As filed with the Securities and Exchange Commission on February 26, 1998
Registration No. 333-45755
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MACATAWA BANK CORPORATION
(Name of Small Business Issuer in its Charter)
-------
Michigan 6712 38-3391345
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization
51 E. Main Street
Zeeland, Michigan 49464
(616) 748-9491
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Benj. A. Smith, III
51 E. Main Street
Zeeland, Michigan 49464
(616) 748-9491
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Donald L. Johnson John E. Freechack
Varnum, Riddering, Schmidt & Howlett LLP Barack Ferrazzano Kirschbaum
Suite 1700 Perlman & Nagelberg
333 Bridge Street, N.W. Suite 2700
Grand Rapids, Michigan 49504 333 W. Wacker Drive
(616) 336-6000 Chicago, Illinois 60606
(312) 984-3100
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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.[ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
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Title of Each Proposed Maximum Proposed Maximum
Class of Securities Amount to be Offering Price Aggregate Offering Amount of
Being Registered Registered(1) Per Share Price Registration Fee
- ----------------------- ----------------------- ----------------------- ----------------------- -------------------
<S> <C> <C> <C> <C>
Common Stock (no par
value) 1,495,000 $10.00 $14,950,000 $4,411
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</TABLE>
(1) Includes 195,000 shares subject to the Underwriter's over-allotment
option.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION DATED , 1998
PROSPECTUS
1,300,000 Shares
MACATAWA BANK CORPORATION [logo]
Common Stock
All of the shares of common stock, no par value (the "Common Stock")
offered hereby are being sold by Macatawa Bank Corporation (the "Company"), a
Michigan corporation. The Company owns all of the outstanding common stock of
Macatawa Bank, a Michigan banking corporation with its main office in Zeeland,
Michigan (the "Bank"). Prior to this offering (the "Offering") there has been no
public trading market for the Common Stock. The Underwriter has advised the
Company that it anticipates making a market in the Common Stock following
completion of this Offering. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. The Company expects
that quotations for the Common Stock will be reported on the OTC Bulletin Board
under the symbol "----."
The Common Stock offered by this Prospectus involves a high degree of risk.
Investors should not invest any funds in this Offering unless they can afford to
lose their entire investment. See "Risk Factors" on page 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
Underwriting Discounts Proceeds to
Price to Public and Commissions (1) (2) Company (3)
<S> <C> <C> <C>
Per Share. . . . . . . . . . . $10.00 $0.70 $9.30
Total (4). . . . . . . . . . . $13,000,000 $630,000 $12,370,000
============================== ===================== ======================== ============
</TABLE>
(1) The Underwriter has agreed with the Company that the Underwriting Discounts
and Commissions will be reduced to $0.525 per share for sales to certain
investors identified on a list provided to the Underwriter by the Company,
and to $0.30 per share for sales by the Underwriter to certain Affiliated
Purchasers. There will be no Underwriting Discounts and Commissions with
respect to 400,000 shares of Common Stock expected to be sold to persons
who were shareholders of the Company prior to this Offering. The Proceeds
to Company have been calculated assuming Underwriting Discounts and
Commissions of $0.70 per share, except with respect to 400,000 shares to be
sold with no Underwriting Discounts and Commissions. See "Underwriting."
(2) The Company has agreed to indemnify the Underwriter against certain
liabilities, including under the Securities Act of 1933, as amended. See
"Underwriting."
(3) Before deducting estimated offering expenses payable by the Company of
$170,406.
(4) The Company has granted the Underwriter a 30-day option to purchase up to
195,000 additional shares of its Common Stock solely to cover
over-allotments, if any. If the Underwriter exercises such option in full,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $14,950,000, $766,500 and $14,183,500,
respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriter subject to prior
sale, when, as and if delivered to and accepted by it, and subject to the right
of the Underwriter to withdraw, cancel or modify such offer and to reject orders
in whole or in part. It is expected that delivery of the shares of Common Stock
will be made on or about __________________, 1998.
ROBERT W. BAIRD & CO.
Incorporated
The date of this Prospectus is _______, 1998.
<PAGE>
[INSERT MAP OF OTTAWA COUNTY MARKET AREA]
---------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, ANY
OTHER GOVERNMENT AGENCY OR OTHERWISE.
----------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------------
AVAILABLE INFORMATION
The Company is not currently a reporting company pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), but will file the reports
required to be filed thereunder for the Company's 1998 fiscal year and for any
other periods for which the Exchange Act's requirements apply to the Company.
The Company, which has a December 31 fiscal year end, intends to furnish its
shareholders with annual reports containing audited financial information and,
for the first three quarters of each fiscal year, quarterly reports containing
unaudited financial information.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless the context clearly suggests otherwise, financial information and other
references in this Prospectus to the Company include the Bank. Except as
otherwise indicated, all information in this Prospectus assumes no exercise of
Underwriter's over-allotment option.
The Company
The Company is a bank holding company incorporated in 1997 under Michigan
law and owns all of the common stock of the Bank. The Bank was organized and
commenced operations in November, 1997 as a Michigan chartered bank with
depository accounts insured by the Federal Deposit Insurance Corporation (the
"FDIC"). The Bank provides a full range of commercial and consumer banking
services, primarily in the communities of Holland and Zeeland, Michigan, as well
as the surrounding market area principally located in Ottawa County, Michigan.
As of December 31, 1997, the Company had total assets of $10.7 million, total
deposits of $2.7 million and shareholders' equity of $8.0 million. As of
February 28, 1998, the Company had ____ deposit accounts and total deposits of
$______ million.
The Bank is a full service bank offering a wide range of commercial and
personal banking services. These services include checking and savings accounts
(including certificates of deposit), safe deposit boxes, travelers checks, money
orders and commercial, mortgage and consumer loans. As of January 31, 1998, the
Bank had 20 full-time and 4 part-time employees. The Company's headquarters and
the Bank's main office is located at 51 E. Main Street in the City of Zeeland,
Michigan 49464 and the telephone number is (616) 748-9491. The Bank also has a
full service branch office and a loan production branch office in Holland,
Michigan.
Reason for Starting Macatawa Bank
The expansion of interstate banking has contributed to substantial
consolidation of the banking industry in Michigan, including the Company's
market area. Many of the area's locally owned or managed financial institutions
have either been acquired by large regional bank holding companies or have been
consolidated into branches of other financial institutions. In many cases, these
acquisitions and consolidations have been accompanied by pricing changes, the
dissolution of local boards of directors, management and personnel changes and,
in the perception of the Company's management, a decline in the level of
customer service. As a recent example, First Michigan Bank Corporation ("FMB"),
which was previously headquartered in Holland, Michigan, was the dominant bank
in the Holland-Zeeland market in Ottawa County, Michigan. In September 1997, FMB
was acquired by Huntington Bancshares Incorporated, a bank holding company
headquartered in Columbus, Ohio, and the boards of directors of FMB's former
subsidiary banks were dissolved. As another recent example, First of America
Bank Corporation, which is headquartered in western Michigan, has agreed to be
acquired by a large bank holding company headquartered in Cleveland, Ohio.
Management believes that the consolidation of the banking industry has
created a favorable opportunity for a new commercial bank to offer services to
customers who wish to conduct business with a locally owned and managed bank.
Management has been and believes that it will continue to be successful in
attracting as customers individuals and small to medium sized businesses by
demonstrating an active interest in their business and personal financial
affairs. The Company seeks to take advantage of this opportunity by emphasizing
the Company's local management, and their strong ties and active commitment to
the community. The Bank is currently the only locally managed independent
commercial bank with its main office in the Holland-Zeeland area.
3
<PAGE>
Market Area
The Bank's market area includes the cities of Holland and Zeeland, and the
Interstate I-196 corridor from Holland on the west and extending approximately
20 miles east through Zeeland, Hudsonville and Jenison, Michigan. Most of this
market area is located in the southern half of Ottawa County, Michigan. This
area includes several growing communities and has a stable and diverse economic
base. The Holland-Zeeland area has a population of approximately 93,000, and
Ottawa County has a population of approximately 200,000. The Holland-Zeeland
area had an estimated median household income in 1997 of approximately $43,600.
Over 300 manufacturers have operations in the Holland- Zeeland area, including
several manufacturers in the office furniture and automotive supply industries.
Major Ottawa County employers include Donnelly Corporation, Herman Miller, Inc.,
Haworth, Inc. and Johnson Controls. Management believes that the market area's
diverse commercial base provides significant opportunities for business banking
services as well as personal banking services for the owners and employees of
the area's businesses.
Management
The officers and directors of the Company are recognized and established
individuals in their local communities. The management team assembled by the
Company represents a wide range of business, banking and investment knowledge
and experience. They have established and maintained significant customer
relationships in the Bank's market area which they expect to draw upon for the
benefit of the Bank. The majority of the Company's management team have a least
10 years of banking experience, and several key personnel have more than 20
years of banking experience. Management believes that their years of banking
experience and their existing customer contacts in this market offer the Bank a
substantial opportunity to continue to attract new relationships for the Bank.
