extent provided therein. The
Trust will furnish a copy of the Trust Agreement and the Guarantee to the Holder
without charge upon written request to the Trust at its principal place of
business or registered office. Upon receipt of this certificate, the Holder is
bound by the Trust Agreement and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has
executed this certificate this day of , 1999.
MERCANTILE BANK CORPORATION
By:
-----------------------------
Name:
-----------------------------
Title: Administrative Trustee
59
<PAGE> 1
EXHIBIT 4.7
PREFERRED SECURITIES GUARANTEE AGREEMENT
MERCANTILE BANK CORPORATION
AND
WILMINGTON TRUST COMPANY
DATED: SEPTEMBER , 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I DEFINITIONS AND INTERPRETATION......................................................1
SECTION 1.1 Definitions and Interpretation .....................................................1
ARTICLE II TRUST INDENTURE ACT.................................................................5
SECTION 2.1 Trust Indenture Act; Application....................................................5
SECTION 2.2 Lists of Holders of Securities......................................................5
SECTION 2.3 Reports by the Preferred Guarantee Trustee..........................................5
SECTION 2.4 Periodic Reports to Preferred Guarantee Trustee.....................................6
SECTION 2.5 Evidence of Compliance with Conditions Precedent....................................6
SECTION 2.6 Events of Default; Waiver...........................................................6
SECTION 2.7 Event of Default; Notice............................................................6
SECTION 2.8 Conflicting Interests ..............................................................6
ARTICLE III POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE
TRUSTEE
SECTION 3.1 Powers and Duties of the Preferred Guarantee Trustee................................7
SECTION 3.2 Certain Rights of Preferred Guarantee Trustee.......................................8
SECTION 3.3 Not Responsible for Recitals or Issuance of Guarantee...............................10
ARTICLE IV PREFERRED GUARANTEE TRUSTEE.........................................................10
SECTION 4.1 Preferred Guarantee Trustee; Eligibility............................................10
SECTION 4.2 Appointment, Removal and Resignation of Preferred Guarantee
Trustees............................................................................11
ARTICLE V GUARANTEE...........................................................................12
SECTION 5.1 Guarantee...........................................................................12
SECTION 5.2 Waiver of Notice and Demand.........................................................12
SECTION 5.3 Obligations Not Affected............................................................12
SECTION 5.4 Rights of Holders...................................................................13
SECTION 5.5 Guarantee of Payment................................................................13
SECTION 5.6 Subrogation.........................................................................13
SECTION 5.7 Independent Obligations.............................................................14
ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION...........................................14
SECTION 6.1 Limitation of Transactions..........................................................14
SECTION 6.2 Ranking.............................................................................14
ARTICLE VII TERMINATION.........................................................................14
SECTION 7.1 Termination.........................................................................14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VIII INDEMNIFICATION; FEES...............................................................15
SECTION 8.1 Exculpation.........................................................................15
SECTION 8.2 Indemnification.....................................................................15
SECTION 8.3 Fees................................................................................15
ARTICLE IX MISCELLANEOUS.......................................................................16
SECTION 9.1 Successors and Assigns..............................................................16
SECTION 9.2 Amendments..........................................................................16
SECTION 9.3 Notices.............................................................................16
SECTION 9.4 Benefit.............................................................................17
SECTION 9.5 Governing Law.......................................................................17
</TABLE>
ii
<PAGE> 4
CROSS REFERENCE TABLE
Section of Trust Section of
Indenture Act of Guarantee
1939, as Amended Agreement
---------------- ---------
310(a) 4.1(a)
310(b) 4.1(c), 2.8
310(c) Inapplicable
311(a) 2.2(b)
311(b) 2.2(b)
311(c) Inapplicable
312(a) 2.2(a)
312(b) 2.2(b)
313 2.3
314(a) 2.4
314(b) Inapplicable
314(c) 2.5
314(d) Inapplicable
314(e) 1.1, 2.5, 3.2
314(f) 2.1, 3.2
315(a) 3.1(d)
315(b) 2.7
315(c) 3.1(c)
315(d) 3.1(d)
316(a) 1.1, 3.6, 5.4
316(b) 5.3
316(c) 8.2
317(a) Inapplicable
317(b) Inapplicable
318(a) 2.1(b)
318(b) 2.1
318(c) 2.1(a)
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of this Guarantee.
iii
<PAGE> 5
PREFERRED SECURITIES GUARANTEE AGREEMENT
This PREFERRED SECURITIES GUARANTEE AGREEMENT (the "Preferred
Securities Guarantee"), dated as of September , 1999, is executed and
delivered by Mercantile Bank Corporation, a Michigan corporation (the
"Guarantor"), and Wilmington Trust Company, a Delaware banking corporation duly
organized under the laws of the State of Delaware, as trustee (acting not in its
individual capacity but solely as trustee, the "Preferred Guarantee Trustee"),
for the benefit of the Holders (as defined herein) from time to time of the
Preferred Securities (as defined herein) of MBWM Capital Trust I, a Delaware
statutory business trust (the "Trust").
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the
"Trust Agreement") dated as of September , 1999 among the trustees of the
Trust named therein, the Guarantor, as sponsor, and the holders from time to
time of undivided beneficial interests in the assets of the Trust, the Trust is
issuing on the date hereof 1,400,000 preferred securities, and within 30 days
after the date of the prospectus relating to the public offering of the
preferred securities, a possible additional amount of up to 200,000 preferred
securities pursuant to an underwriters' over-allotment option, having an
aggregate liquidation amount of $14,000,000 to $16,000,000, designated the
% Cumulative Preferred Securities (the "Preferred Securities"); and
WHEREAS, as incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Preferred Securities Guarantee, to pay to the
Holders of the Preferred Securities the Guarantee Payments (as defined herein)
and to make certain other payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 DEFINITIONS AND INTERPRETATION. In this Preferred
Securities Guarantee, unless the context otherwise requires:
(a) capitalized terms used in this Preferred Securities Guarantee but
not defined in the preamble above have the respective meanings assigned to them
in this Section 1.1;
(b) a term defined in the Trust Agreement has the same meaning when
used in this Preferred Securities Guarantee, unless otherwise defined in this
Preferred Securities Guarantee;
(c) a term defined anywhere in this Preferred Securities Guarantee has
the same meaning throughout;
1
<PAGE> 6
(d) all references to "the Preferred Securities Guarantee" or "this
Preferred Securities Guarantee" are to this Preferred Securities Guarantee as
modified, supplemented or amended from time to time;
(e) all references in this Preferred Securities Guarantee to Articles
and Sections are to Articles and Sections of this Preferred Securities
Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning when
used in this Preferred Securities Guarantee, unless otherwise defined in this
Preferred Securities Guarantee or unless the context otherwise requires; and
(g) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than (a) a Saturday or Sunday, (b) a
day on which banking institutions in the State of Michigan are authorized or
required by law or executive order to remain closed, or (c) a day on which the
Preferred Guarantee Trustee's Corporate Trust Office is closed for business.
"Corporate Trust Office" means the office of the Preferred Guarantee
Trustee at which the corporate trust business of the Preferred Guarantee Trustee
shall, at any particular time, be principally administered, which office at the
date of execution of this Agreement is located at Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890-0001, Attn: Corporate Trust
Administration.
"Covered Person" means any Holder or beneficial owner of Preferred
Securities.
"Debt" means with respect to any person, whether recourse is to all or
a portion of the assets of such person and whether or not contingent: (i) every
obligation of such person for money borrowed; (ii) every obligation of such
person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such person; (iv) every obligation of such person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such person; and (vi) every
obligation of the type referred to in clauses (i) through (v) of another person
and all dividends of another person the payment of which, in either case, such
person has guaranteed or for which such person is responsible or liable,
directly or indirectly, as obligor or otherwise.
"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Preferred Securities Guarantee.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent not
paid or made by the Trust: (i) any accrued and unpaid Distributions (as defined
in the Trust Agreement) that are required to
2
<PAGE> 7
be paid on such Preferred Securities to the extent the Trust shall have funds
available therefor, (ii) the redemption price, including all accrued and unpaid
Distributions to the date of redemption (the "Redemption Price") to the extent
the Trust has funds available therefor, with respect to any Preferred Securities
called for redemption by the Trust, and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Trust (other than in connection
with the distribution of Junior Subordinated Debentures to the Holders in
exchange for Preferred Securities as provided in the Trust Agreement), the
lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid
Distributions on the Preferred Securities to the date of payment, to the extent
the Trust shall have funds available therefor, and (b) the amount of assets of
the Trust remaining available for distribution to Holders in liquidation of the
Trust (such lesser amount, the "Liquidation Distribution").
"Holder" shall mean any holder, as registered on the books and records
of the Trust of any Preferred Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor, the Preferred Guarantee Trustee or any of their
respective Affiliates.
"Indemnified Person" means the Preferred Guarantee Trustee including in
its individual capacity, any Affiliate of the Preferred Guarantee Trustee, or
any officers, directors, shareholders, members, partners, employees,
representatives, nominees, custodians or agents of the Preferred Guarantee
Trustee.
"Indenture" means the Subordinated Indenture dated as of September
, 1999, among the Guarantor (the "Debenture Issuer") and Wilmington Trust
Company, as trustee, and any indenture supplemental thereto pursuant to which
the Junior Subordinated Debentures are to be issued to the Property Trustee of
the Trust.
"Junior Subordinated Debentures" means the series of junior
subordinated deferrable interest debt securities of the Guarantor designated the
% Junior Subordinated Debentures due 2029 held by the Property Trustee of
the Trust.
"Liquidation Amount" means the stated valued of $10 per Trust Security.
"Liquidation Distribution" has the meaning in the definition of
Guarantee Payments.
"Majority in Liquidation Amount of the Preferred Securities" means,
except as provided by the Trust Indenture Act, a vote by Holders of Preferred
Securities, voting separately as a class, of more than 50% of the liquidation
amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date upon
which the voting percentages are determined) of all Preferred Securities.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Authorized Officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Preferred Securities Guarantee shall include:
3
<PAGE> 8
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Guarantee Trustee" means Wilmington Trust Company not in its
individual capacity but solely as trustee, until a Successor Preferred Guarantee
Trustee has been appointed and has accepted such appointment pursuant to the
terms of this Preferred Securities Guarantee and thereafter means each such
Successor Preferred Guarantee Trustee.
"Redemption Price" has the meaning provided in the definition of
Guarantee Payments.
"Responsible Officer" means, with respect to the Preferred Guarantee
Trustee, any officer within the Corporate Trust Administration or Business
Development Office of the Preferred Guarantee Trustee, including any
vice-president, any assistant vice-president, any assistant secretary, the
treasurer, any assistant treasurer or other officer of the Corporate Trust
Office of the Preferred Guarantee Trustee customarily performing functions
similar to those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of that officer's knowledge of and
familiarity with the particular subject.
"Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.1.
"Senior and Subordinated Debt" means the principal of (and premium, if
any) and interest, if any (including interest accruing on or after the filing of
any petition in bankruptcy or for reorganization relating to the Guarantor
whether or not such claim for post-petition interest is allowed in such
proceeding), on Debt of the Guarantor, whether incurred on or prior to the date
of the Indenture or thereafter incurred, unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are not superior in right of payment to the Preferred
Securities Guarantee or to other Debt which is pari passu with, or subordinated
to, the Preferred Securities Guarantee; provided, however, that Senior and
Subordinated Debt shall not be deemed to include (i) any Debt of the Guarantor
which when incurred and without respect to any election under section 1111(b) of
the United States Bankruptcy Code of 1978, as amended, was without recourse to
the Guarantor, (ii) any Debt of
4
<PAGE> 9
the Guarantor to any of its subsidiaries, (iii) any Debt to any employee of the
Guarantor, (iv) any Debt which by its terms is subordinated to trade accounts
payable or accrued liabilities arising in the ordinary course of business to the
extent that payments made to the holders of such Debt by the holders of the
Junior Subordinated Debentures as a result of the subordination provisions of
the Indenture would be greater than they otherwise would have been as a result
of any obligation of such holders to pay amounts over to the obligees on such
trade accounts payable or accrued liabilities arising in the ordinary course of
business as a result of the subordination provisions to which such Debt is
subject, (v) the Junior Subordinated Debentures, and (vi) any other debt
securities issued pursuant to the Indenture.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 TRUST INDENTURE ACT; APPLICATION.
(a) This Preferred Securities Guarantee is subject to the provisions of
the Trust Indenture Act that are required to be part of this Preferred
Securities Guarantee and shall, to the extent applicable, be governed by such
provisions; and
(b) If and to the extent that any provision of this Preferred
Securities Guarantee limits, qualifies or conflicts with the duties imposed by
Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.
SECTION 2.2 LISTS OF HOLDERS OF SECURITIES.
(a) In the event the Preferred Guarantee Trustee is not also acting in
the capacity of the Property Trustee under the Trust Agreement, the Guarantor
shall provide the Preferred Guarantee Trustee with a list, in such form as the
Preferred Guarantee Trustee may reasonably require, of the names and addresses
of the Holders of the Preferred Securities ("List of Holders") (i) on or before
[6 MONTHS AFTER ISSUANCE] 15 and [ISSUANCE ANNIVERSARY MONTH] 15 of each year,
and (ii) at any other time within 30 days of receipt by the Guarantor of a
written request for a List of Holders, as of a date no more than 15 days before
such List of Holders is given to the Preferred Guarantee Trustee provided, that
the Guarantor shall not be obligated to provide such List of Holders at any time
the List of Holders does not differ from the most recent List of Holders given
to the Preferred Guarantee Trustee by the Guarantor. The Preferred Guarantee
Trustee may destroy any List of Holders previously given to it on receipt of a
new List of Holders.
(b) The Preferred Guarantee Trustee shall comply with its obligations
under Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION 2.3 REPORTS BY THE PREFERRED GUARANTEE TRUSTEE. On or before
[ISSUANCE ANNIVERSARY MONTH] 15 of each year, the Preferred Guarantee Trustee
shall provide to the Holders of the Preferred Securities such reports as are
required by Section 313 of the Trust Indenture Act, if any, in the form and in
the manner provided by Section 313 of the
5
<PAGE> 10
Trust Indenture Act. The Preferred Guarantee Trustee shall also comply with the
requirements of Section 313(d) of the Trust Indenture Act.
SECTION 2.4 PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE. The
Guarantor shall provide to the Preferred Guarantee Trustee such documents,
reports and information as required by Section 314 of the Trust Indenture Act,
if any, and the compliance certificate required by Section 314 of the Trust
Indenture Act in the form, in the manner and at the times required by Section
314 of the Trust Indenture Act.
SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. The
Guarantor shall provide to the Preferred Guarantee Trustee such evidence of
compliance with the conditions precedent, if any, provided for in this Preferred
Securities Guarantee that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 314(c)(1) may be given in the form of an
Officers' Certificate.
SECTION 2.6 EVENTS OF DEFAULT; WAIVER. The Holders of a Majority in
liquidation amount of Preferred Securities may, by vote, on behalf of the
Holders of all of the Preferred Securities, waive any past Event of Default and
its consequences. Upon such waiver, any such Event of Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Preferred Securities Guarantee, but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent thereon.
SECTION 2.7 EVENT OF DEFAULT; NOTICE.
(a) The Preferred Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Preferred Securities, notices of all Events of
Default actually known to a Responsible Officer of the Preferred Guarantee
Trustee, unless such defaults have been cured before the giving of such notice.
(b) The Preferred Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless the Preferred Guarantee Trustee shall
have received a properly addressed written notice, or of which a Responsible
Officer of the Preferred Guarantee Trustee charged with the administration of
the Trust Agreement shall have obtained actual knowledge.
SECTION 2.8 CONFLICTING INTERESTS. The Trust Agreement shall be deemed
to be specifically described in this Preferred Securities Guarantee for the
purposes of clause (i) of the first proviso contained in Section 310(b) of the
Trust Indenture Act.
6
<PAGE> 11
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
PREFERRED GUARANTEE TRUSTEE
SECTION 3.1 POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE.
(a) This Preferred Securities Guarantee shall be held by the Preferred
Guarantee Trustee for the benefit of the Holders of the Preferred Securities,
and the Preferred Guarantee Trustee shall not transfer this Preferred Securities
Guarantee to any Person except a Holder of Preferred Securities exercising such
Holder's rights pursuant to Section 5.4(b) or to a Successor Preferred Guarantee
Trustee on acceptance by such Successor Preferred Guarantee Trustee of its
appointment to act as Successor Preferred Guarantee Trustee. The right, title
and interest of the Preferred Guarantee Trustee shall automatically vest in any
Successor Preferred Guarantee Trustee, and such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered pursuant to the appointment of such Successor Preferred Guarantee
Trustee.
(b) If an Event of Default actually known to a Responsible Officer of
the Preferred Guarantee Trustee has occurred and is continuing, the Preferred
Guarantee Trustee shall enforce this Preferred Securities Guarantee for the
benefit of the Holders of the Preferred Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any Event
of Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Preferred Securities Guarantee, and no implied covenants shall be read into
this Preferred Securities Guarantee against the Preferred Guarantee Trustee. In
case an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2.6) and is actually known to a Responsible Officer of the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall exercise such
of the rights and powers vested in it by this Preferred Securities Guarantee,
and use the same degree of care and skill in its exercise thereof, as a prudent
person would exercise or use under the circumstances in the conduct of such
person's own affairs.