The Company's officers and directors have a shared vision of focused
community banking and a commitment to the future growth and success of the Bank.
The Company's vision is to build a quality, full-service community bank that
offers competitive financial products and superior customer service. Fundamental
to the Company's vision is the building of long-term relationships with
customers. The Company maintains its community focus by hiring local people and
placing strong emphasis on local presence and local community support.
Strategy
The Company is a customer-driven financial institution focused on providing
high value to clients by delivering products and services in a highly
personalized manner. Management believes that the Bank can attract clients who
prefer to conduct business with a locally-managed institution that demonstrates
an active interest in their business and personal financial affairs.
The Company competes for loans principally through its ability to
communicate effectively with its customers and to understand and meet their
needs. Management believes that the Company's personal service philosophy
enhances its ability to compete favorably in attracting individuals and small
businesses. The Company actively solicits retail customers and competes for
deposits by offering customers personal attention, professional service and
competitive interest rates. The Bank's experienced staff provides a superior
level of personalized service, which enables the Bank to generate competitively
priced loans and deposits.
The Bank has entered into agreements with third-party service providers to
provide customers with products and services such as credit cards, debit cards
and ATM cards. The use of third-party service providers allows the Bank to
remain at the forefront of technology while minimizing the costs of delivery.
4
<PAGE>
The Offering
Securities offered........................1,300,000 shares of Common Stock.
Initial offering price................... $10.00 per share of Common Stock.
Common Stock to be
outstanding after this
Offering...............................2,240,125 shares (assuming no exercise
of the over-allotment option).
Use of proceeds by the Company............The net proceeds to the Company from
this Offering (assuming no exercise of
the over-allotment option) are
estimated to be $12,199,594. The net
proceeds (including any proceeds from
an exercise of the Underwriter's over-
allotment option) will generally be
used to strengthen the Company's
capital position in anticipation of
future growth and for other general
corporate purposes. A portion of the
net proceeds may be contributed to the
Bank at a future date to strengthen
the Bank's capital position, to allow
the Bank to open or acquire additional
branches, or for other general
corporate purposes. Pending their
application for any or all of such
purposes, the net proceeds will be
invested in United States government
securities and investment grade
financial instruments. See "Use of
Proceeds."
Risk factors..............................The purchase of the securities offered
hereby involves a high degree of risk
and should be considered only by
persons who can afford to sustain the
total loss of their investment. See
"Risk Factors."
<TABLE>
Summary Consolidated Financial Data
As of December 31, 1997 As of February 28, 1998
------------------------------------- -----------------------------------
Actual As Adjusted (1) Actual As Adjusted(1)
-------------- ------------------- ---------------- ----------------
Balance Sheet Data: (unaudited)
<S> <C> <C> <C> <C>
Cash and securities.... $ 9,415,520 $21,615,114
Total loans............ 497,704 497,704
Total assets........... 10,722,193 22,921,787
Total deposits......... 2,712,223 2,712,223
Total liabilities...... 2,750,186 2,750,186
Retained deficit....... (165,525) (165,525)
Shareholders' equity... $ 7,972,007 $20,171,601
-----------------
</TABLE>
(1) Adjusted to reflect the estimated net proceeds from the shares offered
hereby. The net proceeds have been calculated assuming Underwriting
Discounts and Commissions of $0.70 per share, except with respect to
400,000 shares to be sold with no Underwriting Discounts and
Commissions. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
The Common Stock offered hereby is speculative, involves a high degree of
risk and should be considered only by persons who can afford the loss of their
entire investment. The following constitute some of the potential risks of an
investment in the Common Stock and should be carefully considered by prospective
investors prior to purchasing shares of Common Stock. The order of the following
is not intended to be indicative of the relative importance of any described
risk nor is the following intended to be inclusive of all risks of investment in
the Common Stock.
Limited Operating History; Significant Initial Losses Expected
The Bank began operations on November 25, 1997, and the Company became the
holding company for the Bank on February 18, 1998. The Bank and the Company have
a limited operating history. The business of the Company and the Bank is subject
to the risks inherent in the establishment of a new business enterprise. The
Company's profitability will depend primarily upon the Bank's operations and
there is no assurance that the Bank will ever operate profitably. As a result of
initial expenditures to form the Bank and establish branches, together with the
time necessary to more fully utilize its capital and generate operating income,
the Bank (and thus the Company) can be expected to incur significant operating
losses during its initial years of operations. As of December 31, 1997, the
Company had a retained deficit of $165,525.
Need for Capital
Although the Company does not currently anticipate the need for additional
capital in the foreseeable future to conduct its business activities, additional
capital beyond the Company's present capital and the capital which will be
provided by this Offering and any amounts likely to be generated by the Bank's
operations over the next several years may be necessary before the Company could
undertake any significant acquisitions or other expansion of its operations.
There can be no assurance that any funds necessary to finance such acquisitions
or expansion will be available. Regulatory capital requirements and borrowing
restrictions which apply to the Bank and the Company may also have the effect of
constraining future growth. To the extent the Company relies upon the sale of
additional equity securities to finance future expansion, such sale could result
in significant dilution to the interests of persons purchasing shares in this
Offering.
Ability to Achieve and Profitably Manage Growth and Expansion
The Company's strategy includes increasing its deposits, loans and other
assets and adding additional branches. The ability to achieve and manage the
Company's growth and expansion will depend in part on the Company's ability to
continue to attract and retain capable management and operations personnel. In
addition, upon completion of this Offering the Company will have shareholders'
equity of approximately $20.2 million, which is more capital than is necessary
or required for the Company's present operations under applicable laws and
regulations. A significant portion of the net proceeds of this Offering will
initially be invested in United States government securities and other
investment grade securities, which typically offer rates of return that are less
than the rates of returns earned by the Company on loans to its customers. As a
result, the Company's financial performance in the near future as reflected in
financial measures such as return on assets, return on equity and net earnings
per share is likely to be less favorable than the financial performance of many
of the Company's competitors. The Company's ability to more fully and
effectively utilize its capital and improve its financial performance will
depend on the Company's ability to make additional loans. There can be no
assurance that the Company will be able to make enough additional loans to
achieve competitive returns for its shareholders or to effectively manage its
growth and expansion.
Government Regulation and Monetary Policy
The Company and the Bank are subject to extensive state and federal
governmental supervision and regulation. Existing state and federal banking laws
subject the Bank to substantial limitations with respect to loans, purchase of
securities, payment of dividends and many other aspects of its banking business.
These limitations include a requirement that the Bank maintain a ratio of Tier 1
leverage capital to total assets for the first three years of at least 8% and
maintain
6
<PAGE>
an adequate loan loss reserve. There can be no assurance that future legislation
or government policy will not adversely affect the banking industry or the
operations of the Bank. Federal economic and monetary policy may affect the
Bank's ability to attract deposits, make loans and achieve satisfactory interest
spreads. See "Supervision and Regulation."
No Assurance of Dividends
It is anticipated that no dividends will be paid on the Common Stock for
the immediately foreseeable future. It is likely that the Company will be
largely dependent upon dividends paid by the Bank for funds to pay dividends on
the Common Stock, if and when such dividends are declared. The Bank does not
anticipate paying dividends during the foreseeable future. No assurance can be
given that future earnings of the Bank, and any resulting dividends to the
Company, will be sufficient to permit the legal payment of dividends to Company
shareholders at any time in the future. Even if the Company may legally declare
dividends, the amount and timing of such dividends will be at the discretion of
the Company's Board of Directors. The Board may in its sole discretion decide
not to declare dividends. For a more detailed discussion of other regulatory
limitations on the payment of cash dividends by the Company, see "Dividend
Policy."
Competition
The Company and the Bank face strong competition for deposits, loans and
other financial services from numerous Michigan and out-of-state banks, thrifts,
credit unions and other financial institutions as well as other entities which
provide financial services. Some of the financial institutions and financial
services organizations with which the Bank will compete are not subject to the
same degree of regulation as the Bank. Many of these financial institutions
aggressively compete for business in the Bank's market area. Most of these
competitors have been in business for many years, have established customer
bases, are larger, have substantially higher lending limits than the Bank and
will be able to offer certain services, including numerous branches and
international banking services, that the Bank can offer only through
correspondents. 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. The dominant competitor in the Company's
market area is Huntington Bancshares Incorporated, headquartered in Columbus,
Ohio, which acquired FMB in September 1997. Another significant competitor in
the market area is First of America which recently agreed to be acquired by a
large bank holding company headquartered in Cleveland, Ohio. See "Business --
Market Area" and "Business -- Competition." Additionally, federal and Michigan
legislation regarding interstate branching and banking may act to increase
competition in the future from larger out-of-state banks. See "Supervision and
Regulation."