(d) No provision of this Preferred Securities Guarantee shall be
construed to relieve the Preferred Guarantee Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) prior to the occurrence of any Event of Default and
after the curing or waiving of all such Events of
Default that may have occurred:
(A) the duties and obligations of the Preferred
Guarantee Trustee shall be determined solely by
the express provisions of this Preferred
Securities Guarantee, and the Preferred Guarantee
Trustee shall not be liable except for the
performance of such duties and obligations as are
specifically set forth in this Preferred
Securities Guarantee, and no implied covenants or
obligations shall be read into this Preferred
Securities Guarantee against the Preferred
Guarantee Trustee; and
7
<PAGE> 12
(B) in the absence of bad faith on the part of the
Preferred Guarantee Trustee, the Preferred
Guarantee Trustee may conclusively rely, as to
the truth of the statements and the correctness
of the opinions expressed therein, upon any
certificates or opinions furnished to the
Preferred Guarantee Trustee and conforming to the
requirements of this Preferred Securities
Guarantee; but in the case of any such
certificates or opinions that by any provision
hereof are specifically required to be furnished
to the Preferred Guarantee Trustee, the Preferred
Guarantee Trustee shall be under a duty to
examine the same to determine whether or not they
conform to the requirements of this Preferred
Securities Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable
for any error of judgment made in good faith by a
Responsible Officer of the Preferred Guarantee
Trustee;
(iii) the Preferred Guarantee Trustee shall not be liable
with respect to any action taken or omitted to be
taken by it in good faith in accordance with the
direction of the Holders of not less than a Majority
in liquidation amount of the Preferred Securities
relating to the time, method and place of conducting
any proceeding for any remedy available to the
Preferred Guarantee Trustee, or exercising any trust
or power conferred upon the Preferred Guarantee
Trustee under this Preferred Securities Guarantee;
and
(iv) no provision of this Preferred Securities Guarantee shall
require the Preferred Guarantee Trustee to expend or risk
its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in
the exercise of any of its rights or powers if the
Preferred Guarantee Trustee shall have reasonable grounds
for believing that the repayment of such funds or
liability is not reasonably assured to it under the terms
of this Preferred Securities Guarantee or indemnity,
reasonably satisfactory to the Preferred Guarantee
Trustee, against such risk or liability is not reasonably
assured to it.
SECTION 3.2 CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE.
(a) Subject to the provisions of Section 3.1:
(i) The Preferred Guarantee Trustee may conclusively rely
upon, and shall be fully protected in acting or
refraining from acting upon, any resolution,
certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or
other paper or document believed by it to be genuine
and to have been signed, sent or presented by the
proper party or parties.
8
<PAGE> 13
(ii) Any direction or act of the Guarantor contemplated by
this Preferred Securities Guarantee shall be
sufficiently evidenced by an Officers' Certificate or
other written notice or instruction signed by the
Guarantor.
(iii) Whenever, in the administration of this Preferred
Securities Guarantee, the Preferred Guarantee Trustee
shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any
action hereunder, the Preferred Guarantee Trustee
(unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its
part, request and conclusively rely upon an Officers'
Certificate which, upon receipt of such request,
shall be promptly delivered by the Guarantor.
(iv) The Preferred Guarantee Trustee shall have no duty to
see to any recording, filing or registration of any
instrument (or any rerecording, refiling or
registration thereof).
(v) The Preferred Guarantee Trustee may consult with
counsel, and the written advice or opinion of such
counsel with respect to legal matters shall be full
and complete authorization and protection in respect
of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with such
advice or opinion. Such counsel may be counsel to the
Guarantor or any of its Affiliates and may include
any of its employees. The Preferred Guarantee Trustee
shall have the right at any time to seek instructions
concerning the administration of this Preferred
Securities Guarantee from any court of competent
jurisdiction.
(vi) The Preferred Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers
vested in it by this Preferred Securities Guarantee
at the request or direction of any Holder, unless
such Holder shall have provided to the Preferred
Guarantee Trustee such security and indemnity,
reasonably satisfactory to the Preferred Guarantee
Trustee, against the costs, expenses (including
attorneys' fees and expenses and the expenses of the
Preferred Guarantee Trustee's agents, nominees or
custodians) and liabilities that might be incurred by
it in complying with such request or direction,
including such reasonable advances as may be
requested by the Preferred Guarantee Trustee;
provided that, nothing contained in this Section
3.2(a)(vi) shall be taken to relieve the Preferred
Guarantee Trustee, upon the occurrence of an Event of
Default, of its obligation to exercise the rights and
powers vested in it by this Preferred Securities
Guarantee.
(vii) The Preferred Guarantee Trustee shall not be bound to
make any investigation into the facts or matters
stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or
document, but the Preferred Guarantee Trustee, in its
discretion, may make such further inquiry or
investigation into such facts or matters as it may
see fit.
9
<PAGE> 14
(viii) The Preferred Guarantee Trustee may execute any of
the trusts or powers hereunder or perform any duties
hereunder either directly or by or through agents,
nominees, custodians or attorneys, and the Preferred
Guarantee Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or
attorney appointed in good faith by it hereunder.
(ix) Any action taken by the Preferred Guarantee
Trustee or its agents hereunder shall bind the
Holders of the Preferred Securities, and the
signature of the Preferred Guarantee Trustee or its
agents alone shall be sufficient and effective to
perform any such action. No third party shall be
required to inquire as to the authority of the
Preferred Guarantee Trustee to so act or as to its
compliance with any of the terms and provisions of
this Preferred Securities Guarantee, both of which
shall be conclusively evidenced by the Preferred
Guarantee Trustee's or its agent's taking such
action.
(x) Whenever in the administration of this Preferred
Securities Guarantee the Preferred Guarantee Trustee
shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking
any other action hereunder, the Preferred Guarantee
Trustee (i) may request instructions from the Holders
of a Majority in liquidation amount of the Preferred
Securities, (ii) may refrain from enforcing such
remedy or right or taking such other action until
such instructions are received, and (iii) shall be
protected in conclusively relying on or acting in
accordance with such instructions.
(b) No provision of this Preferred Securities Guarantee shall be deemed
to impose any duty or obligation on the Preferred Guarantee Trustee to perform
any act or acts or exercise any right, power, duty or obligation conferred or
imposed on it in any jurisdiction in which it shall be illegal, or in which the
Preferred Guarantee Trustee shall be unqualified or incompetent in accordance
with applicable law, to perform any such act or acts or to exercise any such
right, power, duty or obligation. No permissive power or authority available to
the Preferred Guarantee Trustee shall be construed to be a duty.
SECTION 3.3 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE. The
recitals contained in this Preferred Securities Guarantee shall be taken as the
statements of the Guarantor, and the Preferred Guarantee Trustee does not assume
any responsibility for their correctness. The Preferred Guarantee Trustee makes
no representation as to the validity or sufficiency of this Preferred Securities
Guarantee.
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY.
(a) There shall at all times be a Preferred Guarantee Trustee
which shall:
10
<PAGE> 15
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under
the laws of the United States of America or any state
or territory thereof or of the District of Columbia,
or a corporation or Person permitted by the
Securities and Exchange Commission to act as an
institutional trustee under the Trust Indenture Act,
authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus
of at least $50,000,000, and subject to supervision
or examination by federal, state, territorial or
District of Columbia authority. If such corporation
publishes reports of condition at least annually,
pursuant to law or to the requirements of the
supervising or examining authority referred to above,
then, for the purposes of this Section 4.1(a)(ii),
the combined capital and surplus of such corporation
shall be deemed to be its combined capital and
surplus as set forth in its most recent report of
condition so published.
(b) If at any time the Preferred Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
SECTION 4.2 APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE
TRUSTEES.
(a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may be
appointed or removed without cause at any time by the Guarantor.
(b) The Preferred Guarantee Trustee shall not be removed in accordance
with Section 4.2(a) until a Successor Preferred Guarantee Trustee has been
appointed and has accepted such appointment by written instrument executed by
such Successor Preferred Guarantee Trustee and delivered to the Guarantor.
(c) The Preferred Guarantee Trustee appointed to office shall hold
office until a Successor Preferred Guarantee Trustee shall have been appointed
or until its removal or resignation. The Preferred Guarantee Trustee may resign
from office (without need for prior or subsequent accounting) by an instrument
in writing executed by the Preferred Guarantee Trustee and delivered to the
Guarantor, which resignation shall not take effect until a Successor Preferred
Guarantee Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Preferred Guarantee Trustee and
delivered to the Guarantor and the resigning Preferred Guarantee Trustee.
(d) If no Successor Preferred Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section 4.2 within 30
days after delivery to the Guarantor of an instrument of resignation, the
resigning Preferred Guarantee Trustee may
11
<PAGE> 16
petition any court of competent jurisdiction for appointment of a Successor
Preferred Guarantee Trustee. Such court may thereupon, after prescribing such
notice, if any, as it may deem proper, appoint a Successor Preferred Guarantee
Trustee.
(e) No Preferred Guarantee Trustee shall be liable for the acts or
omissions to act of any Successor Preferred Guarantee Trustee.
(f) Upon termination of this Preferred Securities Guarantee or removal
or resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2,
the Guarantor shall pay to the Preferred Guarantee Trustee all amounts accrued
to the date of such termination, removal or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1 GUARANTEE. The Guarantor irrevocably and unconditionally
agrees to pay in full to the Holders the Guarantee Payments (without duplication
of amounts theretofore paid by the Trust), as and when due, regardless of any
defense, right of set-off or counterclaim that the Trust may have or assert. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Trust to pay such amounts to the Holders.
SECTION 5.2 WAIVER OF NOTICE AND DEMAND. The Guarantor hereby waives
notice of acceptance of this Preferred Securities Guarantee and of any liability
to which it applies or may apply, presentment, demand for payment, any right to
require a proceeding first against the Trust or any other Person before
proceeding against the Guarantor, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
SECTION 5.3 OBLIGATIONS NOT AFFECTED. The obligations, covenants,
agreements and duties of the Guarantor under this Preferred Securities Guarantee
shall in no way be affected or impaired by reason of the happening from time to
time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be performed
or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or any
other sums payable under the terms of the Preferred Securities or the extension
of time for the performance of any other obligation under, arising out of, or in
connection with, the Preferred Securities (other than an extension of time for
payment of Distributions, Redemption Price, Liquidation Distribution or other
sum payable that results from the extension of any interest payment period on
the Junior Subordinated Debentures or any extension of the maturity date of the
Junior Subordinated Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders
12
<PAGE> 17
pursuant to the terms of the Preferred Securities, or any action on the part of
the Trust granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust;
(e) any invalidity of, or defect or deficiency in, the Preferred
Securities;
(f) any failure or omission to receive any regulatory approval or
consent required in connection with the Preferred Securities (or the Common
Securities issued by the Trust), including the failure to receive a approval of
the Board of Governors of the Federal Reserve System required for the redemption
of the Preferred Securities;
(g) the settlement or compromise of any obligation guarantied hereby or
hereby incurred; or
(h) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.4 RIGHTS OF HOLDERS.
(a) The Holders of a Majority in Liquidation Amount of the Preferred
Securities have the right to direct the time, method and place of conducting of
any proceeding for any remedy available to the Preferred Guarantee Trustee in
respect of this Preferred Securities Guarantee or exercising any trust or power
conferred upon the Preferred Guarantee Trustee under this Preferred Securities
Guarantee.
(b) Any Holder of Preferred Securities may institute a legal proceeding
directly against the Guarantor to enforce its rights under this Preferred
Securities Guarantee, without first instituting a legal proceeding against the
Trust, the Preferred Guarantee Trustee or any other Person.
SECTION 5.5 GUARANTEE OF PAYMENT. This Preferred Securities Guarantee
creates a guarantee of payment and not of collection.
SECTION 5.6 SUBROGATION. The Guarantor shall be subrogated to all (if
any) rights of the Holders of Preferred Securities against the Trust in respect
of any amounts paid to such Holders by the Guarantor under this Preferred
Securities Guarantee; provided, however, that the Guarantor shall not (except to
the extent required by mandatory provisions of law) be entitled to enforce or
exercise any right that it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under this
13
<PAGE> 18
Preferred Securities Guarantee, if, at the time of any such payment, any amounts
are due and unpaid under this Preferred Securities Guarantee. If any amount
shall be paid to the Guarantor in violation of the preceding sentence, the
Guarantor agrees to hold such amount in trust for the Holders and to pay over
such amount to the Holders.
SECTION 5.7 INDEPENDENT OBLIGATIONS. The Guarantor acknowledges that
its obligations hereunder are independent of the obligations of the Trust with
respect to the Preferred Securities, and that the Guarantor shall be liable as
principal and as debtor hereunder to make Guarantee Payments pursuant to the
terms of this Preferred Securities Guarantee notwithstanding the occurrence of
any event referred to in subsections (a) through (g), inclusive, of Section 5.3.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 LIMITATION OF TRANSACTIONS. So long as any Preferred
Securities remain outstanding, if there shall have occurred and be continuing an
Event of Default or an event of default under the Trust Agreement, then (a) the
Guarantor shall not declare or pay any dividend or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of its
capital stock, (b) the Guarantor shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by the Guarantor (including other Junior Subordinated
Debentures) which rank pari passu with or junior in interest to the Junior
Subordinated Debentures or (c) the Guarantor shall not make any guarantee
payments with respect to any guarantee by the guarantor of the debt securities
of any subsidiary of the Guarantor if such guarantee ranks pari passu or junior
in interest to the Junior Subordinated Debentures (other than (a) dividends or
distributions payable in common stock, (b) any declaration of a dividend in
connection with the implementation of a shareholders' rights plan, or the
issuance of stock under any such plan in the future or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under this
Preferred Securities Guarantee and (d) purchases of common stock related to the
issuances of common stock or rights under any of the Guarantor's benefit plans
for its directors, officers or employees).
SECTION 6.2 RANKING. This Preferred Securities Guarantee will
constitute an unsecured obligation of the Guarantor and will rank subordinate
and junior in right of payment to all Senior and Subordinated Debt of the
Guarantor.
ARTICLE VII
TERMINATION
SECTION 7.1 TERMINATION. This Preferred Securities Guarantee shall
terminate upon (i) full payment of the Redemption Price of all Preferred
Securities, (ii) upon full payment of the amounts payable in accordance with the
Trust Agreement upon liquidation of the Trust or (iii) upon distribution of the
Junior Subordinated Debentures to the Holders of the Preferred Securities.
Notwithstanding the foregoing, this Preferred Securities Guarantee will continue
to be effective or will be reinstated, as the case may be, if at any time any
Holder of Preferred
14
<PAGE> 19
Securities must restore payment of any sums paid under the Preferred Securities
or under this Preferred Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION; FEES
SECTION 8.1 EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Guarantor or any Covered Person for any loss,
damage or claim incurred by reason of any act or omission performed or omitted
by such Indemnified Person in good faith in accordance with this Preferred
Securities Guarantee and in a manner that such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by this Preferred Securities Guarantee or by law, except that an
Indemnified Person shall be liable for any such loss, damage or claim incurred
by reason of such Indemnified Person's negligence or willful misconduct with
respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Preferred Securities might properly be paid.
SECTION 8.2 INDEMNIFICATION. The Guarantor agrees to indemnify each
Indemnified Person for, and to hold each Indemnified Person harmless against,
any cost, loss, liability or expense incurred without negligence or bad faith on
its part, arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against, or
investigating, any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The obligation to
indemnify as set forth in this Section 8.2 shall survive the termination of this
Preferred Securities Guarantee.
SECTION 8.3 FEES. The Guarantor agrees except as otherwise expressly
provided herein, to reimburse the Preferred Trustee upon request for all
reasonable expenses, disbursements and advances incurred or made by the
Preferred Trustee in accordance with any provision of this Preferred Securities
Guarantee (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to such Guarantee Trustee's negligence, bad
faith or willful misconduct.
15
<PAGE> 20
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 SUCCESSORS AND ASSIGNS. All guaranties and agreements
contained in this Preferred Securities Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of the Guarantor and shall
inure to the benefit of the Holders of the Preferred Securities then
outstanding.
SECTION 9.2 AMENDMENTS. Except with respect to any changes that do not
materially adversely affect the rights of Holders (in which case no consent of
Holders will be required), this Preferred Securities Guarantee may only be
amended with the prior approval of the Holders of at least a Majority in
liquidation amount of the Preferred Securities. The provisions of Article VI of
the Trust Agreement with respect to meetings of Holders of the Securities apply
to the giving of such approval.
SECTION 9.3 NOTICES. All notices provided for in this Preferred
Securities Guarantee shall be in writing, duly signed by the party giving such
notice, and shall be delivered, telecopied or mailed by registered or certified
mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the Preferred
Guarantee Trustee's mailing address set forth below (or such other address as
the Preferred Guarantee Trustee may give notice of to the Holders of the
Preferred Securities):
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0001
Attention: Corporate Trust Administration
(b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders of the Preferred Securities):
Mercantile Bank Corporation
216 North Division Avenue
Grand Rapids, Michigan 49503
Attention: Jerry R. Johnson, Jr.
(c) If given to any Holder of Preferred Securities, at the address set
forth on the books and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
16
<PAGE> 21
SECTION 9.4 BENEFIT. This Preferred Securities Guarantee is solely for
the benefit of the Holders of the Preferred Securities and, subject to Section
3.1(a), is not separately transferable from the Preferred Securities.
SECTION 9.5. GOVERNING LAW. THIS PREFERRED SECURITIES GUARANTEE SHALL
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF MICHIGAN; PROVIDED THAT THE RIGHTS, IMMUNITIES, DUTIES AND THE
STANDARD OF CARE OF THE PREFERRED GUARANTEE TRUSTEE SHALL BE GOVERNED BY
DELAWARE LAW.
THIS PREFERRED SECURITIES GUARANTEE is executed as of the day and year
first above written.
MERCANTILE BANK CORPORATION,
as Guarantor
By:____________________________________
Gerald R. Johnson, Jr.
Chairman of the Board and Chief Executive Officer
WILMINGTON TRUST COMPANY,
As Preferred Guarantee Trustee
By:____________________________________
Name:__________________________________
Title:_________________________________
17
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use of our report dated January 20, 1999 on the
consolidated financial statements of Mercantile Bank Corporation for the year
ended December 31, 1998 and the period ended December 31, 1997, in the
Registration Statement on Form SB-2 and Prospectus of Mercantile Bank
Corporation. We also consent to the use of our name as "Experts" in the
Prospectus.
/s/ Crowe, Chizek and Company LLP
---------------------------------
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
August 24, 1999
<PAGE> 1
EXHIBIT 25.1
Registration No.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer Identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
MERCANTILE BANK CORPORATION
(Exact name of obligor as specified in its charter)
Michigan 38-3360865
(State of incorporation) (I.R.S. employer identification no.)
216 North Division Avenue
Grand Rapids, Michigan 49503
(Address of principal executive offices) (Zip Code)
% Junior Subordinated Debentures of Mercantile Bank Corporation
(Title of the indenture securities)
================================================================================
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust
powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the obligor
is not an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section
321(b) of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 4th day
of August, 1999.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Patricia A. Evans By: /s/ Norma P. Closs
-------------------------------------- ------------------------
Assistant Secretary Name: Norma P. Closs
Title: Vice President
2
<PAGE> 3
EXHIBIT A
AMENDED CHARTER
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON MAY 9, 1987
<PAGE> 4
AMENDED CHARTER
OR
ACT OF INCORPORATION
OF
WILMINGTON TRUST COMPANY
WILMINGTON TRUST COMPANY, originally incorporated by an Act of the
General Assembly of the State of Delaware, entitled "An Act to Incorporate the
Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name
of which company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed
in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter
or Act of Incorporation of which company has been from time to time amended and
changed by merger agreements pursuant to the corporation law for state banks and
trust companies of the State of Delaware, does hereby alter and amend its
Charter or Act of Incorporation so that the same as so altered and amended shall
in its entirety read as follows:
FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY.
SECOND: - The location of its principal office in the State of
Delaware is at Rodney Square North, in the City of Wilmington,
County of New Castle; the name of its resident agent is WILMINGTON
TRUST COMPANY whose address is Rodney Square North, in said City. In
addition to such principal office, the said corporation maintains
and operates branch offices in the City of Newark, New Castle
County, Delaware, the Town of Newport, New Castle County, Delaware,
at Claymont, New Castle County, Delaware, at Greenville, New Castle
County Delaware, and at Milford Cross Roads, New Castle County,
Delaware, and shall be empowered to open, maintain and operate
branch offices at Ninth and Shipley Streets, 418 Delaware Avenue,
2120 Market Street, and 3605 Market Street, all in the City of
Wilmington, New Castle County, Delaware, and such other branch
offices or places of business as may be authorized from time to time
by the agency or agencies of the government of the State of Delaware
empowered to confer such authority.
THIRD: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this
Corporation are to do any or all of the things herein mentioned as
fully and to the same extent as natural persons might or could do
and in any part of the world, viz.:
(1) To sue and be sued, complain and defend in any Court
of law or equity and to make and use a common seal, and
alter the seal at pleasure, to hold,
<PAGE> 5
purchase, convey, mortgage or otherwise deal in real and
personal estate and property, and to appoint such officers
and agents as the business of the Corporation shall require,
to make by-laws not inconsistent with the Constitution or
laws of the United States or of this State, to discount
bills, notes or other evidences of debt, to receive deposits
of money, or securities for money, to buy gold and silver
bullion and foreign coins, to buy and sell bills of
exchange, and generally to use, exercise and enjoy all the
powers, rights, privileges and franchises incident to a
corporation which are proper or necessary for the
transaction of the business of the Corporation hereby
created.
(2) To insure titles to real and personal property, or any
estate or interests therein, and to guarantee the holder of
such property, real or personal, against any claim or
claims, adverse to his interest therein, and to prepare and
give certificates of title for any lands or premises in the
State of Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the
receipt, collection, custody, investment and management of
funds, and the purchase, sale, management and disposal of
property of all descriptions, and to prepare and execute all
papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds,
leases, conveyances, mortgages, bonds and legal papers of
every description, and to carry on the business of
conveyancing in all its branches.
(5) To receive upon deposit for safekeeping money,
jewelry, plate, deeds, bonds and any and all other personal
property of every sort and kind, from executors,
administrators, guardians, public officers, courts,
receivers, assignees, trustees, and from all fiduciaries,
and from all other persons and individuals, and from all
corporations whether state, municipal, corporate or private,
and to rent boxes, safes, vaults and other receptacles for
such property.
(6) To act as agent or otherwise for the purpose of
registering, issuing, certificating, countersigning,
transferring or underwriting the stock, bonds or other
obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund
therefor on such terms as may be agreed upon between the two
parties, and in like manner may act as Treasurer of any
corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage,
bond or other
2
<PAGE> 6
instrument issued by any state, municipality, body politic,
corporation, association or person, either alone or in
conjunction with any other person or persons, corporation or
corporations.
(8) To guarantee the validity, performance or effect of
any contract or agreement, and the fidelity of persons
holding places of responsibility or trust; to become surety
for any person, or persons, for the faithful performance of
any trust, office, duty, contract or agreement, either by
itself or in conjunction with any other person, or persons,
corporation, or corporations, or in like manner become
surety upon any bond, recognizance, obligation, judgment,
suit, order, or decree to be entered in any court of record
within the State of Delaware or elsewhere, or which may now
or hereafter be required by any law, judge, officer or court
in the State of Delaware or elsewhere.
(9) To act by any and every method of appointment as
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian, bailee, or
in any other trust capacity in the receiving, holding,
managing, and disposing of any and all estates and property,
real, personal or mixed, and to be appointed as such
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian or bailee
by any persons, corporations, court, officer, or authority,
in the State of Delaware or elsewhere; and whenever this
Corporation is so appointed by any person, corporation,
court, officer or authority such trustee, trustee in
bankruptcy, receiver, assignee, assignee in bankruptcy,
executor, administrator, guardian, bailee, or in any other
trust capacity, it shall not be required to give bond with
surety, but its capital stock shall be taken and held as
security for the performance of the duties devolving upon it
by such appointment.
(10) And for its care, management and trouble, and the
exercise of any of its powers hereby given, or for the
performance of any of the duties which it may undertake or
be called upon to perform, or for the assumption of any
responsibility the said Corporation may be entitled to
receive a proper compensation.
(11) To purchase, receive, hold and own bonds, mortgages,
debentures, shares of capital stock, and other securities,
obligations, contracts and evidences of indebtedness, of any
private, public or municipal corporation within and without
the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession
thereof, or of any foreign government or country; to
receive, collect, receipt for, and dispose of
3
<PAGE> 7
interest, dividends and income upon and from any of the
bonds, mortgages, debentures, notes, shares of capital
stock, securities, obligations, contracts, evidences of
indebtedness and other property held and owned by it, and to
exercise in respect of all such bonds, mortgages,
debentures, notes, shares of capital stock, securities,
obligations, contracts, evidences of indebtedness and other
property, any and all the rights, powers and privileges of
individual owners thereof, including the right to vote
thereon; to invest and deal in and with any of the moneys of
the Corporation upon such securities and in such manner as
it may think fit and proper, and from time to time to vary
or realize such investments; to issue bonds and secure the
same by pledges or deeds of trust or mortgages of or upon
the whole or any part of the property held or owned by the
Corporation, and to sell and pledge such bonds, as and when
the Board of Directors shall determine, and in the promotion
of its said corporate business of investment and to the
extent authorized by law, to lease, purchase, hold, sell,
assign, transfer, pledge, mortgage and convey real and
personal property of any name and nature and any estate or
interest therein.
(b) In furtherance of, and not in limitation, of the powers
conferred by the laws of the State of Delaware, it is hereby
expressly provided that the said Corporation shall also have the
following powers:
(1) To do any or all of the things herein set forth, to
the same extent as natural persons might or could do, and in
any part of the world.
(2) To acquire the good will, rights, property and
franchises and to undertake the whole or any part of the
assets and liabilities of any person, firm, association or
corporation, and to pay for the same in cash, stock of this
Corporation, bonds or otherwise; to hold or in any manner to
dispose of the whole or any part of the property so
purchased; to conduct in any lawful manner the whole or any
part of any business so acquired, and to exercise all the
powers necessary or convenient in and about the conduct and
management of such business.
(3) To take, hold, own, deal in, mortgage or otherwise
lien, and to lease, sell, exchange, transfer, or in any
manner whatever dispose of property, real, personal or
mixed, wherever situated.
(4) To enter into, make, perform and carry out contracts
of every kind with any person, firm, association or
corporation, and, without limit as to amount, to draw, make,
accept, endorse, discount, execute and issue promissory
notes, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or
4
<PAGE> 8
transferable instruments.
(5) To have one or more offices, to carry on all or any of
its operations and businesses, without restriction to the
same extent as natural persons might or could do, to
purchase or otherwise acquire, to hold, own, to mortgage,
sell, convey or otherwise dispose of, real and personal
property, of every class and description, in any State,
District, Territory or Colony of the United States, and in
any foreign country or place.
(6) It is the intention that the objects, purposes and
powers specified and clauses contained in this paragraph
shall (except where otherwise expressed in said paragraph)
be nowise limited or restricted by reference to or inference
from the terms of any other clause of this or any other
paragraph in this charter, but that the objects, purposes
and powers specified in each of the clauses of this
paragraph shall be regarded as independent objects, purposes
and powers.
FOURTH: - (a) The total number of shares of all classes of stock
which the Corporation shall have authority to issue is forty-one
million (41,000,000) shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par
value $10.00 per share (hereinafter referred to as
"Preferred Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par
value $1.00 per share (hereinafter referred to as "Common
Stock").
(b) Shares of Preferred Stock may be issued from time to time in one
or more series as may from time to time be determined by the Board
of Directors each of said series to be distinctly designated. All
shares of any one series of Preferred Stock shall be alike in every
particular, except that there may be different dates from which
dividends, if any, thereon shall be cumulative, if made cumulative.
The voting powers and the preferences and relative, participating,
optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time
outstanding; and, subject to the provisions of subparagraph 1 of
Paragraph (c) of this Article FOURTH, the Board of Directors of the
Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any
shares of a particular series of Preferred Stock, the voting powers
and the designations, preferences and relative, optional and other
special rights, and the qualifications, limitations and restrictions
of such series, including, but without limiting the generality of
the
5
<PAGE> 9
foregoing, the following:
(1) The distinctive designation of, and the number of
shares of Preferred Stock which shall constitute such
series, which number may be increased (except where
otherwise provided by the Board of Directors) or decreased
(but not below the number of shares thereof then
outstanding) from time to time by like action of the Board
of Directors;
(2) The rate and times at which, and the terms and
conditions on which, dividends, if any, on Preferred Stock
of such series shall be paid, the extent of the preference
or relation, if any, of such dividends to the dividends
payable on any other class or classes, or series of the same
or other class of stock and whether such dividends shall be
cumulative or non-cumulative;
(3) The right, if any, of the holders of Preferred Stock
of such series to convert the same into or exchange the same
for, shares of any other class or classes or of any series
of the same or any other class or classes of stock of the
Corporation and the terms and conditions of such conversion
or exchange;
(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices
and the time or times at which, and the terms and conditions
on which, Preferred Stock of such series may be redeemed.
(5) The rights, if any, of the holders of Preferred Stock
of such series upon the voluntary or involuntary
liquidation, merger, consolidation, distribution or sale of
assets, dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or
purchase account, if any, to be provided for the Preferred
Stock of such series; and
(7) The voting powers, if any, of the holders of such
series of Preferred Stock which may, without limiting the
generality of the foregoing include the right, voting as a
series or by itself or together with other series of
Preferred Stock or all series of Preferred Stock as a class,
to elect one or more directors of the Corporation if there
shall have been a default in the payment of dividends on any
one or more series of Preferred Stock or under such
circumstances and on such conditions as the Board of
Directors may determine.
(c) (1) After the requirements with respect to preferential
dividends on the Preferred Stock (fixed in accordance with the
provisions of section (b) of this Article
6
<PAGE> 10
FOURTH), if any, shall have been met and after the Corporation shall
have complied with all the requirements, if any, with respect to the
setting aside of sums as sinking funds or redemption or purchase
accounts (fixed in accordance with the provisions of section (b) of
this Article FOURTH), and subject further to any conditions which
may be fixed in accordance with the provisions of section (b) of
this Article FOURTH, then and not otherwise the holders of Common
Stock shall be entitled to receive such dividends as may be declared
from time to time by the Board of Directors.
(2) After distribution in full of the preferential amount,
if any, (fixed in accordance with the provisions of section
(b) of this Article FOURTH), to be distributed to the
holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation, the holders
of the Common Stock shall be entitled to receive all of the
remaining assets of the Corporation, tangible and
intangible, of whatever kind available for distribution to
stockholders ratably in proportion to the number of shares
of Common Stock held by them respectively.
(3) Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be
adopted by the Board of Directors pursuant to section (b) of
this Article FOURTH, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held on
all matters voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock
or of options, warrants or other rights to purchase shares of any
class or series of stock or of other securities of the Corporation
shall have any preemptive right to purchase or subscribe for any
unissued stock of any class or series or any additional shares of
any class or series to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class or series,
or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for stock of the
Corporation of any class or series, or carrying any right to
purchase stock of any class or series, but any such unissued stock,
additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons,
firms, corporations or associations, whether such holders or others,
and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and
rights of each other series of Preferred Stock shall, in each case,
be as fixed from time to time by the Board of
7
<PAGE> 11
Directors in the resolution or resolutions adopted pursuant to
authority granted in section (b) of this Article FOURTH and the
consent, by class or series vote or otherwise, of the holders of
such of the series of Preferred Stock as are from time to time
outstanding shall not be required for the issuance by the Board of
Directors of any other series of Preferred Stock whether or not the
powers, preferences and rights of such other series shall be fixed
by the Board of Directors as senior to, or on a parity with, the
powers, preferences and rights of such outstanding series, or any of
them; provided, however, that the Board of Directors may provide in
the resolution or resolutions as to any series of Preferred Stock
adopted pursuant to section (b) of this Article FOURTH that the
consent of the holders of a majority (or such greater proportion as
shall be therein fixed) of the outstanding shares of such series
voting thereon shall be required for the issuance of any or all
other series of Preferred Stock.
(f) Subject to the provisions of section (e), shares of any series
of Preferred Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the
Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of
Directors.
(h) The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote thereon.
FIFTH: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of
directors constituting the entire Board shall be not less than five
nor more than twenty-five as fixed from time to time by vote of a
majority of the whole Board, provided, however, that the number of
directors shall not be reduced so as to shorten the term of any
director at the time in office, and provided further, that the
number of directors constituting the whole Board shall be
twenty-four until otherwise fixed by a majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors
constituting the whole Board permits, with the term of office of one
class expiring each year. At the annual meeting of stockholders in
1982, directors of the first class shall be elected to hold office
for a term expiring at the next succeeding annual meeting, directors
of the second class
8
<PAGE> 12
shall be elected to hold office for a term expiring at the second
succeeding annual meeting and directors of the third class shall be
elected to hold office for a term expiring at the third succeeding
annual meeting. Any vacancies in the Board of Directors for any
reason, and any newly created directorships resulting from any
increase in the directors, may be filled by the Board of Directors,
acting by a majority of the directors then in office, although less
than a quorum, and any directors so chosen shall hold office until
the next annual election of directors. At such election, the
stockholders shall elect a successor to such director to hold office
until the next election of the class for which such director shall
have been chosen and until his successor shall be elected and
qualified. No decrease in the number of directors shall shorten the
term of any incumbent director.
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding
the fact that some lesser percentage may be specified by law, this
Charter or Act of Incorporation or the By-Laws of the Corporation),
any director or the entire Board of Directors of the Corporation may
be removed at any time without cause, but only by the affirmative
vote of the holders of two-thirds or more of the outstanding shares
of capital stock of the Corporation entitled to vote generally in
the election of directors (considered for this purpose as one class)
cast at a meeting of the stockholders called for that purpose.
(d) Nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote for the
election of directors. Such nominations shall be made by notice in
writing, delivered or mailed by first class United States mail,
postage prepaid, to the Secretary of the Corporation not less than
14 days nor more than 50 days prior to any meeting of the
stockholders called for the election of directors; provided,
however, that if less than 21 days' notice of the meeting is given
to stockholders, such written notice shall be delivered or mailed,
as prescribed, to the Secretary of the Corporation not later than
the close of the seventh day following the day on which notice of
the meeting was mailed to stockholders. Notice of nominations which
are proposed by the Board of Directors shall be given by the
Chairman on behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name,
age, business address and, if known, residence address of each
nominee proposed in such notice, (ii) the principal occupation or
employment of such nominee and (iii) the number of shares of stock
of the Corporation which are beneficially owned by each such
nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine
and declare to
9
<PAGE> 13
the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be
disregarded.
(g) No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be
taken without a meeting, and the power of stockholders to consent in
writing, without a meeting, to the taking of any action is
specifically denied.
SIXTH: - The Directors shall choose such officers, agents and
servants as may be provided in the By-Laws as they may from time to
time find necessary or proper.
SEVENTH: - The Corporation hereby created is hereby given the same
powers, rights and privileges as may be conferred upon corporations
organized under the Act entitled "An Act Providing a General
Corporation Law", approved March 10, 1899, as from time to time
amended.
EIGHTH: - This Act shall be deemed and taken to be a private Act.
NINTH: - This Corporation is to have perpetual existence.
TENTH: - The Board of Directors, by resolution passed by a majority
of the whole Board, may designate any of their number to constitute
an Executive Committee, which Committee, to the extent provided in
said resolution, or in the By-Laws of the Company, shall have and
may exercise all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall
have power to authorize the seal of the Corporation to be affixed to
all papers which may require it.