Dependence on Management
The Company and the Bank are, and for the foreseeable future will be,
dependent upon the services of their management team, including the President of
the Bank, and other senior managers retained by the Bank. The loss of one or
more key members of the management team could adversely affect the operations of
the Company and the Bank. See "Business -- Employees" and "Management."
Discretion in Use of Proceeds
The Offering is intended to raise funds to generally strengthen the
Company's capital position in anticipation of future growth of the Bank and for
other general corporate purposes. While management currently has no such plans,
if opportunities arise, some of the proceeds of the Offering could also be used
to finance acquisitions of other financial institutions, branches of other
institutions, or expansion into other lines of business closely related to
banking. However, management will retain discretion in employing the proceeds of
the Offering. See "Use of Proceeds."
7
<PAGE>
Lending Risks and Lending Limits
The risk of nonpayment of loans is inherent in commercial banking, and such
nonpayment, if it occurs, may have a material adverse effect on the Company's
earnings and overall financial condition as well as the value of the Common
Stock. Moreover, the Bank's focus on small-to-medium sized businesses may result
in a larger concentration of loans by the Bank to such businesses. As a result,
the Bank may assume greater lending risks than banks which have a lesser
concentration of such loans and tend to make loans to larger companies.
Management attempts to minimize the Bank's credit exposure by carefully
monitoring the concentration of its loans within specific industries and through
prudent loan application and approval procedures, but there can be no assurance
that its monitoring and procedures will reduce such lending risks sufficiently
to avoid material losses.
The Bank's legal lending limit prior to this Offering is approximately $1.9
million. The Board of Directors has established an "in-house" limit of $1.5
million. To the extent the net proceeds of this Offering are contributed to the
Bank, the legal lending limit and "in-house" limit may change. In addition, the
Board may from time to time raise or lower the "in-house" limit as it deems
appropriate to comply with safe and sound banking practices and to respond to
overall economic conditions. Accordingly, the size of the loans which the Bank
can offer to potential customers is less than the size of loans that most of the
Bank's competitors are able to offer. These limits affect to some degree the
ability of the Bank to seek relationships with the area's larger businesses. The
Bank expects to accommodate loan volumes in excess of its lending limit through
the sale of participations in such loans to other banks. However, there can be
no assurance that the Bank will be successful in attracting or maintaining
customers seeking larger loans or that the Bank will be able to engage in the
sale of participations in such loans on terms favorable to the Bank.
Impact of Interest Rates and Economic Conditions
The results of operations for financial institutions, including the Bank,
may be materially and adversely affected by changes in prevailing economic
conditions, including declines in real estate market values, rapid changes in
interest rates and the monetary and fiscal policies of the federal government.
See "Supervision and Regulation." The Bank's profitability is in part a function
of the spread between the interest rates earned on investments and loans and the
interest rates paid on deposits and other interest-bearing liabilities. In the
early 1990s, many banking organizations experienced historically high interest
rate spreads. More recently, interest rate spreads have generally narrowed due
to changing market conditions and competitive pricing pressure, and there can be
no assurance that such factors will not continue to exert such pressure or that
such high interest rate spreads will return. Substantially all the Bank's loans
will be to businesses and individuals in western Michigan and any decline in the
economy of this area could have an adverse impact on the Bank. Like most banking
institutions, the Bank's net interest spread and margin will be affected by
general economic conditions and other factors that influence market interest
rates and the Bank's ability to respond to changes in such rates. At any given
time, the Bank's assets and liabilities will be such that they are affected
differently by a given change in interest rates. As a result, an increase or
decrease in rates, the length of loan terms or the mix of adjustable and fixed
rate loans in the Bank's portfolio could have a positive or negative effect on
the Bank's net income, capital and liquidity. There can be no assurance that the
positive trends or developments discussed in this Prospectus will continue or
that negative trends or developments will not have a material adverse effect on
the Bank. See "Supervision and Regulation."
Need for Technological Change
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology- driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. The Company's
future success will depend in part on its ability to address the needs of its
customers by using technology to provide products and services that will satisfy
customer demands for convenience as well as to create additional efficiencies in
the Bank's operations. Many of the Bank's competitors have substantially greater
resources to invest in technological improvements. There can be no assurance
that the Bank will be able to effectively implement new technology-driven
products and services or be successful in marketing such products and services
to its customers. See "Business -- Strategy."
8
<PAGE>
Year 2000 Compliance
Because many computerized systems use only two digits to record the year in
date fields (for example, the year 1998 is recorded as 98), such systems may not
be able to accurately process dates ending in the year 2000 and after. The
effects of this issue will vary from system to system and may adversely affect
the ability of a financial institution's operations as well as its ability to
prepare financial statements. The Company and the Bank were organized in 1997
and the Company recently acquired its computer equipment and has recently
contracted with a leading supplier of information processing services. The
Company has an internal task force to assess year 2000 compliance by the Company
and its vendors. In addition, the Bank asks commercial borrowers about year 2000
compliance as part of the loan application and review process. As a result,
management believes that the Company will not be materially affected by the year
2000 issue.
Anti-Takeover Provisions
The Company's articles of incorporation (the "Articles") and bylaws (the
"Bylaws") include provisions which may have the effect of delaying, deferring or
preventing certain types of transactions involving an actual or potential change
in control of the Company, including transactions in which the shareholders
might otherwise receive a premium for their shares over then current market
prices, and may limit the ability of the shareholders to approve transactions
that they may deem to be in their best interests. The Michigan Business
Corporation Act (the "MBCA") contains a Control Share Act intended to protect
shareholders and prohibit or discourage certain types of hostile takeover
activities. Federal law requires the approval of the Federal Reserve Board prior
to acquisition of "control" of a bank holding company. Michigan law also
requires the approval of the State of Michigan Financial Institutions Bureau
(the "FIB") prior to the acquisition of direct or indirect control of a
Michigan-chartered bank. These provisions may have the effect of delaying or
preventing a change in control of the Company without action by the
shareholders, and therefore could adversely affect the price of the Common
Stock. The Company's Articles and Bylaws provide for the indemnification of its
officers and directors and insulate its officers and directors from liability
for certain breaches of the duty of care. See "Description of Capital Stock --
Anti-Takeover Provisions."
Indemnification of Directors and Officers
The Company's bylaws provide for the indemnification of its officers and
directors and insulate its officers and directors from liability for certain
breaches of the duty of care. It is possible that the indemnification
obligations imposed under these provisions could result in a charge against the
Company's earnings and thereby affect the availability of funds for payment of
dividends to the Company's shareholders. The Bank's bylaws contain similar
provisions. See "Description of Capital Stock -- Anti-Takeover Provisions."
Determination of Offering Price
The initial public offering price of $10.00 per share was determined by
negotiations between the Company and Robert W. Baird & Co. Incorporated, the
underwriter of this Offering (the "Underwriter"). Prior to this Offering, the
Bank sold shares to its original investors in a private placement for a price
equivalent to $8.70 per share of Common Stock. The initial public offering price
is not based upon earnings or any significant history of operations and should
not be construed as indicative of the present or anticipated future value of the
Common Stock. Prior to the Offering, there has been no public trading market for
the Common Stock. The price at which these shares are being offered to the
public may be greater than the market price for the Common Stock following the
Offering. See "Dilution" and "Underwriting."
Dilution
The purchasers of the Common Stock offered hereby will suffer an immediate
dilution of $1.00 in net tangible book value per share of the Common Stock from
the initial offering price on a pro forma basis as of December 31, 1997. See
"Dilution."
9
<PAGE>
Control by Management
Although the combined ownership and control over the Company's Common Stock
by the Company's officers and directors is likely to be less than 10% after this
Offering, such individuals will be able to exert a significant measure of
control over the affairs and policies of the Company. Such control could be
used, for example, to help prevent an acquisition of the Company, thereby
precluding shareholders from possibly realizing any premium which may be offered
for the Company's Common Stock by a potential acquiror. See "Principal
Shareholders."
No Prior Public Market; Limited Trading Market Expected
Prior to this Offering, there has been no public trading market for the
Common Stock. The initial offering price has been determined by negotiations
between the Company and the Underwriter and may be greater than the market price
for the Common Stock following this Offering. The Company expects that the
quotations for the Common Stock will be reported on the OTC Bulletin Board under
the symbol "----." The Underwriter has also advised the Company that, upon
completion of this Offering, it intends to act as a market maker in the Common
Stock, subject to applicable laws and regulatory requirements. The development
of a public trading market depends, however, upon the existence of willing
buyers and sellers, the presence of which is not within the control of the
Company, the Bank or any market maker. Even with a market maker, factors such as
the limited size of this Offering, the lack of earnings history for the Company
and the absence of a reasonable expectation of dividends within the near future
mean that there can be no assurance of the development in the foreseeable future
of an active and liquid market for the Common Stock. Even if a market develops,
there can be no assurance that a market will continue, or that shareholders will
be able to sell their shares at or above the initial offering price. Purchasers
of Common Stock should carefully consider the potentially illiquid and long-term
nature of their investment in the shares being offered hereby.