ELEVENTH: - The private property of the stockholders shall not be
liable for the payment of corporate debts to any extent whatever.
TWELFTH: - The Corporation may transact business in any part of the
world.
THIRTEENTH: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation
by a vote of the majority of the entire Board. The stockholders may
make, alter or repeal any By-Law whether or not adopted by them,
provided however, that any such additional By-Laws, alterations or
repeal may be adopted only by the affirmative vote of the holders of
two-thirds or more of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors
(considered for this purpose as
10
<PAGE> 14
one class).
FOURTEENTH: - Meetings of the Directors may be held outside
of the State of Delaware at such places as may be from time to time
designated by the Board, and the Directors may keep the books of the
Company outside of the State of Delaware at such places as may be
from time to time designated by them.
FIFTEENTH: - (a) (1) In addition to any affirmative vote required by
law, and except as otherwise expressly provided in sections (b) and
(c) of this Article FIFTEENTH:
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any
Interested Stockholder (as hereinafter defined) or (ii) any
other corporation (whether or not itself an Interested
Stockholder), which, after such merger or consolidation,
would be an Affiliate (as hereinafter defined) of an
Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of
related transactions) to or with any Interested Stockholder
or any Affiliate of any Interested Stockholder of any assets
of the Corporation or any Subsidiary having an aggregate
fair market value of $1,000,000 or more, or
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities
or other property (or a combination thereof) having an
aggregate fair market value of $1,000,000 or more, or
(D) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation, or
(E) any reclassification of securities (including any
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested
Stockholder, or any Affiliate of any Interested Stockholder,
11
<PAGE> 15
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this
Article FIFTEENTH shall mean any transaction which is
referred to in any one or more of clauses (A) through (E)
of paragraph 1 of the section (a).
(b) The provisions of section (a) of this Article FIFTEENTH
shall not be applicable to any particular business
combination and such business combination shall require only
such affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation or By-Laws
if such business combination has been approved by a majority
of the whole Board.
(c) For the purposes of this Article FIFTEENTH:
(1) A "person" shall mean any individual, firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any
Subsidiary) who or which as of the record date for the determination
of stockholders entitled to notice of and to vote on such business
combination, or immediately prior to the consummation of any such
transaction:
(A) is the beneficial owner, directly or indirectly, of more
than 10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time
within two years prior thereto was the beneficial owner,
directly or indirectly, of not less than 10% of the then
outstanding voting Shares, or
(C) is an assignee of or has otherwise succeeded in any
share of capital stock of the Corporation which were at any
time within two years prior thereto beneficially owned by
any Interested Stockholder, and such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
12
<PAGE> 16
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and
Associates (as hereafter defined) beneficially own, directly
or indirectly, or
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or
any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock
of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement,
or upon exercise of conversion rights, warrants or options or
otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December
31, 1981.
(6) "Subsidiary" shall mean any corporation of which a majority
of any class of equity security (as defined in Rule 3a11-1 of
the General Rules and Regulations under the Securities Exchange
Act of 1934, as in effect on December 31, 1981) is owned, directly
or indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Investment Stockholder set forth in
paragraph (2) of this section (c), the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty
to determine for the purposes of this Article FIFTEENTH on
the basis of information known to them, (1) the number of
Voting Shares beneficially owned by any person (2) whether a
person is an Affiliate or Associate of another, (3) whether
a person has an agreement, arrangement or understanding with
another as to the matters referred to in paragraph (3) of
section (c), or (4) whether the assets subject to any
business combination or the consideration received for the
issuance or
13
<PAGE> 17
transfer of securities by the Corporation, or any Subsidiary has
an aggregate fair market value of $1,000,000 or more.
(e) Nothing contained in this Article FIFTEENTH shall be
construed to relieve any Interested Stockholder from any
fiduciary obligation imposed by law.
SIXTEENTH: Notwithstanding any other provision of this Charter or
Act of Incorporation or the By-Laws of the Corporation (and in
addition to any other vote that may be required by law, this Charter
or Act of Incorporation by the By-Laws), the affirmative vote of the
holders of at least two-thirds of the outstanding shares of the
capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class)
shall be required to amend, alter or repeal any provision of
Articles FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter
or Act of Incorporation.
SEVENTEENTH: (a) a Director of this Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except to the extent such
exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Laws as the same exists or
may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph
shall not adversely affect any right or protection of a
Director of the Corporation existing hereunder with respect
to any act or omission occurring prior to the time of such
repeal or modification.
14
<PAGE> 18
EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON JANUARY 16, 1997
<PAGE> 19
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. The Annual Meeting of Stockholders shall be held on the
third Thursday in April each year at the principal office at the Company or at
such other date, time, or place as may be designated by resolution by the Board
of Directors.
Section 2. Special meetings of all stockholders may be called at any
time by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given
by mailing to each stockholder at least ten (10) days before said meeting, at
his last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the
Company issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each share of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
DIRECTORS
Section 1. The number and classification of the Board of Directors
shall be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72)
years shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for
three years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed
and conducted by the Board of Directors.
<PAGE> 20
Section 5. The Board of Directors shall meet at the principal office
of the Company or elsewhere in its discretion at such times to be determined by
a majority of its members, or at the call of the Chairman of the Board of
Directors or the President.
Section 6. Special meetings of the Board of Directors may be called
at any time by the Chairman of the Board of Directors or by the President, and
shall be called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall
be necessary to constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of
any special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal,
inability to act, or disqualification of any director, the Board of Directors,
although less than a quorum, shall have the right to elect the successor who
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred, and until such director's successor shall have
been duly elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or divisions of the Company as it may deem
advisable.
2
<PAGE> 21
ARTICLE III
COMMITTEES
Section 1. Executive Committee
(A) The Executive Committee shall be composed of not
more than nine members who shall be selected by the Board of Directors from its
own members and who shall hold office during the pleasure of the Board.
(B) The Executive Committee shall have all the powers of
the Board of Directors when it is not in session to transact all business for
and in behalf of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members, or at the call of the Chairman of the
Executive Committee or at the call of the Chairman of the Board of Directors.
The majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be held
at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee
shall be kept and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend
all investments that may be made of the funds of the Company, and shall direct
the disposal of the same, in accordance with such rules and regulations as the
Board of Directors from time to time make.
(F) In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Company by its directors and officers as contemplated by these By-Laws any
two available members of the Executive Committee as constituted immediately
prior to such disaster shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the provisions of Article III of these By-Laws; and if less than three
members of the Trust Committee is constituted immediately prior to such disaster
shall be available for the transaction of its business, such Executive Committee
shall also be empowered to exercise all of the powers reserved to the Trust
Committee under Article III Section 2 hereof. In the event of the
unavailability, at such time, of a minimum of two members of such Executive
Committee, any three available directors shall constitute the Executive
Committee for the full conduct and management of the affairs and business of the
Company in accordance with the foregoing provisions of this Section. This By-Law
shall be subject to implementation by Resolutions of the Board of Directors
presently existing or hereafter passed from time to time
3
<PAGE> 22
for that purpose, and any provisions of these By-Laws (other than this Section)
and any resolutions which are contrary to the provisions of this Section or to
the provisions of any such implementary Resolutions shall be suspended during
such a disaster period until it shall be determined by any interim Executive
Committee acting under this section that it shall be to the advantage of the
Company to resume the conduct and management of its affairs and business under
all of the other provisions of these By-Laws.
Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more
than thirteen members who shall be selected by the Board of Directors, a
majority of whom shall be members of the Board of Directors and who shall hold
office during the pleasure of the Board.
(B) The Trust Committee shall have general supervision
over the Trust Department and the investment of trust funds, in all matters,
however, being subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members or at the call of its chairman. A
majority of its members shall be necessary to constitute a quorum for the
transaction of business.
(D) Minutes of each meeting of the Trust Committee shall
be kept and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint
Committees and/or designate officers or employees of the Company to whom
supervision over the investment of trust funds may be delegated when the Trust
Committee is not in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five
members who shall be selected by the Board of Directors from its own members,
none of whom shall be an officer of the Company, and shall hold office at the
pleasure of the Board.
(B) The Audit Committee shall have general supervision
over the Audit Division in all matters however subject to the approval of the
Board of Directors; it shall consider all matters brought to its attention by
the officer in charge of the Audit Division, review all reports of examination
of the Company made by any governmental agency or such independent auditor
employed for that purpose, and make such recommendations to the Board of
Directors with respect thereto or with respect to any other matters pertaining
to auditing the
4
<PAGE> 23
Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever
the majority of its members shall deem it to be proper for the transaction of
its business, and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
(A) The Compensation Committee shall be composed of not
more than five (5) members who shall be selected by the Board of Directors from
its own members who are not officers of the Company and who shall hold office
during the pleasure of the Board.
(B) The Compensation Committee shall in general advise
upon all matters of policy concerning the Company brought to its attention by
the management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called
at any time by the Chairman of the Compensation Committee, the Chairman of the
Board of Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be
elected by the Board of Directors as an associate director, to serve during the
pleasure of the Board.
(B) An associate director shall be entitled to attend
all directors meetings and participate in the discussion of all matters brought
to the Board, with the exception that he would have no right to vote. An
associate director will be eligible for appointment to Committees of the
Company, with the exception of the Executive Committee, Audit Committee and
Compensation Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of
any Committee created under Article III of the By-Laws of this Company, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
5
<PAGE> 24
ARTICLE IV
OFFICERS
Section 1. The Chairman of the Board of Directors shall preside at
all meetings of the Board and shall have such further authority and powers and
shall perform such duties as the Board of Directors may from time to time confer
and direct. He shall also exercise such powers and perform such duties as may
from time to time be agreed upon between himself and the President of the
Company.
Section 2. The Vice Chairman of the Board. The Vice Chairman of the
Board of Directors shall preside at all meetings of the Board of Directors at
which the Chairman of the Board shall not be present and shall have such further
authority and powers and shall perform such duties as the Board of Directors or
the Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties pertaining
to the office of the President conferred or imposed upon him by statute or
assigned to him by the Board of Directors; in the absence of the Chairman of the
Board the President shall have the powers and duties of the Chairman of the
Board.
Section 4. The Chairman of the Board of Directors or the President
as designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however
denominated by the Board of Directors, who may at any time perform all the
duties of the Chairman of the Board of Directors and/or the President and such
other powers and duties as may from time to time be assigned to them by the
Board of Directors, the Executive Committee, the Chairman of the Board or the
President and by the officer in charge of the department or division to which
they are assigned.
Section 6. The Secretary shall attend to the giving of notice of
meetings of the stockholders and the Board of Directors, as well as the
Committees thereof, to the keeping of accurate minutes of all such meetings and
to recording the same in the minute books of the Company. In addition to the
other notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
6
<PAGE> 25
Section 7. The Treasurer shall have general supervision over all
assets and liabilities of the Company. He shall be custodian of and responsible
for all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or indebtedness and of all the transactions
of the Company. He shall have general supervision of the expenditures of the
Company and shall report to the Board of Directors at each regular meeting of
the condition of the Company, and perform such other duties as may be assigned
to him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of Directors at appropriate times a report
relating to the general condition and internal operations of the Company.
There may be one or more subordinate accounting or controller
officers however denominated, who may perform the duties of the Controller and
such duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit
Officers, however denominated, who may perform all the duties of the Auditor and
such duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank
to all Vice Presidents with such functional titles as shall be determined from
time to time by the Board of Directors, who shall ex officio hold the office
Assistant Secretary of this Company and who may perform such duties as may be
prescribed by the officer in charge of the department or division to whom they
are assigned.
Section 11. The powers and duties of all other officers of the
Company shall be those usually pertaining to their respective offices, subject
to the direction of the Board of Directors, the Executive Committee, Chairman of
the Board of Directors or the President and the officer in charge of the
department or division to which they are assigned.
ARTICLE V
STOCK AND STOCK CERTIFICATES
Section 1. Shares of stock shall be transferrable on the books of
the Company and a
7
<PAGE> 26
transfer book shall be kept in which all transfers of stock shall be recorded.
Section 2. Certificates of stock shall bear the signature of the
President or any Vice President, however denominated by the Board of Directors
and countersigned by the Secretary or Treasurer or an Assistant Secretary, and
the seal of the corporation shall be engraved thereon. Each certificate shall
recite that the stock represented thereby is transferrable only upon the books
of the Company by the holder thereof or his attorney, upon surrender of the
certificate properly endorsed. Any certificate of stock surrendered to the
Company shall be cancelled at the time of transfer, and before a new certificate
or certificates shall be issued in lieu thereof. Duplicate certificates of stock
shall be issued only upon giving such security as may be satisfactory to the
Board of Directors or the Executive Committee.
Section 3. The Board of Directors of the Company is authorized to
fix in advance a record date for the determination of the stockholders entitled
to notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of any dividend, or to any allotment or
rights, or to exercise any rights in respect of any change, conversion or
exchange of capital stock, or in connection with obtaining the consent of
stockholders for any purpose, which record date shall not be more than 60 nor
less than 10 days proceeding the date of any meeting of stockholders or the date
for the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or a date in connection with obtaining such consent.
ARTICLE VI
SEAL
Section 1. The corporate seal of the Company shall be in the
following form:
Between two concentric circles the words "Wilmington
Trust Company" within the inner circle the words
"Wilmington, Delaware."
ARTICLE VII
FISCAL YEAR
Section 1. The fiscal year of the Company shall be the calendar
year.
8
<PAGE> 27
ARTICLE VIII
EXECUTION OF INSTRUMENTS OF THE COMPANY
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full power
and authority to enter into, make, sign, execute, acknowledge and/or deliver and
the Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the Executive Committee, and any
and all such instruments shall have the same force and validity as though
expressly authorized by the Board of Directors and/or the Executive Committee.
ARTICLE IX
COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES
Section 1. Directors and associate directors of the Company, other
than salaried officers of the Company, shall be paid such reasonable honoraria
or fees for attending meetings of the Board of Directors as the Board of
Directors may from time to time determine. Directors and associate directors who
serve as members of committees, other than salaried employees of the Company,
shall be paid such reasonable honoraria or fees for services as members of
committees as the Board of Directors shall from time to time determine and
directors and associate directors may be employed by the Company for such
special services as the Board of Directors may from time to time determine and
shall be paid for such special services so performed reasonable compensation as
may be determined by the Board of Directors.
ARTICLE X
INDEMNIFICATION
Section 1. (A) The Corporation shall indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, is or was
a director, officer, employee or agent of the Corporation or is or was
9
<PAGE> 28
serving at the request of the Corporation as a director, officer, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust, enterprise or non-profit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
reasonably incurred by such person. The Corporation shall indemnify a person in
connection with a proceeding initiated by such person only if the proceeding was
authorized by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in
defending any proceeding in advance of its final disposition, provided, however,
that the payment of expenses incurred by a Director or officer in his capacity
as a Director or officer in advance of the final disposition of the proceeding
shall be made only upon receipt of an undertaking by the Director or officer to
repay all amounts advanced if it should be ultimately determined that the
Director or officer is not entitled to be indemnified under this Article or
otherwise.
(C) If a claim for indemnification or payment of
expenses, under this Article X is not paid in full within ninety days after a
written claim therefor has been received by the Corporation the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification of payment of
expenses under applicable law.
(D) The rights conferred on any person by this Article X
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Charter or Act of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
Directors or otherwise.
(E) Any repeal or modification of the foregoing
provisions of this Article X shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE XI
AMENDMENTS TO THE BY-LAWS
Section 1. These By-Laws may be altered, amended or repealed, in
whole or in part, and any new By-Law or By-Laws adopted at any regular or
special meeting of the Board of Directors by a vote of the majority of all the
members of the Board of Directors then in office.
10
<PAGE> 29
EXHIBIT C
SECTION 321(b) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: August 4, 1999 By: /s/ Norma P. Closs
-------------------------------------
Name: Norma P. Closs
Title: Vice President
<PAGE> 30
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings banks
with state publication requirements. It has not been approved by any
state banking authorities. Refer to your appropriate state banking
authorities for your state publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
- ------------------------------------------------------- ---------------
Name of Bank City
in the State of DELAWARE , at the close of business on March 31, 1999.
<TABLE>
<CAPTION>
ASSETS
Thousands of dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins............................................... 196,035
Interest-bearing balances............................................................................... 0
Held-to-maturity securities................................................................................. 44,909
Available-for-sale securities............................................................................ 1,396,028
Federal funds sold and securities purchased under agreements to resell..................................... 127,340
Loans and lease financing receivables:
Loans and leases, net of unearned income..............4,176,290
LESS: Allowance for loan and lease losses............ 68,543
LESS: Allocated transfer risk reserve................ 0
Loans and leases, net of unearned income, allowance, and reserve................................ 4,107,747
Assets held in trading accounts.................................................................................. 0
Premises and fixed assets (including capitalized leases)................................................... 139,843
Other real estate owned...................................................................................... 1,055
Investments in unconsolidated subsidiaries and associated companies.......................................... 1,225
Customers' liability to this bank on acceptances outstanding..................................................... 0
Intangible assets............................................................................................ 5,265
Other assets................................................................................................ 99,075
Total assets............................................................................................. 6,118,520
</TABLE>
CONTINUED ON NEXT PAGE
<PAGE> 31
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits:
In domestic offices...................................................................................... 4,332,124
Noninterest-bearing ............... 959,777
Interest-bearing................... 3,372,347
Federal funds purchased and Securities sold under agreements to repurchase................................. 432,395
Demand notes issued to the U.S. Treasury.................................................................... 28,906
Trading liabilities (from Schedule RC-D)......................................................................... 0
Other borrowed money:...................................................................................... ///////
With original maturity of one year or less........................................................ 715,000
With original maturity of more than one year....................................................... 43,000
Bank's liability on acceptances executed and outstanding......................................................... 0
Subordinated notes and debentures................................................................................ 0
Other liabilities (from Schedule RC-G)...................................................................... 93,311
Total liabilities ....................................................................................... 5,644,736
EQUITY CAPITAL
Perpetual preferred stock and related surplus.................................................................... 0
Common Stock................................................................................................... 500
Surplus (exclude all surplus related to preferred stock).................................................... 62,118
Undivided profits and capital reserves..................................................................... 408,053
Net unrealized holding gains (losses) on available-for-sale securities....................................... 3,113
Total equity capital....................................................................................... 473,784
Total liabilities, limited-life preferred stock, and equity capital...................................... 6,118,520
</TABLE>
2
<PAGE> 1
EXHIBIT 25.2
Registration No.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
MERCANTILE BANK CORPORATION
MBWM CAPITAL TRUST I
(Exact name of obligor as specified in its charter)
Michigan 38-3360865
Delaware Applied For
(State of incorporation) (I.R.S. employer identification no.)