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,300,000 shares of Common
Stock offered hereby are estimated to be $12,199,594 ($14,013,094 if the
Underwriter's over-allotment option is exercised in full), after deduction of
the estimated underwriting discounts and commissions and offering expenses. The
net proceeds have been calculated assuming Underwriting Discounts and
Commissions of $0.70 per share, except with respect to 400,000 shares to be sold
with no Underwriting Discounts and Commissions. The net proceeds from this
Offering will generally be used to strengthen the Company's capital position in
anticipation of future growth and for other general corporate purposes. A
portion of the net proceeds may be contributed to the Bank at a future date to
strengthen the Bank's capital position, to open or acquire additional branches,
or for other general corporate purposes. Pending their application for any or
all of such purposes, the net proceeds may be invested in United States
government securities and other investment grade financial instruments.
DIVIDEND POLICY
The Company initially expects that all Company and Bank earnings, if any,
will be retained to finance the growth of the Company and the Bank and that no
cash dividends will be paid for the foreseeable future. If and when dividends
are declared, the Company will be primarily dependent upon dividends paid by the
Bank for funds to pay dividends on the Common Stock. It is also possible,
however, that the Company will pay dividends in the future generated from
investment income and other activities, if any, of the Company.
Under Michigan law, the Bank is 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. A Michigan state
bank may not declare or pay a dividend unless the bank 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 one-half year (in the case of quarterly or semi-annual dividends) or
full-year (in the case of annual dividends) has been transferred to surplus. The
ability of the Company and the Bank to pay dividends is also affected by various
regulatory requirements and policies, such as the requirement to maintain
adequate capital above regulatory guidelines. See "Supervision and Regulation."
Such requirements and policies may limit the Company's ability to obtain
dividends from the Bank for its cash needs, including funds for acquisitions,
payment of dividends by the Company and the payment of operating expenses.
11
<PAGE>
RECENT DEVELOPMENTS
Formation of the Holding Company
On February 23, 1998, the Bank became a wholly owned subsidiary of the
Company pursuant to a Consolidation Agreement filed with and approved by the
Federal Reserve Board and the FIB. Pursuant to the Consolidation Agreement, each
issued and outstanding share of common stock of the Bank was converted into 1.15
shares of Common Stock of the Company and the shareholders of the Bank became
the shareholders of the Company. In total, 817,500 shares of common stock of the
Bank were converted into 940,125 shares of Common Stock of the Company, which
are all the issued and outstanding shares of Common Stock prior to this
Offering. The Bank's common stock had been issued to its shareholders as of
November 25, 1997 at a price of $10.00 per share or a total of $8,175,000. See
"Dilution."
Branch Openings
Since the Bank opened its main office in Zeeland, Michigan in November,
1997, it has established a full service branch office at 139 E. 8th Street, in
Holland, Michigan on January 19, 1998. The Bank also opened a loan processing
office branch at 106 E. 8th Street in Holland, Michigan. The Bank also has
leased a branch facility in south Holland and agreed to purchase a branch
facility in Jenison, Michigan, and intends to apply for regulatory approval to
open those two locations. See "Business--Properties" and "Plan of Operation."
Results of Operations
The Bank commenced operations on November 25, 1997. At December 31, 1997,
the Company had total assets of $10.7 million, total deposits of $2.7 million, a
retained deficit of $165,525 and shareholders' equity of $8.0 million. At
February 28, 1998, the Company had total assets of $_______ million, total
deposits of $_______ million, a retained deficit of $_______ and shareholders'
equity of $_______. The Bank had deposit accounts as of February 28, 1998. See
"Plan of Operation."
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997, and as adjusted to reflect the sale of the shares of Common
Stock offered hereby:
<TABLE>
December 31, 1997
Actual As Adjusted(1)
<S> <C> <C>
Long-term and short-term debt................................................... $ -- $ --
Shareholders' equity:
Preferred stock, no par value, 500,000 shares authorized; no shares
issued and outstanding........................................... -- --
Common stock, no par value, 9,500,000 shares authorized; 940,125
shares issued and outstanding, and 2,240,125 shares
as adjusted (2).................................................. 8,137,268 20,336,862
Retained deficit (3)................................................... (165,525) (165,525)
Net unrealized appreciation on securities available for sale,
net of tax of $136............................................... 264 264
Total shareholders' equity.................................. $7,972,007 $20,171,601
</TABLE>
(1) Adjusted to reflect the estimated net proceeds from the shares offered
hereby (assuming no exercise of the Underwriter's over-allotment
option). See "Use of Proceeds."
(2) Does not include an aggregate of 20,000 shares issuable pursuant to
options granted under the Company's Directors Stock Option Plan. See
"Management -- Executive Compensation."
(3) The accumulated deficit as of December 31, 1997, was comprised
primarily of pre-opening expenses related principally to fees and
expenses incurred in the regulatory application process and office
occupancy costs and supplies, together with initial operating losses
following the commencement of operations by the Bank. The accumulated
deficit is expected to increase further as anticipated initial
operating losses are incurred.
DILUTION
The net tangible book value (total tangible assets minus total liabilities)
of the Company as of December 31, 1997, was $7,972,007, or $8.48 per share of
Common Stock outstanding on such date. Assuming the sale of the 1,300,000 shares
of Common Stock offered hereby (at the initial public offering price of $10.00
per share) and the application of the net proceeds therefrom (after deducting
estimated offering expenses and underwriting discounts), the pro forma net
tangible book value of the Company as of December 31, 1997, would have been
$20,171,601, or $9.00 per share of Common Stock outstanding on such date. This
represents an immediate increase in pro forma net tangible book value per share
of $0.52 to existing shareholders and an immediate dilution of $1.00 per share
to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share................................ $10.00
Net tangible book value per share before the Offering(1)...... $8.48
Increase per share attributable to new investors.............. 0.52
Pro forma net tangible book value per share after the Offering(1)...... 9.00
------
Dilution per share to new investors.................................... $ 1.00
======
- --------------
</TABLE>
(1) Does not include 20,000 shares of Common Stock reserved for issuance
upon the exercise of stock options outstanding as of February 1, 1998,
which have an exercise price equal to the initial public offering
price, nor does it include shares of Common Stock available for the
future grant of stock options under the Company's Stock Compensation
Plan (100,000 shares) or Directors Stock Option Plan (20,000 shares).
See "Management -- Stock Compensation Plan and -- Directors Stock
Option Plan." Does not give effect to the exercise of the Underwriter's
over-allotment option.
13
<PAGE>
BUSINESS
General
The Company is a bank holding company organized in 1997 under Michigan law
and owns all of the common stock of the Bank. The Bank was organized and
commenced operations in November, 1997 as a Michigan chartered bank with
depository accounts insured by the FDIC. The Bank provides a full range of
commercial and consumer banking services primarily in the communities of Holland
and Zeeland, Michigan, as well as the surrounding market area principally
located in Ottawa County. The Bank's services include checking and savings
accounts (including certificates of deposit), safe deposit boxes, travelers
checks, money orders and commercial, mortgage and consumer loans. As of December
31, 1997, the Company had total assets of $10.7 million, total deposits of $2.7
million, ______ deposit accounts and shareholders' equity of $8.0 million. As of
February 28, 1998, the Bank had ____ full-time and ____ part-time employees,
____ deposit accounts and total deposits of $___ million.
Reason for Starting Macatawa Bank
The expansion of interstate banking has contributed to substantial
consolidation of the banking industry in Michigan, including the Company's
market area. Many of the area's locally owned or managed financial institutions
have either been acquired by large regional bank holding companies or have been
consolidated into branches. In many cases, these acquisitions and consolidations
have been accompanied by pricing changes, the dissolution of local boards of
directors, management and personnel changes and, in the perception of the
Company's management, a decline in the level of customer service. For example,
FMB, which was headquartered in Holland, Michigan, was the dominant bank in the
Holland-Zeeland market in Ottawa County, Michigan. In September 1997, FMB was
acquired by Huntington Bancshares Incorporated, a bank holding company
headquartered in Columbus, Ohio, and the boards of directors of FMB's former
subsidiary banks were dissolved. As another recent example, First of America
Bank Corporation, which is headquartered in western Michigan, has recently
agreed to be acquired by a large bank holding company headquartered in
Cleveland, Ohio.
Management believes that the consolidation of the banking industry created
a favorable opportunity for a new commercial bank to offer services to customers
who wish to conduct business with a locally owned and managed bank. Management
has been and believes that it will continue to be successful in attracting as
customers individuals and small to medium sized businesses by demonstrating an
active interest in their business and personal financial affairs. The Company
seeks to take advantage of this opportunity by emphasizing in its marketing plan
the Company's local management, and their strong ties and active commitment to
the community. The Bank is currently the only locally managed independent
commercial bank with its main office in the Holland-Zeeland area.
Market Area
The Bank's market area includes the cities of Holland and Zeeland, and the
Interstate I-196 corridor from the City of Holland on the west and extending
approximately 20 miles east through Zeeland, Hudsonville and Jenison, Michigan.
Most of this market area is located in the southern half of Ottawa County,
Michigan. This area includes several growing communities and has a stable and
diverse economic base. The Holland-Zeeland area has a population of
approximately 93,000 and Ottawa County has a population of approximately
200,000. The Holland-Zeeland area had an estimated median household income in
1997 of approximately $43,600. Over 300 manufacturers have operations in the
Holland-Zeeland area, including several manufacturers in the office furniture
and automotive supply industries. Major Ottawa County employers include Donnelly
Corporation, Herman Miller, Inc., Haworth, Inc. and Johnson Controls. Management
believes that the market area's diverse commercial base provides significant
opportunities for business banking services, together with personal banking
services for the owners and employees of the area's businesses.
14
<PAGE>
Strategy
The Company is a customer-driven financial institution focused on providing
high value to clients by delivering products and services in a highly
personalized manner. Management of the Company believes that the Bank can
attract those clients who prefer to conduct business with a locally-managed
institution that demonstrates an active interest in their business and personal
financial affairs.
The officers and directors of the Company are recognized and established
individuals in their local communities. The management team assembled by the
Company represents a wide range of business, banking and investment knowledge
and experience. The directors, officers and staff have established and
maintained significant customer relationships in the Bank's market area and
expect to draw upon these relationships for the benefit of the Bank. The
majority of the Company's management team have a least 10 years of banking
experience, and several key personnel have more than 20 years experience in the
financial services industry. Management believes that their years of banking and
financial services experience and their existing customer contacts in this
market offer the Bank a substantial opportunity to continue to attract new
relationships for the Bank.
The Company's officers and directors have a shared vision and commitment to
the future growth and success of the Bank. The Company's vision is to build a
quality, full-service community bank that offers competitive financial products
and superior customer service. Fundamental to the Company's vision is the
building of long-term relationships with customers. The Company maintains its
community focus by hiring local people and placing strong emphasis on local
presence and local community support.
The Company competes for loans principally through its ability to
communicate effectively with its customers and to understand and meet their
needs. Management believes that the Company's personal service philosophy
enhances its ability to compete favorably in attracting individuals and small
businesses. The Company actively solicits retail customers and competes for
deposits by offering customers personal attention, professional service and
competitive interest rates. The Bank's experienced staff provides a superior
level of personalized service, which enables the Bank to generate competitively
priced loans and deposits.
The Bank has entered into agreements with third-party service providers to
provide customers with products and services such as credit cards, debit cards
and ATM cards. The use of third-party service providers allows the Bank to
remain at the forefront of technology while minimizing the costs of delivery.
Products and Services
Deposit Services. The Bank offers a broad range of deposit services,
including checking accounts, NOW accounts, savings accounts and time deposits of
various types. Transaction accounts and time certificates are tailored to the
principal market area at rates competitive with those offered in the area. All
deposit accounts are insured by the FDIC up to the maximum amount permitted by
law. The Bank solicits these accounts from individuals, businesses,
associations, financial institutions and government authorities. The Bank does
not intend to accept brokered deposits. The Bank may also use alternative
funding sources as needed, including advances from Federal Home Loan Banks,
conduit financing and the packaging of loans for securitization and sale.
Real Estate Loans. The Bank originates residential mortgage loans, which
are generally long-term with either fixed or variable interest rates. The Bank's
general policy, which is subject to review by management as a result of changing
market and economic conditions and other factors, is to retain all variable
interest rate mortgage loans in the Bank's loan portfolio and to sell all fixed
rate loans in the secondary market. The Bank also offers home equity loans. The
Bank's current policy is to retain servicing rights with respect to residential
mortgage loans that it originates.
The retention of variable rate loans on the Bank's loan portfolio helps to
reduce the Bank's exposure to fluctuations in interest rates. However, such
loans generally pose credit risks different from the risks inherent in fixed
rate loans, primarily because as interest rates rise, the underlying payments
from the borrowers rise, thereby increasing the potential for default.
15
<PAGE>
Personal Loans and Credit. The Bank makes personal loans, lines of credit
and credit cards available to consumers for various purposes, such as the
purchase of automobiles, boats and other recreational vehicles, home
improvements and personal investments. The Bank's current policy is to retain
substantially all of such loans.
Commercial Loans. Commercial loans are made primarily to small and
mid-sized businesses. These loans are and will be both secured and unsecured and
are made available for general operating purposes, acquisition of fixed assets
including real estate, purchases of equipment and machinery, financing of
inventory and accounts receivable, as well as any other purposes considered
appropriate. The Bank generally looks to a borrower's business operations as the
principal source of repayment, but will also receive, when appropriate,
mortgages on real estate, security interests in inventory, accounts receivable
and other personal property and/or personal guarantees.
Although the Bank takes a progressive and competitive approach to lending,
it stresses high quality in its loans. Because of the Bank's local nature,
management believes that quality control should be achievable while still
providing prompt and personal service. On a monthly basis, the Board of
Directors reviews selected loans made in the preceding month. In addition, a
loan committee of the Board of Directors of the Bank also reviews larger loans
for prior approval when the loan request exceeds the established limits for the
senior officers. The Bank also maintains a continuous loan review process
designed to promote early identification of credit quality problems. The Bank's
credit review administrator will be responsible for conducting a continuous
internal review which tests compliance with the Bank's loan policy and adequate
documentation of all loans. Any past due loans and identified problem loans will
be reviewed with the Board of Directors on a monthly basis.
Regulatory and supervisory loan-to-value limits are established by Section
304 of the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"). The Bank's internal limitations follow those limits and in certain
cases are more restrictive than those required by the regulators.
The Bank has established relationships with correspondent banks and other
independent financial institutions to provide other services requested by its
customers, including loan participations where the requested loan amounts exceed
the Bank's policies or legal lending limits.
Other Services. The Bank is considering providing additional services in
the future, including trust services. The Bank will need to satisfy applicable
legal requirements and obtain regulatory approval before it may offer trust
services. The Company does not offer personal computer based at-home banking at
the present time. The Company's customers have not expressed strong interest in
at-home electronic banking, and management believes that the Bank's personalized
service approach benefits from customer visits to the Bank. Management will
continue to evaluate the desirability of adding telephone, electronic and
at-home banking services. Should the Bank choose to do so, the Bank could
provide one or more of these services at a future date using its third-party
service provider.
Competition
The banking industry in the Bank's market area has experienced substantial
consolidation in recent years. Many of the area's locally owned or managed
financial institutions have either been acquired by large regional bank holding
companies or have been consolidated into branches of other financial
institutions. This consolidation has been accompanied by numerous pricing
changes, the dissolution of local boards of directors, management and personnel
changes and, in the perception of the Company's management, a decline in the
level of customer service. With recent changes in interstate banking regulation,
this type of consolidation is expected to continue.
Management believes that this competitive situation, when coupled with the
area's growing and diversified economy, creates a favorable opportunity for a
new commercial bank managed by experienced local business people. Management's
experience indicates that a locally managed community bank can attract customers
by providing highly professional personalized attention, responding in a timely
manner to product and service requests and exhibiting an active interest in
customers' business and personal financial needs. The Bank is currently the only
locally managed independent commercial bank with its main office in the
Holland-Zeeland area. Management is aware of one savings and loan headquartered
in the Holland-Zeeland area.
16
<PAGE>
The Company's market area is Ottawa County, Michigan. There are many bank,
thrift and credit union offices located within the Company's market area. Most
are branches of larger financial institutions. The Company also faces
competition from finance companies, insurance companies, mortgage companies,
securities brokerage firms, money market funds and other providers of financial
services. Most of the Company's competitors have been in business a number of
years, have established customer bases, are larger and have higher lending
limits than the Company. The Company competes for loans principally through its
ability to communicate effectively with its customers and to understand and meet
their needs. Management believes that the Company's personal service philosophy
enhances its ability to compete favorably in attracting individuals and small
businesses. The Company actively solicits customers and competes for deposits by
offering customers personal attention, professional service, and competitive
interest rates.
Employees
As of January 31, 1998, the Bank had 20 full-time and 4 part-time
employees, including two commercial loan officers, a mortgage loan officer, a
consumer loan officer, two customer service representatives, a vice president of
operations and the Bank president. The Company has assembled a staff of
experienced, dedicated professionals whose goal is to provide outstanding
service. The majority of the Company's management team have at least 10 years of
banking experience, and several key personnel have more than 20 years of banking
experience.