216 North Division Avenue
Grand Rapids, Michigan 49503
(Address of principal executive offices) (Zip Code)
% Cumulative Preferred Securities of MBWM Capital Trust I
(Title of the indenture securities)
================================================================================
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust
powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the obligor
is not an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section
321(b) of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 4th day
of August, 1999.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Patricia A. Evans By: /s/ Norma P. Closs
------------------------- ----------------------
Assistant Secretary Name: Norma P. Closs
Title: Vice President
2
<PAGE> 3
EXHIBIT A
AMENDED CHARTER
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON MAY 9, 1987
<PAGE> 4
AMENDED CHARTER
OR
ACT OF INCORPORATION
OF
WILMINGTON TRUST COMPANY
WILMINGTON TRUST COMPANY, originally incorporated by an Act of the
General Assembly of the State of Delaware, entitled "An Act to Incorporate the
Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name
of which company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed
in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter
or Act of Incorporation of which company has been from time to time amended and
changed by merger agreements pursuant to the corporation law for state banks and
trust companies of the State of Delaware, does hereby alter and amend its
Charter or Act of Incorporation so that the same as so altered and amended shall
in its entirety read as follows:
FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY.
SECOND: - The location of its principal office in the State of
Delaware is at Rodney Square North, in the City of Wilmington,
County of New Castle; the name of its resident agent is WILMINGTON
TRUST COMPANY whose address is Rodney Square North, in said City. In
addition to such principal office, the said corporation maintains
and operates branch offices in the City of Newark, New Castle
County, Delaware, the Town of Newport, New Castle County, Delaware,
at Claymont, New Castle County, Delaware, at Greenville, New Castle
County Delaware, and at Milford Cross Roads, New Castle County,
Delaware, and shall be empowered to open, maintain and operate
branch offices at Ninth and Shipley Streets, 418 Delaware Avenue,
2120 Market Street, and 3605 Market Street, all in the City of
Wilmington, New Castle County, Delaware, and such other branch
offices or places of business as may be authorized from time to time
by the agency or agencies of the government of the State of Delaware
empowered to confer such authority.
THIRD: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this
Corporation are to do any or all of the things herein mentioned as
fully and to the same extent as natural persons might or could do
and in any part of the world, viz.:
(1) To sue and be sued, complain and defend in any Court of
law or equity and to make and use a common seal, and alter
the seal at pleasure, to hold,
<PAGE> 5
purchase, convey, mortgage or otherwise deal in real and
personal estate and property, and to appoint such officers
and agents as the business of the Corporation shall require,
to make by-laws not inconsistent with the Constitution or
laws of the United States or of this State, to discount
bills, notes or other evidences of debt, to receive deposits
of money, or securities for money, to buy gold and silver
bullion and foreign coins, to buy and sell bills of
exchange, and generally to use, exercise and enjoy all the
powers, rights, privileges and franchises incident to a
corporation which are proper or necessary for the
transaction of the business of the Corporation hereby
created.
(2) To insure titles to real and personal property, or any
estate or interests therein, and to guarantee the holder of
such property, real or personal, against any claim or
claims, adverse to his interest therein, and to prepare and
give certificates of title for any lands or premises in the
State of Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the
receipt, collection, custody, investment and management of
funds, and the purchase, sale, management and disposal of
property of all descriptions, and to prepare and execute all
papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds,
leases, conveyances, mortgages, bonds and legal papers of
every description, and to carry on the business of
conveyancing in all its branches.
(5) To receive upon deposit for safekeeping money, jewelry,
plate, deeds, bonds and any and all other personal property
of every sort and kind, from executors, administrators,
guardians, public officers, courts, receivers, assignees,
trustees, and from all fiduciaries, and from all other
persons and individuals, and from all corporations whether
state, municipal, corporate or private, and to rent boxes,
safes, vaults and other receptacles for such property.
(6) To act as agent or otherwise for the purpose of
registering, issuing, certificating, countersigning,
transferring or underwriting the stock, bonds or other
obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund
therefor on such terms as may be agreed upon between the two
parties, and in like manner may act as Treasurer of any
corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage,
bond or other
2
<PAGE> 6
instrument issued by any state, municipality, body politic,
corporation, association or person, either alone or in
conjunction with any other person or persons, corporation or
corporations.
(8) To guarantee the validity, performance or effect of any
contract or agreement, and the fidelity of persons holding
places of responsibility or trust; to become surety for any
person, or persons, for the faithful performance of any
trust, office, duty, contract or agreement, either by itself
or in conjunction with any other person, or persons,
corporation, or corporations, or in like manner become
surety upon any bond, recognizance, obligation, judgment,
suit, order, or decree to be entered in any court of record
within the State of Delaware or elsewhere, or which may now
or hereafter be required by any law, judge, officer or court
in the State of Delaware or elsewhere.
(9) To act by any and every method of appointment as
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian, bailee, or
in any other trust capacity in the receiving, holding,
managing, and disposing of any and all estates and property,
real, personal or mixed, and to be appointed as such
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian or bailee
by any persons, corporations, court, officer, or authority,
in the State of Delaware or elsewhere; and whenever this
Corporation is so appointed by any person, corporation,
court, officer or authority such trustee, trustee in
bankruptcy, receiver, assignee, assignee in bankruptcy,
executor, administrator, guardian, bailee, or in any other
trust capacity, it shall not be required to give bond with
surety, but its capital stock shall be taken and held as
security for the performance of the duties devolving upon it
by such appointment.
(10) And for its care, management and trouble, and the
exercise of any of its powers hereby given, or for the
performance of any of the duties which it may undertake or
be called upon to perform, or for the assumption of any
responsibility the said Corporation may be entitled to
receive a proper compensation.
(11) To purchase, receive, hold and own bonds, mortgages,
debentures, shares of capital stock, and other securities,
obligations, contracts and evidences of indebtedness, of any
private, public or municipal corporation within and without
the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession
thereof, or of any foreign government or country; to
receive, collect, receipt for, and dispose of
3
<PAGE> 7
interest, dividends and income upon and from any of the
bonds, mortgages, debentures, notes, shares of capital
stock, securities, obligations, contracts, evidences of
indebtedness and other property held and owned by it, and to
exercise in respect of all such bonds, mortgages,
debentures, notes, shares of capital stock, securities,
obligations, contracts, evidences of indebtedness and other
property, any and all the rights, powers and privileges of
individual owners thereof, including the right to vote
thereon; to invest and deal in and with any of the moneys of
the Corporation upon such securities and in such manner as
it may think fit and proper, and from time to time to vary
or realize such investments; to issue bonds and secure the
same by pledges or deeds of trust or mortgages of or upon
the whole or any part of the property held or owned by the
Corporation, and to sell and pledge such bonds, as and when
the Board of Directors shall determine, and in the promotion
of its said corporate business of investment and to the
extent authorized by law, to lease, purchase, hold, sell,
assign, transfer, pledge, mortgage and convey real and
personal property of any name and nature and any estate or
interest therein.
(b) In furtherance of, and not in limitation, of the powers
conferred by the laws of the State of Delaware, it is hereby
expressly provided that the said Corporation shall also have the
following powers:
(1) To do any or all of the things herein set forth, to the
same extent as natural persons might or could do, and in any
part of the world.
(2) To acquire the good will, rights, property and
franchises and to undertake the whole or any part of the
assets and liabilities of any person, firm, association or
corporation, and to pay for the same in cash, stock of this
Corporation, bonds or otherwise; to hold or in any manner to
dispose of the whole or any part of the property so
purchased; to conduct in any lawful manner the whole or any
part of any business so acquired, and to exercise all the
powers necessary or convenient in and about the conduct and
management of such business.
(3) To take, hold, own, deal in, mortgage or otherwise lien,
and to lease, sell, exchange, transfer, or in any manner
whatever dispose of property, real, personal or mixed,
wherever situated.
(4) To enter into, make, perform and carry out contracts of
every kind with any person, firm, association or
corporation, and, without limit as to amount, to draw, make,
accept, endorse, discount, execute and issue promissory
notes, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or
4
<PAGE> 8
transferable instruments.
(5) To have one or more offices, to carry on all or any of
its operations and businesses, without restriction to the
same extent as natural persons might or could do, to
purchase or otherwise acquire, to hold, own, to mortgage,
sell, convey or otherwise dispose of, real and personal
property, of every class and description, in any State,
District, Territory or Colony of the United States, and in
any foreign country or place.
(6) It is the intention that the objects, purposes and
powers specified and clauses contained in this paragraph
shall (except where otherwise expressed in said paragraph)
be nowise limited or restricted by reference to or inference
from the terms of any other clause of this or any other
paragraph in this charter, but that the objects, purposes
and powers specified in each of the clauses of this
paragraph shall be regarded as independent objects, purposes
and powers.
FOURTH: - (a) The total number of shares of all classes of stock
which the Corporation shall have authority to issue is forty-one
million (41,000,000) shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par
value $10.00 per share (hereinafter referred to as
"Preferred Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par
value $1.00 per share (hereinafter referred to as "Common
Stock").
(b) Shares of Preferred Stock may be issued from time to time in one
or more series as may from time to time be determined by the Board
of Directors each of said series to be distinctly designated. All
shares of any one series of Preferred Stock shall be alike in every
particular, except that there may be different dates from which
dividends, if any, thereon shall be cumulative, if made cumulative.
The voting powers and the preferences and relative, participating,
optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time
outstanding; and, subject to the provisions of subparagraph 1 of
Paragraph (c) of this Article FOURTH, the Board of Directors of the
Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any
shares of a particular series of Preferred Stock, the voting powers
and the designations, preferences and relative, optional and other
special rights, and the qualifications, limitations and restrictions
of such series, including, but without limiting the generality of
the
5
<PAGE> 9
foregoing, the following:
(1) The distinctive designation of, and the number of shares
of Preferred Stock which shall constitute such series, which
number may be increased (except where otherwise provided by
the Board of Directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time
by like action of the Board of Directors;
(2) The rate and times at which, and the terms and
conditions on which, dividends, if any, on Preferred Stock
of such series shall be paid, the extent of the preference
or relation, if any, of such dividends to the dividends
payable on any other class or classes, or series of the same
or other class of stock and whether such dividends shall be
cumulative or non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of
such series to convert the same into or exchange the same
for, shares of any other class or classes or of any series
of the same or any other class or classes of stock of the
Corporation and the terms and conditions of such conversion
or exchange;
(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices
and the time or times at which, and the terms and conditions
on which, Preferred Stock of such series may be redeemed.
(5) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of
such series; and
(7) The voting powers, if any, of the holders of such series
of Preferred Stock which may, without limiting the
generality of the foregoing include the right, voting as a
series or by itself or together with other series of
Preferred Stock or all series of Preferred Stock as a class,
to elect one or more directors of the Corporation if there
shall have been a default in the payment of dividends on any
one or more series of Preferred Stock or under such
circumstances and on such conditions as the Board of
Directors may determine.
(c) (1) After the requirements with respect to preferential
dividends on the Preferred Stock (fixed in accordance with the
provisions of section (b) of this Article
6
<PAGE> 10
FOURTH), if any, shall have been met and after the Corporation shall
have complied with all the requirements, if any, with respect to the
setting aside of sums as sinking funds or redemption or purchase
accounts (fixed in accordance with the provisions of section (b) of
this Article FOURTH), and subject further to any conditions which
may be fixed in accordance with the provisions of section (b) of
this Article FOURTH, then and not otherwise the holders of Common
Stock shall be entitled to receive such dividends as may be declared
from time to time by the Board of Directors.
(2) After distribution in full of the preferential amount,
if any, (fixed in accordance with the provisions of section
(b) of this Article FOURTH), to be distributed to the
holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation, the holders
of the Common Stock shall be entitled to receive all of the
remaining assets of the Corporation, tangible and
intangible, of whatever kind available for distribution to
stockholders ratably in proportion to the number of shares
of Common Stock held by them respectively.
(3) Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be
adopted by the Board of Directors pursuant to section (b) of
this Article FOURTH, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held on
all matters voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock
or of options, warrants or other rights to purchase shares of any
class or series of stock or of other securities of the Corporation
shall have any preemptive right to purchase or subscribe for any
unissued stock of any class or series or any additional shares of
any class or series to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class or series,
or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for stock of the
Corporation of any class or series, or carrying any right to
purchase stock of any class or series, but any such unissued stock,
additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons,
firms, corporations or associations, whether such holders or others,
and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and
rights of each other series of Preferred Stock shall, in each case,
be as fixed from time to time by the Board of
7
<PAGE> 11
Directors in the resolution or resolutions adopted pursuant to
authority granted in section (b) of this Article FOURTH and the
consent, by class or series vote or otherwise, of the holders of
such of the series of Preferred Stock as are from time to time
outstanding shall not be required for the issuance by the Board of
Directors of any other series of Preferred Stock whether or not the
powers, preferences and rights of such other series shall be fixed
by the Board of Directors as senior to, or on a parity with, the
powers, preferences and rights of such outstanding series, or any of
them; provided, however, that the Board of Directors may provide in
the resolution or resolutions as to any series of Preferred Stock
adopted pursuant to section (b) of this Article FOURTH that the
consent of the holders of a majority (or such greater proportion as
shall be therein fixed) of the outstanding shares of such series
voting thereon shall be required for the issuance of any or all
other series of Preferred Stock.
(f) Subject to the provisions of section (e), shares of any series
of Preferred Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the
Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of
Directors.
(h) The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote thereon.
FIFTH: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of
directors constituting the entire Board shall be not less than five
nor more than twenty-five as fixed from time to time by vote of a
majority of the whole Board, provided, however, that the number of
directors shall not be reduced so as to shorten the term of any
director at the time in office, and provided further, that the
number of directors constituting the whole Board shall be
twenty-four until otherwise fixed by a majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors
constituting the whole Board permits, with the term of office of one
class expiring each year. At the annual meeting of stockholders in
1982, directors of the first class shall be elected to hold office
for a term expiring at the next succeeding annual meeting, directors
of the second class
8
<PAGE> 12
shall be elected to hold office for a term expiring at the second
succeeding annual meeting and directors of the third class shall be
elected to hold office for a term expiring at the third succeeding
annual meeting. Any vacancies in the Board of Directors for any
reason, and any newly created directorships resulting from any
increase in the directors, may be filled by the Board of Directors,
acting by a majority of the directors then in office, although less
than a quorum, and any directors so chosen shall hold office until
the next annual election of directors. At such election, the
stockholders shall elect a successor to such director to hold office
until the next election of the class for which such director shall
have been chosen and until his successor shall be elected and
qualified. No decrease in the number of directors shall shorten the
term of any incumbent director.
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding
the fact that some lesser percentage may be specified by law, this
Charter or Act of Incorporation or the ByLaws of the Corporation),
any director or the entire Board of Directors of the Corporation may
be removed at any time without cause, but only by the affirmative
vote of the holders of two-thirds or more of the outstanding shares
of capital stock of the Corporation entitled to vote generally in
the election of directors (considered for this purpose as one class)
cast at a meeting of the stockholders called for that purpose.
(d) Nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote for the
election of directors. Such nominations shall be made by notice in
writing, delivered or mailed by first class United States mail,
postage prepaid, to the Secretary of the Corporation not less than
14 days nor more than 50 days prior to any meeting of the
stockholders called for the election of directors; provided,
however, that if less than 21 days' notice of the meeting is given
to stockholders, such written notice shall be delivered or mailed,
as prescribed, to the Secretary of the Corporation not later than
the close of the seventh day following the day on which notice of
the meeting was mailed to stockholders. Notice of nominations which
are proposed by the Board of Directors shall be given by the
Chairman on behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name,
age, business address and, if known, residence address of each
nominee proposed in such notice, (ii) the principal occupation or
employment of such nominee and (iii) the number of shares of stock
of the Corporation which are beneficially owned by each such
nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine
and declare to
9
<PAGE> 13
the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be
disregarded.
(g) No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be
taken without a meeting, and the power of stockholders to consent in
writing, without a meeting, to the taking of any action is
specifically denied.
SIXTH: - The Directors shall choose such officers, agents and
servants as may be provided in the By-Laws as they may from time to
time find necessary or proper.
SEVENTH: - The Corporation hereby created is hereby given the same
powers, rights and privileges as may be conferred upon corporations
organized under the Act entitled "An Act Providing a General
Corporation Law", approved March 10, 1899, as from time to time
amended.
EIGHTH: - This Act shall be deemed and taken to be a private Act.
NINTH: - This Corporation is to have perpetual existence.
TENTH: - The Board of Directors, by resolution passed by a majority
of the whole Board, may designate any of their number to constitute
an Executive Committee, which Committee, to the extent provided in
said resolution, or in the By-Laws of the Company, shall have and
may exercise all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall
have power to authorize the seal of the Corporation to be affixed to
all papers which may require it.