Properties
The Company's headquarters and the Bank's main office is located at 51 E.
Main Street, Zeeland, Michigan 49464, and the telephone number is (616)
748-9491. The main office consists of approximately 1,700 square feet located on
the first floor of an office building and approximately 1,500 square feet in the
basement. This location is in the heart of the City of Zeeland on Main Street,
which management believes provides recognition and a visible presence in the
Holland-Zeeland community. The main office includes three teller stations, two
customer service offices, two administrative offices, a vault and safe deposit
boxes and an operations center. The Bank has entered into a three year lease
with respect to its main office, with renewal options for up to four successive
three year terms. The initial rental rate is $800.00 per month, which increases
by 7.5% for each three year renewal period. The Bank is also obligated to pay
all costs associated with taxes, assessments, maintenance, utilities and
insurance. The Bank estimates that it has spent approximately $544,000 on
leasehold improvements, furniture, fixtures and equipment for the Zeeland main
office.
The Bank has a full service branch located at 139 East 8th Street in
Holland, Michigan. The office consists of approximately 2,200 square feet and
includes three teller stations, two offices, three additional offices for
commercial lenders, one drive-through lane, and a vault and safe deposit boxes.
The Bank intends to add a 24 hour ATM machine within the next two months. The
Bank has entered into a seventeen month lease with a renewal option for one
additional year. The initial rental rate is $1,700 per month which increases to
$1,800 per month during the renewal term. The Bank estimates that it has spent
approximately $232,000 on leasehold improvements, furniture, fixtures and
equipment for this Holland branch.
The Bank also has a loan processing branch office located at 106 E. 8th
Street in Holland, Michigan. The office consists of approximately 1,200 square
feet, including three offices and additional work space in an open office
environment. The Bank has entered into a two year lease with renewal options for
up to two additional two year terms. The rental rate is $1,600 per month. The
facility is indirectly owned by Mr. Smith, the Chairman and Chief Executive
Officer of the Company. See "Certain Transactions -- Lease of Real Property."
The Bank has also leased a branch facility at 701 Maple Avenue, located in
the southern part of Holland. This facility will include four teller stations,
four offices, three drive-through lanes, a drive-up 24 hour ATM and a vault and
safe deposit boxes. The Bank has entered into a two year lease with renewal
options for up to four additional three year terms. The initial rental rate is
$1,900 per month, and the rental rate for the renewal terms will be adjusted
upwards to reflect changes in the Consumer Price Index. The Bank is also
obligated to pay all costs associated with taxes, assessments, maintenance,
utilities and insurance. The Bank also has an option to purchase the facility
during the term of the lease, including any renewal periods, at the appraised
value of the property less the book value of any improvements made by the Bank.
The Company expects to spend approximately $200,000 on leasehold improvements,
furniture, fixtures and equipment to open this branch. The Bank anticipates that
this branch will be open for business within the next three to six months,
assuming receipt of the necessary regulatory approvals.
17
<PAGE>
The Bank has agreed to purchase a branch facility located at 2020 Baldwin
in Jenison, Michigan, for a purchase price of approximately $355,000. This
facility will include four teller stations, four offices, two drive-through
lanes, a valut and safe deposit boxes and the Bank intends to add a drive-up
ATM. The Bank expects to spend approximately $200,000 on leasehold improvements,
furniture, fixtures and equipment at this location. The Bank anticipates that
this branch will also be open for business within the next three to six months,
assuming receipt of the necessary regulatory approvals.
PLAN OF OPERATION
Assuming the successful completion of this Offering, the Company's plan of
operation for the next twelve months does not contemplate the need to raise
additional capital during that period. Management believes that its current
capital together with the net proceeds from this Offering will provide the
Company with adequate capital to support its expected level of deposit and loan
growth and to otherwise meet its cash and capital requirements for at least the
next two or three years.
The Company's plan has been to establish its management team within the
first few months of its operations. Management believes that it has been
successful in establishing its management team and that it can administer the
Company's growth for the next two to three years, with the addition of branch
managers, tellers and other staff personnel at any new branches that are opened.
Management believes that it will hire approximately eight full time equivalent
employees for each additional branch that is opened.
The Bank's main office in Zeeland and its full service and loan processing
branches in Holland are leased facilities. The Company has completed
substantially all of its planned renovations and equipment purchases with
respect to these three facilities. Through January 31, 1998, the Company had
spent a total of approximately $816,000 on leasehold improvements, furniture,
fixtures and equipment for these three facilities. See "Business -- Properties."
The Company's plan is to continue to seek out and consider locations for
additional branches in its market area. Management believes that multiple
branches make the Bank more convenient to its customers and assist the Bank in
attracting additional depositors and borrowers. Management anticipates that the
Company will add three to four branches in 1998 in addition to the Bank's
existing locations, although there can be no assurance that such proposed
branches will be added. The Bank has agreed to purchase a bank branch facility
in Jenison, Michigan for approximately $355,000, and anticipates spending
approximately $200,000 on leasehold improvements, furniture, fixtures and
equipment for that facility. In addition, the Bank has leased a bank branch
facility located in south Holland, and anticipates spending approximately
$200,000 on leasehold improvements, furniture, fixtures and equipment for that
facility. The Bank intends to apply for branch approval for the south Holland
and Jenison facilities, and anticipates that these branches will be open for
business within the next three to six months, assuming receipt of the necessary
regulatory approvals. See "Business -- Properties."
The Company will continue to evaluate its products and services and will
consider adding additional products and services as appropriate. For example,
the Bank is considering providing trust services in the future, although the
Bank will need to satisfy applicable legal requirements and obtain regulatory
approval before it may offer trust services. The Company does not offer personal
computer based at-home banking at the present time. The Company's customers have
not expressed strong interest in at-home electronic banking, and management
believes that the Bank's personalized service approach benefits from customer
visits to the Bank. Management will continue to evaluate the desirability of
adding telephone, electronic and at-home banking services. Should the Bank
choose to do so, the Bank could provide one or more of these services at a
future date using its third-party service providers.
As of December 31, 1997, the Company had a retained deficit of $165,525,
and as of February 28, 1998, the Company had a retained deficit of
$_____________. This retained deficit was primarily the result of pre-opening
fees and expenses and wages paid to employees. Management believes that the
Company will generate a net loss for 1998 as a result of expenditures made to
build its management team and open its main office and branch facilities,
together with the time needed to more effectively utilize its capital and
generate loan interest and fee income by making additional loans. Management
believes that the expenditures made in 1997 and 1998 will create the
infrastructure and lay the foundation for future growth and profitability in
subsequent years.
18
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company and the Bank are as
follows:
Positions with Positions with
Name Age the Company the Bank
---- --- -------------- --------------
Benj. A. Smith, III........54 Chairman, Chief Chairman and Director
Executive Officer and
Director
Philip J. Koning...........43 Secretary, Treasurer President and
and Director Director
G. Thomas Boylan...........75 Director Director
Robert E. DenHerder........43 Director Director
Brian J. Hansen............49 Director Director
The Company has a classified board of directors, with directors serving
staggered three-year terms which expire at the relevant annual shareholders
meeting. The terms of Messrs. DenHerder and Koning expire in 1999, the terms of
Messrs. Smith and Boylan expire in 2000, and the term of Mr. Hansen expires in
2001. There are no family relationships between or among any of the directors or
executive officers named above.
Committees of the Bank
The Board of Directors of the Bank had six meetings in 1997. During 1997,
each of the directors attended more than 75% of the combined aggregate number of
Board meetings and meetings of Board committees on which each served. The Bank
also has several committees, composed as follows: Loan Committee (Messrs. Smith,
Hansen, DenHerder, Koning and Boylan); Investment Committee (Messrs. Smith,
Boylan and Koning); and Audit Committee (Messrs. Hansen, DenHerder and Boylan).
Experience of Directors and Executive Officers
The experience and backgrounds of the directors and executive officers of
the Company and the Bank are summarized below:
Benj. A. Smith, III is the Chairman, Chief Executive Officer and a director
of the Company and is also Chairman and a director of the Bank. Mr. Smith is an
investment advisor and has served from 1992 to the present as the President of
Smith & Associates Investment Management Services, an investment management firm
located in Holland, Michigan. Prior to 1992, Mr. Smith gained 21 years of
banking experience at FMB and its subsidiary FMB- First Michigan Bank of
Zeeland, Michigan. During his employment at FMB he was responsible for the
consolidation of the trust department and investment function under a registered
investment advisor, the development and introduction of mutual funds at FMB, the
establishment of a broker-dealer operation and the implementation of various
employee compensation and stock ownership plans. From 1991 to 1992, Mr. Smith
served as Chief Executive Officer of FMB- Financial Group, a wholly owned
subsidiary of FMB, which was comprised of a life insurance subsidiary, a trust
services bank, a registered broker-dealer and an investment advisory company.
Mr. Smith earned a Bachelor of Science degree from Purdue University and a
Master of Business Administration, Finance, from Indiana State University. Mr.
Smith is a member of the Holland Chamber of Commerce, the Holland Better
Business Bureau and the Holland Country Club.
19
<PAGE>
Philip J. Koning has served as President of the Bank since its inception in
November, 1997, and serves as the Secretary and Treasurer of the Company and as
a director of both the Company and the Bank. Mr. Koning is also employed by
Smith & Associates Investment Management Services. Mr. Koning has over 23 years
of commercial banking experience, most recently from 1984 to 1997 with First of
America Bank in Holland, where he served as a community bank president. Mr.
Koning earned a Bachelor of Science in Accounting from Grand Valley State
University and a Masters of Business Administration, Finance, from the Seidman
Graduate College at Grand Valley State University. Mr. Koning is Chairman of the
Zeeland Board of Public Works and a member of the Rotary Club of Holland, the
Zeeland Christian School Endowment Committee, HOMECOR (an agency enhancing
neighborhoods through private initiative), the City of Holland's Strategic
Planning Committee, the Windmill Advisory Committee and the Holland Country
Club.
G. Thomas Boylan is a director of the Company and the Bank. Mr. Boylan is
the President of Light Metals Corporation, a manufacturing company located in
Wyoming, Michigan, where he has been employed since 1947.
Robert E. DenHerder is a director of the Company and the Bank. Mr.
DenHerder is the President of Uniform Color Co., a company located in Holland,
Michigan, which manufactures color concentrate for the plastics industry
focusing on automotive suppliers. Mr. DenHerder has been employed at Uniform
Color Co. since 1981. Mr. DenHerder is a member of the Society of Plastics
Engineers, Ducks Unlimited and the Macatawa Area Coordinating Council.
Brian J. Hansen is a director of the Company and the Bank. Mr. Hansen is
the President of Dew-El Portables, Inc., a company located in Holland, Michigan,
which sells and leases modular buildings primarily to the school market, where
he has been employed since 1992. From 1985 to the time he sold the Company in
1994, Mr. Hansen was the president for Dew-El Corporation, a company which sold
products to the school market. Mr. Hansen is a former member of the board of
Directors of FMB-First Michigan Bank, Zeeland, Michigan. Mr. Hansen is a member
of the Holland Jaycees, the past President of the Holland Chapter of Michigan
Steelheaders and past President and an organizing member of Wildlife Unlimited,
where he is currently chairman of its long range planning development committee
for its outdoor learning center. Mr. Hansen has served on various committees at
Our Lady of the Lake Church and is presently serving as the owner's
representative to the architect/general contractor for the church's building
program. Mr. Hansen is a member, and has served on the Board, of the Holland
Country Club.
Director Compensation
No salaries or other remuneration have been paid by the Company to its
directors or officers except that the Company has granted to each of Messrs.
Smith, Boylan, Den Herder, Koning and a former director of the Bank an option to
purchase 4,000 shares of Common Stock. See "-- Directors Stock Option Plan." All
of the directors of the Company are also directors of the Bank, and all of the
officers of the Company are also officers of the Bank and receive compensation
for officer positions with the Bank.
No directors' fees have been paid or will be paid during the Bank's first
year of operations. It is anticipated that after its first year of operations,
the Bank will pay each director reasonable fees for service on the Board, which
will be comparable to fees paid by other local banks. It is not anticipated that
the Company will pay any cash fees to directors for the foreseeable future.
However, non-employee directors may receive grants of stock options under the
Directors Stock Option Plan. See "-- Directors Stock Option Plan."
20
<PAGE>
Executive Compensation
Executive officers of the Company who are also employees of the Bank
receive no additional compensation for their positions with the Company. No
executive officer of the Bank is paid an annual salary in excess of $80,000,
except for Mr. Koning whose annual salary is $100,000. The following table sets
forth the compensation paid by the Bank to the persons indicated during the
period from the Bank's organization through December 31, 1997.
<TABLE>
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------
Long Term
Compensation
Annual Compensation Awards
(a) (b) (c) (d) (g) (i)
Securities All Other
Name and Underlying Compensation
Principal Position Year Salary ($) Bonus ($) Options/SARs (#) ($)
<S> <C> <C> <C> <C> <C>
Benj. A. Smith, III
Chairman 1997 $ 0 $ 0 4,000 --- (1)
Philip J. Koning
President 1997 $28,075 $ 0 4,000 ---
</TABLE>
(1) Excludes amounts paid to Smith & Associates. See "Certain Transactions --
Pre-Opening Services."
Stock Option Information
No stock options were granted by the Company from its inception through
December 31, 1997. As of February 1, 1998, no stock options or other awards had
been granted pursuant to the Company's Stock Compensation Plan. Effective
January 25, 1998, the Company awarded stock options to purchase 4,000 shares to
each of Messrs. Smith, Boylan, DenHerder, Koning and a former director of the
Bank, which become exercisable one year after the grant date. These stock
options were granted pursuant to the 1998 Directors' Stock Option Plan, have an
exercise price of $10.00 per share, are exercisable beginning January 25, 1999,
and expire on January 25, 2008.
21
<PAGE>
Employee Stock Compensation Plan
The Company has adopted and its shareholders have approved the Macatawa
Bank Corporation Stock Compensation Plan (the "Plan"). The purpose of the Plan
is to promote the long-term success of the Company for the benefit of its
shareholders through stock-based compensation by aligning the personal interests
of the Company's key employees with those of its shareholders. The Plan is
designed to allow key employees of the Company and certain of its subsidiaries
to participate in the Company's future, as well as to enable the Company to
attract, retain, and reward such employees. Eligibility is determined by the
Committee.
Administration. The Plan is administered by a committee of the Board of
Directors (the "Committee"). The Committee will be composed of at least three
directors, each of whom is not an employee of the Company. Each member of the
Committee is required to be a "disinterested person" within the meaning of Rule
16b-3 of the General Rules and Regulations under the Securities and Exchange Act
of 1934, as amended, and no member of the Committee is eligible to participate
in the Plan. Subject to the Company's Articles, Bylaws, and the provisions of
the Plan, the Committee has the authority to select key employees to whom Awards
(as defined below) may be awarded; the type of Awards (or combination thereof)
to be granted; the number of shares of Common Stock to be covered by each Award;
and the terms and conditions of any Award, such as conditions of forfeiture,
transfer restrictions and vesting requirements.
The Plan provides for the granting of a variety of stock-based Awards,
described in more detail below, such as stock options, including incentive stock
options, as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), restricted stock, performance shares, and other
stock-based awards. The term of the Plan is ten years; no Awards may be granted
under the Plan after January 25, 2008.
Types of Awards. The following types of awards ("Awards") may be granted
under the Plan:
An "Option" is a contractual right to purchase a number of shares at a
price determined at the date the Option is granted. Options include incentive
stock options, as defined in Section 422 of the Code, as well as nonqualified
stock options. The exercise price included in both incentive stock options and
nonqualified stock options must equal at least 100% of the fair market value of
the Common Stock at the date of grant.
"Restricted Stock" are shares of Common Stock granted to an employee for no
or nominal consideration. Title to the shares passes to the employee at the time
of the grant; however, the ability to sell or otherwise dispose of the shares is
subject to restrictions and conditions determined by the Committee.
"Performance Shares" are an Award of the right to receive stock or cash of
an equivalent value at the end of the specified performance period upon the
attainment of specified performance goals.
An "Other Stock-Based Award" is any other Award that may be granted under
the Plan that is valued in whole or in part by reference to or is payable in or
otherwise based on Common Stock.
Shares Subject to Plan. A total of 100,000 shares of the Company's Common
Stock are reserved for use under the Plan. The shares to be issued under the
Plan will be authorized and unissued shares, including shares reacquired by the
Company which have that status. The number of shares that may be issued under
the Plan and the number of shares subject to Options are subject to adjustments
in the event of a merger, reorganization, consolidation, recapitalization, stock
dividend, stock split or other change in corporate structure affecting the
Common Stock. Subject to certain restrictions, unexercised Options, lapsed
shares of Restricted Stock, and shares surrendered in payment for exercised
Options may be reissued under the Plan.
22
<PAGE>
Termination or Amendment of the Plan. The Board may at any time amend,
discontinue, or terminate the Plan or any part thereof; however, unless
otherwise required by law, the rights of a participant may not be impaired
without the consent of such participant. In addition, without the approval of
the Company's shareholders, no amendment may be made which would increase the
aggregate number of shares of Common Stock that may be issued under the Plan,
change the definition of employees eligible to receive Awards under the Plan,
extend the maximum option period under the Plan, decrease the Option price of
any Option to less than 100% of the fair market value on the date of grant,
otherwise materially increase the benefits to participants in the Plan or cause
the Plan not to comply with certain applicable securities and tax law
requirements.