ELEVENTH: - The private property of the stockholders shall not be
liable for the payment of corporate debts to any extent whatever.
TWELFTH: - The Corporation may transact business in any part of the
world.
THIRTEENTH: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation
by a vote of the majority of the entire Board. The stockholders may
make, alter or repeal any By-Law whether or not adopted by them,
provided however, that any such additional By-Laws, alterations or
repeal may be adopted only by the affirmative vote of the holders of
two-thirds or more of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors
(considered for this purpose as
10
<PAGE> 14
one class).
FOURTEENTH: - Meetings of the Directors may be held outside
of the State of Delaware at such places as may be from time to time
designated by the Board, and the Directors may keep the books of the
Company outside of the State of Delaware at such places as may be
from time to time designated by them.
FIFTEENTH: - (a) (1) In addition to any affirmative vote required by
law, and except as otherwise expressly provided in sections (b) and
(c) of this Article FIFTEENTH:
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any
Interested Stockholder (as hereinafter defined) or (ii) any
other corporation (whether or not itself an Interested
Stockholder), which, after such merger or consolidation,
would be an Affiliate (as hereinafter defined) of an
Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of related
transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate fair
market value of $1,000,000 or more, or
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities
or other property (or a combination thereof) having an
aggregate fair market value of $1,000,000 or more, or
(D) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation, or
(E) any reclassification of securities (including any
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested
Stockholder, or any Affiliate of any Interested Stockholder,
11
<PAGE> 15
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this
Article FIFTEENTH shall mean any transaction which is
referred to in any one or more of clauses (A) through (E)
of paragraph 1 of the section (a).
(b) The provisions of section (a) of this Article FIFTEENTH
shall not be applicable to any particular business
combination and such business combination shall require only
such affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation or By-Laws
if such business combination has been approved by a majority
of the whole Board.
(c) For the purposes of this Article FIFTEENTH:
(1) A "person" shall mean any individual, firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any
Subsidiary) who or which as of the record date for the determination
of stockholders entitled to notice of and to vote on such business
combination, or immediately prior to the consummation of any such
transaction:
(A) is the beneficial owner, directly or indirectly, of more
than 10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time
within two years prior thereto was the beneficial owner,
directly or indirectly, of not less than 10% of the then
outstanding voting Shares, or
(C) is an assignee of or has otherwise succeeded in any
share of capital stock of the Corporation which were at any
time within two years prior thereto beneficially owned by
any Interested Stockholder, and such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
12
<PAGE> 16
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and
Associates (as hereafter defined) beneficially own, directly
or indirectly, or
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or
any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock
of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement,
or upon exercise of conversion rights, warrants or options or
otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December
31, 1981.
(6) "Subsidiary" shall mean any corporation of which a majority of
any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on December 31, 1981) is owned, directly or
indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Investment Stockholder set forth in
paragraph (2) of this section (c), the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty
to determine for the purposes of this Article FIFTEENTH on
the basis of information known to them, (1) the number of
Voting Shares beneficially owned by any person (2) whether a
person is an Affiliate or Associate of another, (3) whether
a person has an agreement, arrangement or understanding with
another as to the matters referred to in paragraph (3) of
section (c), or (4) whether the assets subject to any
business combination or the consideration received for the
issuance or
13
<PAGE> 17
transfer of securities by the Corporation, or any Subsidiary
has an aggregate fair market value of $1,000,000 or more.
(e) Nothing contained in this Article FIFTEENTH shall be
construed to relieve any Interested Stockholder from any
fiduciary obligation imposed by law.
SIXTEENTH: Notwithstanding any other provision of this Charter or
Act of Incorporation or the By-Laws of the Corporation (and in
addition to any other vote that may be required by law, this Charter
or Act of Incorporation by the By-Laws), the affirmative vote of the
holders of at least two-thirds of the outstanding shares of the
capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class)
shall be required to amend, alter or repeal any provision of
Articles FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter
or Act of Incorporation.
SEVENTEENTH: (a) a Director of this Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except to the extent such
exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Laws as the same exists or
may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph
shall not adversely affect any right or protection of a
Director of the Corporation existing hereunder with respect
to any act or omission occurring prior to the time of such
repeal or modification.
14
<PAGE> 18
EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON JANUARY 16, 1997
<PAGE> 19
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. The Annual Meeting of Stockholders shall be held on the
third Thursday in April each year at the principal office at the Company or at
such other date, time, or place as may be designated by resolution by the Board
of Directors.
Section 2. Special meetings of all stockholders may be called at any
time by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given
by mailing to each stockholder at least ten (10) days before said meeting, at
his last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the
Company issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each share of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
DIRECTORS
Section 1. The number and classification of the Board of Directors
shall be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72)
years shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for
three years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed
and conducted by the Board of Directors.
<PAGE> 20
Section 5. The Board of Directors shall meet at the principal office
of the Company or elsewhere in its discretion at such times to be determined by
a majority of its members, or at the call of the Chairman of the Board of
Directors or the President.
Section 6. Special meetings of the Board of Directors may be called
at any time by the Chairman of the Board of Directors or by the President, and
shall be called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall
be necessary to constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of
any special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal,
inability to act, or disqualification of any director, the Board of Directors,
although less than a quorum, shall have the right to elect the successor who
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred, and until such director's successor shall have
been duly elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or divisions of the Company as it may deem
advisable.
2
<PAGE> 21
ARTICLE III
COMMITTEES
Section 1. Executive Committee
(A) The Executive Committee shall be composed of not
more than nine members who shall be selected by the Board of Directors from its
own members and who shall hold office during the pleasure of the Board.
(B) The Executive Committee shall have all the powers of
the Board of Directors when it is not in session to transact all business for
and in behalf of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members, or at the call of the Chairman of the
Executive Committee or at the call of the Chairman of the Board of Directors.
The majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be held
at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee
shall be kept and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend
all investments that may be made of the funds of the Company, and shall direct
the disposal of the same, in accordance with such rules and regulations as the
Board of Directors from time to time make.
(F) In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Company by its directors and officers as contemplated by these By-Laws any
two available members of the Executive Committee as constituted immediately
prior to such disaster shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the provisions of Article III of these By-Laws; and if less than three
members of the Trust Committee is constituted immediately prior to such disaster
shall be available for the transaction of its business, such Executive Committee
shall also be empowered to exercise all of the powers reserved to the Trust
Committee under Article III Section 2 hereof. In the event of the
unavailability, at such time, of a minimum of two members of such Executive
Committee, any three available directors shall constitute the Executive
Committee for the full conduct and management of the affairs and business of the
Company in accordance with the foregoing provisions of this Section. This By-Law
shall be subject to implementation by Resolutions of the Board of Directors
presently existing or hereafter passed from time to time
3
<PAGE> 22
for that purpose, and any provisions of these By-Laws (other than this Section)
and any resolutions which are contrary to the provisions of this Section or to
the provisions of any such implementary Resolutions shall be suspended during
such a disaster period until it shall be determined by any interim Executive
Committee acting under this section that it shall be to the advantage of the
Company to resume the conduct and management of its affairs and business under
all of the other provisions of these By-Laws.
Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more
than thirteen members who shall be selected by the Board of Directors, a
majority of whom shall be members of the Board of Directors and who shall hold
office during the pleasure of the Board.
(B) The Trust Committee shall have general supervision
over the Trust Department and the investment of trust funds, in all matters,
however, being subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members or at the call of its chairman. A
majority of its members shall be necessary to constitute a quorum for the
transaction of business.
(D) Minutes of each meeting of the Trust Committee shall
be kept and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint
Committees and/or designate officers or employees of the Company to whom
supervision over the investment of trust funds may be delegated when the Trust
Committee is not in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five
members who shall be selected by the Board of Directors from its own members,
none of whom shall be an officer of the Company, and shall hold office at the
pleasure of the Board.
(B) The Audit Committee shall have general supervision
over the Audit Division in all matters however subject to the approval of the
Board of Directors; it shall consider all matters brought to its attention by
the officer in charge of the Audit Division, review all reports of examination
of the Company made by any governmental agency or such independent auditor
employed for that purpose, and make such recommendations to the Board of
Directors with respect thereto or with respect to any other matters pertaining
to auditing the
4
<PAGE> 23
Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever
the majority of its members shall deem it to be proper for the transaction of
its business, and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
(A) The Compensation Committee shall be composed of not
more than five (5) members who shall be selected by the Board of Directors from
its own members who are not officers of the Company and who shall hold office
during the pleasure of the Board.
(B) The Compensation Committee shall in general advise
upon all matters of policy concerning the Company brought to its attention by
the management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called
at any time by the Chairman of the Compensation Committee, the Chairman of the
Board of Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be
elected by the Board of Directors as an associate director, to serve during the
pleasure of the Board.
(B) An associate director shall be entitled to attend
all directors meetings and participate in the discussion of all matters brought
to the Board, with the exception that he would have no right to vote. An
associate director will be eligible for appointment to Committees of the
Company, with the exception of the Executive Committee, Audit Committee and
Compensation Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of
any Committee created under Article III of the By-Laws of this Company, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
5
<PAGE> 24
ARTICLE IV
OFFICERS
Section 1. The Chairman of the Board of Directors shall preside at
all meetings of the Board and shall have such further authority and powers and
shall perform such duties as the Board of Directors may from time to time confer
and direct. He shall also exercise such powers and perform such duties as may
from time to time be agreed upon between himself and the President of the
Company.
Section 2. The Vice Chairman of the Board. The Vice Chairman of the
Board of Directors shall preside at all meetings of the Board of Directors at
which the Chairman of the Board shall not be present and shall have such further
authority and powers and shall perform such duties as the Board of Directors or
the Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties pertaining
to the office of the President conferred or imposed upon him by statute or
assigned to him by the Board of Directors in the absence of the Chairman of the
Board the President shall have the powers and duties of the Chairman of the
Board.
Section 4. The Chairman of the Board of Directors or the President
as designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however
denominated by the Board of Directors, who may at any time perform all the
duties of the Chairman of the Board of Directors and/or the President and such
other powers and duties as may from time to time be assigned to them by the
Board of Directors, the Executive Committee, the Chairman of the Board or the
President and by the officer in charge of the department or division to which
they are assigned.
Section 6. The Secretary shall attend to the giving of notice of
meetings of the stockholders and the Board of Directors, as well as the
Committees thereof, to the keeping of accurate minutes of all such meetings and
to recording the same in the minute books of the Company. In addition to the
other notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
6
<PAGE> 25
Section 7. The Treasurer shall have general supervision over all
assets and liabilities of the Company. He shall be custodian of and responsible
for all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or indebtedness and of all the transactions
of the Company. He shall have general supervision of the expenditures of the
Company and shall report to the Board of Directors at each regular meeting of
the condition of the Company, and perform such other duties as may be assigned
to him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of Directors at appropriate times a report
relating to the general condition and internal operations of the Company.
There may be one or more subordinate accounting or controller
officers however denominated, who may perform the duties of the Controller and
such duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit
Officers, however denominated, who may perform all the duties of the Auditor and
such duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank
to all Vice Presidents with such functional titles as shall be determined from
time to time by the Board of Directors, who shall ex officio hold the office
Assistant Secretary of this Company and who may perform such duties as may be
prescribed by the officer in charge of the department or division to whom they
are assigned.
Section 11. The powers and duties of all other officers of the
Company shall be those usually pertaining to their respective offices, subject
to the direction of the Board of Directors, the Executive Committee, Chairman of
the Board of Directors or the President and the officer in charge of the
department or division to which they are assigned.
ARTICLE V
STOCK AND STOCK CERTIFICATES
Section 1. Shares of stock shall be transferrable on the books of
the Company and a
7
<PAGE> 26
transfer book shall be kept in which all transfers of stock shall be recorded.
Section 2. Certificates of stock shall bear the signature of the
President or any Vice President, however denominated by the Board of Directors
and countersigned by the Secretary or Treasurer or an Assistant Secretary, and
the seal of the corporation shall be engraved thereon. Each certificate shall
recite that the stock represented thereby is transferrable only upon the books
of the Company by the holder thereof or his attorney, upon surrender of the
certificate properly endorsed. Any certificate of stock surrendered to the
Company shall be cancelled at the time of transfer, and before a new certificate
or certificates shall be issued in lieu thereof. Duplicate certificates of stock
shall be issued only upon giving such security as may be satisfactory to the
Board of Directors or the Executive Committee.
Section 3. The Board of Directors of the Company is authorized to
fix in advance a record date for the determination of the stockholders entitled
to notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of any dividend, or to any allotment or
rights, or to exercise any rights in respect of any change, conversion or
exchange of capital stock, or in connection with obtaining the consent of
stockholders for any purpose, which record date shall not be more than 60 nor
less than 10 days proceeding the date of any meeting of stockholders or the date
for the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or a date in connection with obtaining such consent.
ARTICLE VI
SEAL
Section 1. The corporate seal of the Company shall be in the
following form:
Between two concentric circles the words
"Wilmington Trust Company" within the inner
circle the words "Wilmington, Delaware."
ARTICLE VII
FISCAL YEAR
Section 1. The fiscal year of the Company shall be the calendar
year.
8
<PAGE> 27
ARTICLE VIII
EXECUTION OF INSTRUMENTS OF THE COMPANY
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full power
and authority to enter into, make, sign, execute, acknowledge and/or deliver and
the Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the Executive Committee, and any
and all such instruments shall have the same force and validity as though
expressly authorized by the Board of Directors and/or the Executive Committee.
ARTICLE IX
COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES
Section 1. Directors and associate directors of the Company, other
than salaried officers of the Company, shall be paid such reasonable honoraria
or fees for attending meetings of the Board of Directors as the Board of
Directors may from time to time determine. Directors and associate directors who
serve as members of committees, other than salaried employees of the Company,
shall be paid such reasonable honoraria or fees for services as members of
committees as the Board of Directors shall from time to time determine and
directors and associate directors may be employed by the Company for such
special services as the Board of Directors may from time to time determine and
shall be paid for such special services so performed reasonable compensation as
may be determined by the Board of Directors.
ARTICLE X
INDEMNIFICATION
Section 1. (A) The Corporation shall indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, is or was
a director, officer, employee or agent of the Corporation or is or was
9
<PAGE> 28
serving at the request of the Corporation as a director, officer, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust, enterprise or non-profit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
reasonably incurred by such person. The Corporation shall indemnify a person in
connection with a proceeding initiated by such person only if the proceeding was
authorized by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in
defending any proceeding in advance of its final disposition, provided, however,
that the payment of expenses incurred by a Director or officer in his capacity
as a Director or officer in advance of the final disposition of the proceeding
shall be made only upon receipt of an undertaking by the Director or officer to
repay all amounts advanced if it should be ultimately determined that the
Director or officer is not entitled to be indemnified under this Article or
otherwise.
(C) If a claim for indemnification or payment of
expenses, under this Article X is not paid in full within ninety days after a
written claim therefor has been received by the Corporation the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification of payment of
expenses under applicable law.
(D) The rights conferred on any person by this Article X
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Charter or Act of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
Directors or otherwise.
(E) Any repeal or modification of the foregoing
provisions of this Article X shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE XI
AMENDMENTS TO THE BY-LAWS
Section 1. These By-Laws may be altered, amended or repealed, in
whole or in part, and any new By-Law or By-Laws adopted at any regular or
special meeting of the Board of Directors by a vote of the majority of all the
members of the Board of Directors then in office.
10
<PAGE> 29
EXHIBIT C
SECTION 321(b) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: August 4, 1999 By: /s/ Norma P. Closs
---------------------------
Name: Norma P. Closs
Title: Vice President
<PAGE> 30
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings banks with
state publication requirements. It has not been approved by any state banking
authorities. Refer to your appropriate state banking authorities for your state
publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
- ------------------------------------------------------ ----------------------
Name of Bank City
in the State of DELAWARE , at the close of business on March 31, 1999.
<TABLE>
<CAPTION>
ASSETS
Thousands of dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins................................................196,035
Interest-bearing balances.............................................................................. 0
Held-to-maturity securities................................................................................. 44,909
Available-for-sale securities.............................................................................1,396,028
Federal funds sold and securities purchased under agreements to resell......................................127,340
Loans and lease financing receivables:
Loans and leases, net of unearned income............ 4,176,290
LESS: Allowance for loan and lease losses............ 68,543
LESS: Allocated transfer risk reserve.................... 0
Loans and leases, net of unearned income, allowance, and reserve.................................4,107,747
Assets held in trading accounts...................................................................................0
Premises and fixed assets (including capitalized leases)....................................................139,843
Other real estate owned...................................................................................... 1,055
Investments in unconsolidated subsidiaries and associated companies...........................................1,225
Customers' liability to this bank on acceptances outstanding......................................................0
Intangible assets............................................................................................ 5,265
Other assets................................................................................................ 99,075
Total assets..............................................................................................6,118,520
</TABLE>
CONTINUED ON NEXT PAGE
<PAGE> 31
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits:
In domestic offices.......................................................................................4,332,124
Noninterest-bearing............. 959,777
Interest-bearing............. 3,372,347
Federal funds purchased and Securities sold under agreements to repurchase................................. 432,395
Demand notes issued to the U.S. Treasury.....................................................................28,906
Trading liabilities (from Schedule RC-D)..........................................................................0
Other borrowed money:.......................................................................................///////
With original maturity of one year or less.........................................................715,000
With original maturity of more than one year........................................................43,000
Bank's liability on acceptances executed and outstanding..........................................................0
Subordinated notes and debentures.................................................................................0
Other liabilities (from Schedule RC-G).................................................................... 93,311
Total liabilities.........................................................................................5,644,736
EQUITY CAPITAL
Perpetual preferred stock and related surplus.....................................................................0
Common Stock....................................................................................................500
Surplus (exclude all surplus related to preferred stock).....................................................62,118
Undivided profits and capital reserves......................................................................408,053
Net unrealized holding gains (losses) on available-for-sale securities....................................... 3,113
Total equity capital........................................................................................473,784
Total liabilities, limited-life preferred stock, and equity capital.......................................6,118,520
</TABLE>
2
<PAGE> 1
EXHIBIT 25.3
Registration No.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
MERCANTILE BANK CORPORATION
(Exact name of obligor as specified in its charter)
Michigan 38-3360865
(State of incorporation) (I.R.S. employer identification no.)
216 North Division Avenue
Grand Rapids, Michigan 49503
(Address of principal executive offices) (Zip Code)
Guarantee of Mercantile Bank Corporation with respect to the
% Cumulative Preferred Securities
(Title of the indenture securities)
================================================================================
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust
powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the obligor
is not an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section 321
(b) of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 4th day
of August, 1999.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Patricia A. Evans By: /s/ Norma P. Closs
--------------------- -------------------
Assistant Secretary Name: Norma P. Closs
Title: Vice President
2
<PAGE> 3
EXHIBIT A
AMENDED CHARTER
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON MAY 9, 1987
<PAGE> 4
AMENDED CHARTER
OR
ACT OF INCORPORATION
OF
WILMINGTON TRUST COMPANY
WILMINGTON TRUST COMPANY, originally incorporated by an Act of the
General Assembly of the State of Delaware, entitled "An Act to Incorporate the
Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name
of which company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed
in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter
or Act of Incorporation of which company has been from time to time amended and
changed by merger agreements pursuant to the corporation law for state banks and
trust companies of the State of Delaware, does hereby alter and amend its
Charter or Act of Incorporation so that the same as so altered and amended shall
in its entirety read as follows:
FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY.
SECOND: - The location of its principal office in the State of
Delaware is at Rodney Square North, in the City of Wilmington,
County of New Castle; the name of its resident agent is WILMINGTON
TRUST COMPANY whose address is Rodney Square North, in said City. In
addition to such principal office, the said corporation maintains
and operates branch offices in the City of Newark, New Castle
County, Delaware, the Town of Newport, New Castle County, Delaware,
at Claymont, New Castle County, Delaware, at Greenville, New Castle
County Delaware, and at Milford Cross Roads, New Castle County,
Delaware, and shall be empowered to open, maintain and operate
branch offices at Ninth and Shipley Streets, 418 Delaware Avenue,
2120 Market Street, and 3605 Market Street, all in the City of
Wilmington, New Castle County, Delaware, and such other branch
offices or places of business as may be authorized from time to time
by the agency or agencies of the government of the State of Delaware
empowered to confer such authority.
THIRD: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this
Corporation are to do any or all of the things herein mentioned as
fully and to the same extent as natural persons might or could do
and in any part of the world, viz.:
(1) To sue and be sued, complain and defend in any Court of
law or equity and to make and use a common seal, and alter
the seal at pleasure, to hold,
<PAGE> 5
purchase, convey, mortgage or otherwise deal in real and
personal estate and property, and to appoint such officers
and agents as the business of the Corporation shall require,
to make by-laws not inconsistent with the Constitution or
laws of the United States or of this State, to discount
bills, notes or other evidences of debt, to receive deposits
of money, or securities for money, to buy gold and silver
bullion and foreign coins, to buy and sell bills of
exchange, and generally to use, exercise and enjoy all the
powers, rights, privileges and franchises incident to a
corporation which are proper or necessary for the
transaction of the business of the Corporation hereby
created.
(2) To insure titles to real and personal property, or any
estate or interests therein, and to guarantee the holder of
such property, real or personal, against any claim or
claims, adverse to his interest therein, and to prepare and
give certificates of title for any lands or premises in the
State of Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the
receipt, collection, custody, investment and management of
funds, and the purchase, sale, management and disposal of
property of all descriptions, and to prepare and execute all
papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds,
leases, conveyances, mortgages, bonds and legal papers of
every description, and to carry on the business of
conveyancing in all its branches.
(5) To receive upon deposit for safekeeping money, jewelry,
plate, deeds, bonds and any and all other personal property
of every sort and kind, from executors, administrators,
guardians, public officers, courts, receivers, assignees,
trustees, and from all fiduciaries, and from all other
persons and individuals, and from all corporations whether
state, municipal, corporate or private, and to rent boxes,
safes, vaults and other receptacles for such property.
(6) To act as agent or otherwise for the purpose of
registering, issuing, certificating, countersigning,
transferring or underwriting the stock, bonds or other
obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund
therefor on such terms as may be agreed upon between the two
parties, and in like manner may act as Treasurer of any
corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage,
bond or other
2
<PAGE> 6
instrument issued by any state, municipality, body politic,
corporation, association or person, either alone or in
conjunction with any other person or persons, corporation or
corporations.
(8) To guarantee the validity, performance or effect of any
contract or agreement, and the fidelity of persons holding
places of responsibility or trust; to become surety for any
person, or persons, for the faithful performance of any
trust, office, duty, contract or agreement, either by itself
or in conjunction with any other person, or persons,
corporation, or corporations, or in like manner become
surety upon any bond, recognizance, obligation, judgment,
suit, order, or decree to be entered in any court of record
within the State of Delaware or elsewhere, or which may now
or hereafter be required by any law, judge, officer or court
in the State of Delaware or elsewhere.
(9) To act by any and every method of appointment as
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian, bailee, or
in any other trust capacity in the receiving, holding,
managing, and disposing of any and all estates and property,
real, personal or mixed, and to be appointed as such
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian or bailee
by any persons, corporations, court, officer, or authority,
in the State of Delaware or elsewhere; and whenever this
Corporation is so appointed by any person, corporation,
court, officer or authority such trustee, trustee in
bankruptcy, receiver, assignee, assignee in bankruptcy,
executor, administrator, guardian, bailee, or in any other
trust capacity, it shall not be required to give bond with
surety, but its capital stock shall be taken and held as
security for the performance of the duties devolving upon it
by such appointment.
(10) And for its care, management and trouble, and the
exercise of any of its powers hereby given, or for the
performance of any of the duties which it may undertake or
be called upon to perform, or for the assumption of any
responsibility the said Corporation may be entitled to
receive a proper compensation.
(11) To purchase, receive, hold and own bonds, mortgages,
debentures, shares of capital stock, and other securities,
obligations, contracts and evidences of indebtedness, of any
private, public or municipal corporation within and without
the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession
thereof, or of any foreign government or country; to
receive, collect, receipt for, and dispose of
3
<PAGE> 7
interest, dividends and income upon and from any of the
bonds, mortgages, debentures, notes, shares of capital
stock, securities, obligations, contracts, evidences of
indebtedness and other property held and owned by it, and to
exercise in respect of all such bonds, mortgages,
debentures, notes, shares of capital stock, securities,
obligations, contracts, evidences of indebtedness and other
property, any and all the rights, powers and privileges of
individual owners thereof, including the right to vote
thereon; to invest and deal in and with any of the moneys of
the Corporation upon such securities and in such manner as
it may think fit and proper, and from time to time to vary
or realize such investments; to issue bonds and secure the
same by pledges or deeds of trust or mortgages of or upon
the whole or any part of the property held or owned by the
Corporation, and to sell and pledge such bonds, as and when
the Board of Directors shall determine, and in the promotion
of its said corporate business of investment and to the
extent authorized by law, to lease, purchase, hold, sell,
assign, transfer, pledge, mortgage and convey real and
personal property of any name and nature and any estate or
interest therein.
(b) In furtherance of, and not in limitation, of the powers
conferred by the laws of the State of Delaware, it is hereby
expressly provided that the said Corporation shall also have the
following powers:
(1) To do any or all of the things herein set forth, to the
same extent as natural persons might or could do, and in any
part of the world.
(2) To acquire the good will, rights, property and
franchises and to undertake the whole or any part of the
assets and liabilities of any person, firm, association or
corporation, and to pay for the same in cash, stock of this
Corporation, bonds or otherwise; to hold or in any manner to
dispose of the whole or any part of the property so
purchased; to conduct in any lawful manner the whole or any
part of any business so acquired, and to exercise all the
powers necessary or convenient in and about the conduct and
management of such business.
(3) To take, hold, own, deal in, mortgage or otherwise lien,
and to lease, sell, exchange, transfer, or in any manner
whatever dispose of property, real, personal or mixed,
wherever situated.
(4) To enter into, make, perform and carry out contracts of
every kind with any person, firm, association or
corporation, and, without limit as to amount, to draw, make,
accept, endorse, discount, execute and issue promissory
notes, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or
4
<PAGE> 8
transferable instruments.
(5) To have one or more offices, to carry on all or any of
its operations and businesses, without restriction to the
same extent as natural persons might or could do, to
purchase or otherwise acquire, to hold, own, to mortgage,
sell, convey or otherwise dispose of, real and personal
property, of every class and description, in any State,
District, Territory or Colony of the United States, and in
any foreign country or place.
(6) It is the intention that the objects, purposes and
powers specified and clauses contained in this paragraph
shall (except where otherwise expressed in said paragraph)
be nowise limited or restricted by reference to or inference
from the terms of any other clause of this or any other
paragraph in this charter, but that the objects, purposes
and powers specified in each of the clauses of this
paragraph shall be regarded as independent objects, purposes
and powers.
FOURTH: - (a) The total number of shares of all classes of stock
which the Corporation shall have authority to issue is forty-one
million (41,000,000) shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par
value $10.00 per share (hereinafter referred to as
"Preferred Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par
value $1.00 per share (hereinafter referred to as "Common
Stock").
(b) Shares of Preferred Stock may be issued from time to time in one
or more series as may from time to time be determined by the Board
of Directors each of said series to be distinctly designated. All
shares of any one series of Preferred Stock shall be alike in every
particular, except that there may be different dates from which
dividends, if any, thereon shall be cumulative, if made cumulative.
The voting powers and the preferences and relative, participating,
optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time
outstanding; and, subject to the provisions of subparagraph 1 of
Paragraph (c) of this Article FOURTH, the Board of Directors of the
Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any
shares of a particular series of Preferred Stock, the voting powers
and the designations, preferences and relative, optional and other
special rights, and the qualifications, limitations and restrictions
of such series, including, but without limiting the generality of
the
5
<PAGE> 9
foregoing, the following:
(1) The distinctive designation of, and the number of shares
of Preferred Stock which shall constitute such series, which
number may be increased (except where otherwise provided by
the Board of Directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time
by like action of the Board of Directors;
(2) The rate and times at which, and the terms and
conditions on which, dividends, if any, on Preferred Stock
of such series shall be paid, the extent of the preference
or relation, if any, of such dividends to the dividends
payable on any other class or classes, or series of the same
or other class of stock and whether such dividends shall be
cumulative or non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of
such series to convert the same into or exchange the same
for, shares of any other class or classes or of any series
of the same or any other class or classes of stock of the
Corporation and the terms and conditions of such conversion
or exchange;
(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices
and the time or times at which, and the terms and conditions
on which, Preferred Stock of such series may be redeemed.
(5) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of
such series; and
(7) The voting powers, if any, of the holders of such series
of Preferred Stock which may, without limiting the
generality of the foregoing include the right, voting as a
series or by itself or together with other series of
Preferred Stock or all series of Preferred Stock as a class,
to elect one or more directors of the Corporation if there
shall have been a default in the payment of dividends on any
one or more series of Preferred Stock or under such
circumstances and on such conditions as the Board of
Directors may determine.
(c) (1) After the requirements with respect to preferential
dividends on the Preferred Stock (fixed in accordance with the
provisions of section (b) of this Article
6
<PAGE> 10
FOURTH), if any, shall have been met and after the Corporation shall
have complied with all the requirements, if any, with respect to the
setting aside of sums as sinking funds or redemption or purchase
accounts (fixed in accordance with the provisions of section (b) of
this Article FOURTH), and subject further to any conditions which
may be fixed in accordance with the provisions of section (b) of
this Article FOURTH, then and not otherwise the holders of Common
Stock shall be entitled to receive such dividends as may be declared
from time to time by the Board of Directors.
(2) After distribution in full of the preferential amount,
if any, (fixed in accordance with the provisions of section
(b) of this Article FOURTH), to be distributed to the
holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation, the holders
of the Common Stock shall be entitled to receive all of the
remaining assets of the Corporation, tangible and
intangible, of whatever kind available for distribution to
stockholders ratably in proportion to the number of shares
of Common Stock held by them respectively.
(3) Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be
adopted by the Board of Directors pursuant to section (b) of
this Article FOURTH, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held on
all matters voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock
or of options, warrants or other rights to purchase shares of any
class or series of stock or of other securities of the Corporation
shall have any preemptive right to purchase or subscribe for any
unissued stock of any class or series or any additional shares of
any class or series to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class or series,
or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for stock of the
Corporation of any class or series, or carrying any right to
purchase stock of any class or series, but any such unissued stock,
additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons,
firms, corporations or associations, whether such holders or others,
and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and
rights of each other series of Preferred Stock shall, in each case,
be as fixed from time to time by the Board of
7
<PAGE> 11
Directors in the resolution or resolutions adopted pursuant to
authority granted in section (b) of this Article FOURTH and the
consent, by class or series vote or otherwise, of the holders of
such of the series of Preferred Stock as are from time to time
outstanding shall not be required for the issuance by the Board of
Directors of any other series of Preferred Stock whether or not the
powers, preferences and rights of such other series shall be fixed
by the Board of Directors as senior to, or on a parity with, the
powers, preferences and rights of such outstanding series, or any of
them; provided, however, that the Board of Directors may provide in
the resolution or resolutions as to any series of Preferred Stock
adopted pursuant to section (b) of this Article FOURTH that the
consent of the holders of a majority (or such greater proportion as
shall be therein fixed) of the outstanding shares of such series
voting thereon shall be required for the issuance of any or all
other series of Preferred Stock.
(f) Subject to the provisions of section (e), shares of any series
of Preferred Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the
Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of
Directors.
(h) The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote thereon.
FIFTH: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of
directors constituting the entire Board shall be not less than five
nor more than twenty-five as fixed from time to time by vote of a
majority of the whole Board, provided, however, that the number of
directors shall not be reduced so as to shorten the term of any
director at the time in office, and provided further, that the
number of directors constituting the whole Board shall be
twenty-four until otherwise fixed by a majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors
constituting the whole Board permits, with the term of office of one
class expiring each year. At the annual meeting of stockholders in
1982, directors of the first class shall be elected to hold office
for a term expiring at the next succeeding annual meeting, directors
of the second class
8
<PAGE> 12
shall be elected to hold office for a term expiring at the second
succeeding annual meeting and directors of the third class shall be
elected to hold office for a term expiring at the third succeeding
annual meeting. Any vacancies in the Board of Directors for any
reason, and any newly created directorships resulting from any
increase in the directors, may be filled by the Board of Directors,
acting by a majority of the directors then in office, although less
than a quorum, and any directors so chosen shall hold office until
the next annual election of directors. At such election, the
stockholders shall elect a successor to such director to hold office
until the next election of the class for which such director shall
have been chosen and until his successor shall be elected and
qualified. No decrease in the number of directors shall shorten the
term of any incumbent director.
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding
the fact that some lesser percentage may be specified by law, this
Charter or Act of Incorporation or the ByLaws of the Corporation),
any director or the entire Board of Directors of the Corporation may
be removed at any time without cause, but only by the affirmative
vote of the holders of two-thirds or more of the outstanding shares
of capital stock of the Corporation entitled to vote generally in
the election of directors (considered for this purpose as one class)
cast at a meeting of the stockholders called for that purpose.
(d) Nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote for the
election of directors. Such nominations shall be made by notice in
writing, delivered or mailed by first class United States mail,
postage prepaid, to the Secretary of the Corporation not less than
14 days nor more than 50 days prior to any meeting of the
stockholders called for the election of directors; provided,
however, that if less than 21 days' notice of the meeting is given
to stockholders, such written notice shall be delivered or mailed,
as prescribed, to the Secretary of the Corporation not later than
the close of the seventh day following the day on which notice of
the meeting was mailed to stockholders. Notice of nominations which
are proposed by the Board of Directors shall be given by the
Chairman on behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name,
age, business address and, if known, residence address of each
nominee proposed in such notice, (ii) the principal occupation or
employment of such nominee and (iii) the number of shares of stock
of the Corporation which are beneficially owned by each such
nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine
and declare to
9
<PAGE> 13
the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be
disregarded.
(g) No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be
taken without a meeting, and the power of stockholders to consent in
writing, without a meeting, to the taking of any action is
specifically denied.
SIXTH: - The Directors shall choose such officers, agents and
servants as may be provided in the By-Laws as they may from time to
time find necessary or proper.
SEVENTH: - The Corporation hereby created is hereby given the same
powers, rights and privileges as may be conferred upon corporations
organized under the Act entitled "An Act Providing a General
Corporation Law", approved March 10, 1899, as from time to time
amended.
EIGHTH: - This Act shall be deemed and taken to be a private Act.
NINTH: - This Corporation is to have perpetual existence.
TENTH: - The Board of Directors, by resolution passed by a majority
of the whole Board, may designate any of their number to constitute
an Executive Committee, which Committee, to the extent provided in
said resolution, or in the By-Laws of the Company, shall have and
may exercise all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall
have power to authorize the seal of the Corporation to be affixed to
all papers which may require it.
ELEVENTH: - The private property of the stockholders shall not be
liable for the payment of corporate debts to any extent whatever.
TWELFTH: - The Corporation may transact business in any part of the
world.
THIRTEENTH: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation
by a vote of the majority of the entire Board. The stockholders may
make, alter or repeal any By-Law whether or not adopted by them,
provided however, that any such additional By-Laws, alterations or
repeal may be adopted only by the affirmative vote of the holders of
two-thirds or more of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors
(considered for this purpose as
10
<PAGE> 14
one class).
FOURTEENTH: - Meetings of the Directors may be held outside
of the State of Delaware at such places as may be from time to time
designated by the Board, and the Directors may keep the books of the
Company outside of the State of Delaware at such places as may be
from time to time designated by them.
FIFTEENTH: - (a) (1) In addition to any affirmative vote required
by law, and except as otherwise expressly provided in sections (b)
and (c) of this Article FIFTEENTH:
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any
Interested Stockholder (as hereinafter defined) or (ii) any
other corporation (whether or not itself an Interested
Stockholder), which, after such merger or consolidation,
would be an Affiliate (as hereinafter defined) of an
Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of related
transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate fair
market value of $1,000,000 or more, or
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities
or other property (or a combination thereof) having an
aggregate fair market value of $1,000,000 or more, or
(D) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation, or
(E) any reclassification of securities (including any
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested
Stockholder, or any Affiliate of any Interested Stockholder,
11
<PAGE> 15
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this
Article FIFTEENTH shall mean any transaction which is
referred to any one or more of clauses (A) through (E) of
paragraph 1 of the section (a).
(b) The provisions of section (a) of this Article FIFTEENTH
shall not be applicable to any particular business
combination and such business combination shall require only
such affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation or By-Laws
if such business combination has been approved by a majority
of the whole Board.
(c) For the purposes of this Article FIFTEENTH:
(1) A "person" shall mean any individual, firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any
Subsidiary) who or which as of the record date for the determination
of stockholders entitled to notice of and to vote on such business
combination, or immediately prior to the consummation of any such
transaction:
(A) is the beneficial owner, directly or indirectly, of more
than 10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time
within two years prior thereto was the beneficial owner,
directly or indirectly, of not less than 10% of the then
outstanding voting Shares, or
(C) is an assignee of or has otherwise succeeded in any
share of capital stock of the Corporation which were at any
time within two years prior thereto beneficially owned by
any Interested Stockholder, and such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
12
<PAGE> 16
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and
Associates (as hereafter defined) beneficially own, directly
or indirectly, or
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or
any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock
of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement,
or upon exercise of conversion rights, warrants or options or
otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December
31, 1981.
(6) "Subsidiary" shall mean any corporation of which a majority of
any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on December 31, 1981) is owned, directly or
indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Investment Stockholder set forth in
paragraph (2) of this section (c), the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty
to determine for the purposes of this Article FIFTEENTH on
the basis of information known to them, (1) the number of
Voting Shares beneficially owned by any person (2) whether a
person is an Affiliate or Associate of another, (3) whether
a person has an agreement, arrangement or understanding with
another as to the matters referred to in paragraph (3) of
section (c), or (4) whether the assets subject to any
business combination or the consideration received for the
issuance or
13
<PAGE> 17
transfer of securities by the Corporation, or any Subsidiary
has an aggregate fair market value of $1,000,000 or more.
(e) Nothing contained in this Article FIFTEENTH shall be
construed to relieve any Interested Stockholder from any
fiduciary obligation imposed by law.
SIXTEENTH: Notwithstanding any other provision of this Charter or
Act of Incorporation or the By-Laws of the Corporation (and in
addition to any other vote that may be required by law, this Charter
or Act of Incorporation by the By-Laws), the affirmative vote of the
holders of at least two-thirds of the outstanding shares of the
capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class)
shall be required to amend, alter or repeal any provision of
Articles FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter
or Act of Incorporation.
SEVENTEENTH: (a) a Director of this Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except to the extent such
exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Laws as the same exists or
may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph
shall not adversely affect any right or protection of a
Director of the Corporation existing hereunder with respect
to any act or omission occurring prior to the time of such
repeal or modification.
14
<PAGE> 18
EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON JANUARY 16, 1997
<PAGE> 19
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. The Annual Meeting of Stockholders shall be held on the
third Thursday in April each year at the principal office at the Company or at
such other date, time, or place as may be designated by resolution by the Board
of Directors.
Section 2. Special meetings of all stockholders may be called at any
time by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given
by mailing to each stockholder at least ten (10) days before said meeting, at
his last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the
Company issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each share of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
DIRECTORS
Section 1. The number and classification of the Board of Directors
shall be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72)
years shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for
three years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed
and conducted by the Board of Directors.
<PAGE> 20
Section 5. The Board of Directors shall meet at the principal office
of the Company or elsewhere in its discretion at such times to be determined by
a majority of its members, or at the call of the Chairman of the Board of
Directors or the President.
Section 6. Special meetings of the Board of Directors may be called
at any time by the Chairman of the Board of Directors or by the President, and
shall be called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall
be necessary to constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of
any special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal,
inability to act, or disqualification of any director, the Board of Directors,
although less than a quorum, shall have the right to elect the successor who
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred, and until such director's successor shall have
been duly elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or divisions of the Company as it may deem
advisable.
2
<PAGE> 21
ARTICLE III
COMMITTEES
Section 1. Executive Committee
(A) The Executive Committee shall be composed of not
more than nine members who shall be selected by the Board of Directors from its
own members and who shall hold office during the pleasure of the Board.
(B) The Executive Committee shall have all the powers of
the Board of Directors when it is not in session to transact all business for
and in behalf of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members, or at the call of the Chairman of the
Executive Committee or at the call of the Chairman of the Board of Directors.
The majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be held
at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee
shall be kept and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend
all investments that may be made of the funds of the Company, and shall direct
the disposal of the same, in accordance with such rules and regulations as the
Board of Directors from time to time make.
(F) In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Company by its directors and officers as contemplated by these By-Laws any
two available members of the Executive Committee as constituted immediately
prior to such disaster shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the provisions of Article III of these By-Laws; and if less than three
members of the Trust Committee is constituted immediately prior to such disaster
shall be available for the transaction of its business, such Executive Committee
shall also be empowered to exercise all of the powers reserved to the Trust
Committee under Article III Section 2 hereof. In the event of the
unavailability, at such time, of a minimum of two members of such Executive
Committee, any three available directors shall constitute the Executive
Committee for the full conduct and management of the affairs and business of the
Company in accordance with the foregoing provisions of this Section. This By-Law
shall be subject to implementation by Resolutions of the Board of Directors
presently existing or hereafter passed from time to time
3
<PAGE> 22
for that purpose, and any provisions of these By-Laws (other than this Section)
and any resolutions which are contrary to the provisions of this Section or to
the provisions of any such implementary Resolutions shall be suspended during
such a disaster period until it shall be determined by any interim Executive
Committee acting under this section that it shall be to the advantage of the
Company to resume the conduct and management of its affairs and business under
all of the other provisions of these By-Laws.
Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more
than thirteen members who shall be selected by the Board of Directors, a
majority of whom shall be members of the Board of Directors and who shall hold
office during the pleasure of the Board.
(B) The Trust Committee shall have general supervision
over the Trust Department and the investment of trust funds, in all matters,
however, being subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members or at the call of its chairman. A
majority of its members shall be necessary to constitute a quorum for the
transaction of business.
(D) Minutes of each meeting of the Trust Committee shall
be kept and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint
Committees and/or designate officers or employees of the Company to whom
supervision over the investment of trust funds may be delegated when the Trust
Committee is not in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five
members who shall be selected by the Board of Directors from its own members,
none of whom shall be an officer of the Company, and shall hold office at the
pleasure of the Board.
(B) The Audit Committee shall have general supervision
over the Audit Division in all matters however subject to the approval of the
Board of Directors; it shall consider all matters brought to its attention by
the officer in charge of the Audit Division, review all reports of examination
of the Company made by any governmental agency or such independent auditor
employed for that purpose, and make such recommendations to the Board of
Directors with respect thereto or with respect to any other matters pertaining
to auditing the
4
<PAGE> 23
Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever
the majority of its members shall deem it to be proper for the transaction of
its business, and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
(A) The Compensation Committee shall be composed of not
more than five (5) members who shall be selected by the Board of Directors from
its own members who are not officers of the Company and who shall hold office
during the pleasure of the Board.
(B) The Compensation Committee shall in general advise
upon all matters of policy concerning the Company brought to its attention by
the management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called
at any time by the Chairman of the Compensation Committee, the Chairman of the
Board of Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be
elected by the Board of Directors as an associate director, to serve during the
pleasure of the Board.
(B) An associate director shall be entitled to attend
all directors meetings and participate in the discussion of all matters brought
to the Board, with the exception that he would have no right to vote. An
associate director will be eligible for appointment to Committees of the
Company, with the exception of the Executive Committee, Audit Committee and
Compensation Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of
any Committee created under Article III of the By-Laws of this Company, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
5
<PAGE> 24
ARTICLE IV
OFFICERS
Section 1. The Chairman of the Board of Directors shall preside at
all meetings of the Board and shall have such further authority and powers and
shall perform such duties as the Board of Directors may from time to time confer
and direct. He shall also exercise such powers and perform such duties as may
from time to time be agreed upon between himself and the President of the
Company.
Section 2. The Vice Chairman of the Board. The Vice Chairman of the
Board of Directors shall preside at all meetings of the Board of Directors at
which the Chairman of the Board shall not be present and shall have such further
authority and powers and shall perform such duties as the Board of Directors or
the Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties pertaining
to the office of the President conferred or imposed upon him by statute or
assigned to him by the Board of Directors; in the absence of the Chairman of the
Board the President shall have the powers and duties of the Chairman of the
Board.
Section 4. The Chairman of the Board of Directors or the President
as designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however
denominated by the Board of Directors, who may at any time perform all the
duties of the Chairman of the Board of Directors and/or the President and such
other powers and duties as may from time to time be assigned to them by the
Board of Directors, the Executive Committee, the Chairman of the Board or the
President and by the officer in charge of the department or division to which
they are assigned.
Section 6. The Secretary shall attend to the giving of notice of
meetings of the stockholders and the Board of Directors, as well as the
Committees thereof, to the keeping of accurate minutes of all such meetings and
to recording the same in the minute books of the Company. In addition to the
other notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
6
<PAGE> 25
Section 7. The Treasurer shall have general supervision over all
assets and liabilities of the Company. He shall be custodian of and responsible
for all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or indebtedness and of all the transactions
of the Company. He shall have general supervision of the expenditures of the
Company and shall report to the Board of Directors at each regular meeting of
the condition of the Company, and perform such other duties as may be assigned
to him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of Directors at appropriate times a report
relating to the general condition and internal operations of the Company.
There may be one or more subordinate accounting or controller
officers however denominated, who may perform the duties of the Controller and
such duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit
Officers, however denominated, who may perform all the duties of the Auditor and
such duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank
to all Vice Presidents with such functional titles as shall be determined from
time to time by the Board of Directors, who shall ex officio hold the office
Assistant Secretary of this Company and who may perform such duties as may be
prescribed by the officer in charge of the department or division to whom they
are assigned.
Section 11. The powers and duties of all other officers of the
Company shall be those usually pertaining to their respective offices, subject
to the direction of the Board of Directors, the Executive Committee, Chairman of
the Board of Directors or the President and the officer in charge of the
department or division to which they are assigned.
ARTICLE V
STOCK AND STOCK CERTIFICATES
Section 1. Shares of stock shall be transferrable on the books of
the Company and a
7
<PAGE> 26
transfer book shall be kept in which all transfers of stock shall be recorded.
Section 2. Certificates of stock shall bear the signature of the
President or any Vice President, however denominated by the Board of Directors
and countersigned by the Secretary or Treasurer or an Assistant Secretary, and
the seal of the corporation shall be engraved thereon. Each certificate shall
recite that the stock represented thereby is transferrable only upon the books
of the Company by the holder thereof or his attorney, upon surrender of the
certificate properly endorsed. Any certificate of stock surrendered to the
Company shall be cancelled at the time of transfer, and before a new certificate
or certificates shall be issued in lieu thereof. Duplicate certificates of stock
shall be issued only upon giving such security as may be satisfactory to the
Board of Directors or the Executive Committee.
Section 3. The Board of Directors of the Company is authorized to
fix in advance a record date for the determination of the stockholders entitled
to notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of any dividend, or to any allotment or
rights, or to exercise any rights in respect of any change, conversion or
exchange of capital stock, or in connection with obtaining the consent of
stockholders for any purpose, which record date shall not be more than 60 nor
less than 10 days proceeding the date of any meeting of stockholders or the date
for the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or a date in connection with obtaining such consent.
ARTICLE VI
SEAL
Section 1. The corporate seal of the Company shall be in the
following form:
Between two concentric circles the words
"Wilmington Trust Company" within the inner
circle the words "Wilmington, Delaware."
ARTICLE VII
FISCAL YEAR
Section 1. The fiscal year of the Company shall be the calendar
year.
8
<PAGE> 27
ARTICLE VIII
EXECUTION OF INSTRUMENTS OF THE COMPANY
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full power
and authority to enter into, make, sign, execute, acknowledge and/or deliver and
the Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the Executive Committee, and any
and all such instruments shall have the same force and validity as though
expressly authorized by the Board of Directors and/or the Executive Committee.
ARTICLE IX
COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES
Section 1. Directors and associate directors of the Company, other
than salaried officers of the Company, shall be paid such reasonable honoraria
or fees for attending meetings of the Board of Directors as the Board of
Directors may from time to time determine. Directors and associate directors who
serve as members of committees, other than salaried employees of the Company,
shall be paid such reasonable honoraria or fees for services as members of
committees as the Board of Directors shall from time to time determine and
directors and associate directors may be employed by the Company for such
special services as the Board of Directors may from time to time determine and
shall be paid for such special services so performed reasonable compensation as
may be determined by the Board of Directors.
ARTICLE X
INDEMNIFICATION
Section 1. (A) The Corporation shall indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, is or was
a director, officer, employee or agent of the Corporation or is or was
9
<PAGE> 28
serving at the request of the Corporation as a director, officer, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust, enterprise or non-profit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
reasonably incurred by such person. The Corporation shall indemnify a person in
connection with a proceeding initiated by such person only if the proceeding was
authorized by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in
defending any proceeding in advance of its final disposition, provided, however,
that the payment of expenses incurred by a Director or officer in his capacity
as a Director or officer in advance of the final disposition of the proceeding
shall be made only upon receipt of an undertaking by the Director or officer to
repay all amounts advanced if it should be ultimately determined that the
Director or officer is not entitled to be indemnified under this Article or
otherwise.
(C) If a claim for indemnification or payment of
expenses, under this Article X is not paid in full within ninety days after a
written claim therefor has been received by the Corporation the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification of payment of
expenses under applicable law.
(D) The rights conferred on any person by this Article X
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Charter or Act of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
Directors or otherwise.
(E) Any repeal or modification of the foregoing
provisions of this Article X shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE XI
AMENDMENTS TO THE BY-LAWS
Section 1. These By-Laws may be altered, amended or repealed, in
whole or in part, and any new By-Law or By-Laws adopted at any regular or
special meeting of the Board of Directors by a vote of the majority of all the
members of the Board of Directors then in office.
10
<PAGE> 29
EXHIBIT C
SECTION 321(b) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: August 4, 1999 By: /s/ Norma P. Closs
------------------
Name: Norma P. Closs
Title: Vice President
<PAGE> 30
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings banks with
state publication requirements. It has not been approved by any state banking
authorities. Refer to your appropriate state banking authorities for your state
publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
- ----------------------------------------------------------- -------------------
Name of Bank City
in the State of DELAWARE, at the close of business on March 31, 1999.
--------
<TABLE>
<CAPTION>
ASSETS
Thousands of dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins................................................196,035
Interest-bearing balances.............................................................................. 0
Held-to-maturity securities................................................................................. 44,909
Available-for-sale securities.............................................................................1,396,028
Federal funds sold and securities purchased under agreements to resell......................................127,340
Loans and lease financing receivables:
Loans and leases, net of unearned income............. 4,176,290
LESS: Allowance for loan and lease losses........... 68,543
LESS: Allocated transfer risk reserve............... 0
Loans and leases, net of unearned income, allowance, and reserve.................................4,107,747
Assets held in trading accounts...................................................................................0
Premises and fixed assets (including capitalized leases)....................................................139,843
Other real estate owned...................................................................................... 1,055
Investments in unconsolidated subsidiaries and associated companies...........................................1,225
Customers' liability to this bank on acceptances outstanding......................................................0
Intangible assets............................................................................................ 5,265
Other assets................................................................................................ 99,075
Total assets..............................................................................................6,118,520
</TABLE>
CONTINUED ON NEXT PAGE
<PAGE> 31
<TABLE>
LIABILITIES
<S> <C>
Deposits:
In domestic offices.......................................................................................4,332,124
Noninterest-bearing................ 959,777
Interest-bearing................... 3,372,347
Federal funds purchased and Securities sold under agreements to repurchase................................. 432,395
Demand notes issued to the U.S. Treasury.....................................................................28,906
Trading liabilities (from Schedule RC-D)..........................................................................0
Other borrowed money:.......................................................................................///////
With original maturity of one year or less.........................................................715,000
With original maturity of more than one year........................................................43,000
Bank's liability on acceptances executed and outstanding..........................................................0
Subordinated notes and debentures.................................................................................0
Other liabilities (from Schedule RC-G).................................................................... 93,311
Total liabilities.........................................................................................5,644,736
EQUITY CAPITAL
Perpetual preferred stock and related surplus.....................................................................0
Common Stock....................................................................................................500
Surplus (exclude all surplus related to preferred stock).....................................................62,118
Undivided profits and capital reserves......................................................................408,053
Net unrealized holding gains (losses) on available-for-sale securities....................................... 3,113
Total equity capital........................................................................................473,784
Total liabilities, limited-life preferred stock, and equity capital.......................................6,118,520
</TABLE>
2