Eligibility. Key employees of the Company and its designated subsidiaries
are eligible to be granted Awards under the Plan. Eligibility is determined by
the Committee.
Participation and Assignability. Neither the Plan nor any Award agreement
granted under the Plan entitles any participant or other employee to any right
to continued employment by the Company or any subsidiary. Generally, no Award,
Option, or other benefit payable under the Plan may, except as otherwise
specifically provided by law, be subject in any manner to assignment, transfer,
or encumbrance. However, Nonqualified Stock Options may be transferred without
consideration to: (i) an immediate family member of the optionee, (ii) a trust
for the benefit of the immediate family members of the optionee, or (iii) a
partnership or limited liability Company whose only partners or members are
immediate family members of the optionee, if the optionee satisfies such
conditions to the transfer as may be required by the Committee. Upon termination
of employment, any portion of unexercised Options which are exercisable on the
termination date must generally be exercised within three months of the
termination date for any termination other than as a result of the death,
disability, or retirement of the employee, in which case the Plan provides for
longer exercise periods.
Federal Tax Consequences. The following summarizes the consequences of the
grant and acquisition of Awards under the Plan for federal income tax purposes,
based on management's understanding of existing federal income tax laws. This
summary is necessarily general in nature and does not purport to be complete.
Also, state and local income tax consequences are not discussed and may vary
from locality to locality.
Options. Plan participants will not recognize taxable income at the time an
Option is granted under the Plan unless the Option has a readily ascertainable
market value at the time of grant. Management understands that Options to be
granted under the Plan will not have a readily ascertainable market value;
therefore, income will not be recognized by participants before the time of
exercise of an Option. For nonqualified stock options, the difference between
the fair market value of the shares at the time an Option is exercised and the
Option price generally will be treated as ordinary income to the optionee, in
which case the Company will be entitled to a deduction equal to the amount of
the optionee's ordinary income. With respect to incentive stock options,
participants will not realize income for federal income tax purposes as a result
of the exercise of such Options. In addition, if common stock acquired as a
result of the exercise of an incentive stock option is disposed of more than two
years after the date the Option is granted and more than one year after the date
the Option was exercised, the entire gain, if any, realized upon disposition of
such common stock will be treated for federal income tax purposes as capital
gain. Under these circumstances, no deduction will be allowable to the Company
in connection with either the grant or exercise of an incentive stock option.
Exceptions to the general rules apply in the case of a "disqualifying
disposition." If a participant disposes of shares of common stock acquired
pursuant to the exercise of an incentive stock option before the expiration of
one year after the date of exercise or two years after the date of grant, the
sale of such stock will be treated as a "disqualifying disposition." As a
result, such a participant would recognize ordinary income and the Company would
be entitled to a deduction in the year in which such disposition occurred.
The amount of the deduction and the ordinary income recognized upon a
disqualifying disposition would generally be equal to the lesser of: (a) the
sale price of the shares sold minus the Option price, or (b) the fair market
value of the shares at the time of exercise and minus the Option price. If the
disposition is to a related party (such as a spouse, brother, sister, lineal
descendant, or certain trusts for business entities in which the seller holds a
direct or indirect interest), the ordinary income recognized generally is equal
to the excess of the fair market value of the shares at the time of exercise
over the exercise price. Any additional gain recognized upon disposition, in
excess
23
<PAGE>
of the ordinary income, will be taxable as capital gain. In addition, the
exercise of incentive stock options may result in an alternative minimum tax
liability.
Restricted Stock. Recipients of shares of Restricted Stock that are not
"transferable" and are subject to "substantial risk of forfeiture" at the time
of grant will not be subject to federal income taxes until the lapse or release
of the restrictions on sale of the shares, unless the recipient files a specific
election under the Code to be taxed at the time of grant. The recipient's income
and the Company's deduction will be equal to the excess of the then fair market
value (or sale price) of the shares less any purchase price.
Performance Shares. Participants are not taxed upon the grant of
Performance Shares. Upon receipt of the underlying shares or cash, a participant
will be taxed at ordinary income tax rates (subject to withholding) on the
amount of cash received and/or the current fair market value of stock received,
and the Company will be entitled to a corresponding deduction. The participant's
basis in any Performance Shares received will be equal to the amount of ordinary
income on which he or she was taxed and, upon subsequent disposition, any gain
or loss will be capital gain or loss.
Directors Stock Option Plan
The Company has adopted and its shareholders have approved the Macatawa
Bank Corporation 1998 Directors' Stock Option Plan (the "Directors Plan"). The
Directors Plan is intended to encourage stock ownership by nonemployee directors
of the Company and the Bank, and to provide those individuals with additional
incentive to manage the Company and the Bank effectively and to contribute to
its success. The Directors Plan is also intended to provide a form of
compensation that will attract and retain highly qualified individuals as
nonemployee members of the Board of Directors of the Company and the Bank.
Grant of Options. Options have been granted under the Directors Plan to
each of the Bank's original directors (Messrs. Boylan, Den Herder, Koning, Smith
and a former director of the Bank) to purchase 4,000 shares of the Company's
Common Stock at a price of $10.00 per share (the "Organizer Options"). In the
future options under the Plan may only be granted to directors who are not
employed by the Company or any subsidiary. The Directors Plan authorizes the
Board of Directors to develop a formula for future option grants but that
formula has not yet been developed. All Options granted under the Directors Plan
become exercisable one year after the date of grant, including Organizer
Options.
The term of each option granted under the Directors Plan is 10 years from
the date of grant subject to earlier termination at the end of three years
following the director's termination of services as a director, except for the
Organizer Options, which continue for a full 10 years from the date granted. The
option price for each option must equal 100% of the fair market value of the
Company's Common Stock on the date the option is granted. In general, no option
may be exercisable in whole or in part prior to the first anniversary of the
date of grant of the option. The Directors Plan does not obligate the Company,
its Board of Directors or its shareholders to retain an optionee as a director
of the Company or the Bank.
Administration. The Directors Plan is administered by a committee of the
Board of Directors (the "Directors Plan Committee"). The Directors Plan
Committee will be composed of at least three directors, each of whom is not an
employee of the Company. Each member of the Directors Plan Committee is required
to be a "disinterested person" within the meaning of Rule 16b-3 of the General
Rules and Regulations under the Securities and Exchange Act of 1934, as amended.
The Directors Plan Committee's authority is limited to interpreting the
provisions of the Directors Plan and supervising its administration, including
the power to adopt procedures and regulations for administrative purposes.
Shares Subject to Plan. A total of 40,000 shares of the Company's Common
Stock are reserved for issuance under the Directors Plan. The shares of Common
Stock that may be issued under the Directors Plan pursuant to the exercise of
options will consist of authorized and unissued shares, which may include shares
reacquired by the Company. The Directors Plan provides for an equitable
adjustment in the number, kind, or price of shares of Common Stock covered by
options in the event the outstanding shares of Common Stock are increased,
decreased, changed into or exchanged for a different number or kind of shares of
the Company through stock
24
<PAGE>
dividends or similar changes. Shares previously reserved for issuance under
unexercised Options which terminate, whether by expiration or otherwise, may
again be reserved for issuance under a subsequent Award.
Termination or Amendment of the Plan. The Board of Directors of the Company
may amend or terminate the Directors Plan with respect to shares not subject to
options at the time of amendment or termination. The Directors Plan may not be
amended without shareholder approval if the amendment would increase the maximum
number of shares that may be issued under the Directors Plan, extend the term of
the options, decrease the price at which options may be granted, remove the
administration of the Directors Plan from the Directors Plan Committee, change
the class of persons eligible to receive options or permit the granting of
options under the Directors Plan after January 25, 2008. Unless terminated
earlier by the Board of Directors, the Directors Plan will expire on January 25,
2008.
Transferability of Options and Common Stock. Generally, options granted
under the Directors Plan may be transferred only by will or according to the
laws of descent and distribution. However, options may be transferred without
consideration to: (i) an immediate family member of the optionee, (ii) a trust
for the benefit of the immediate family members of an optionee, or (iii) a
partnership or limited liability company whose only partners or members are
immediate family members of an optionee, if the optionee satisfies such
conditions to the transfer as may be required by the Directors Plan Committee.
Options may be exercised only by an optionee or a permitted transferee during an
optionee's lifetime. Upon the death of an optionee, all Options held by the
decedent, or his or her permitted transferees, and not yet exercisable, become
fully exercisable. Before issuing any shares upon the exercise of an option, the
Company may require the optionee or the permitted transferee to represent in
writing that the shares are being acquired for investment and not for resale.
The Company may also delay issuance of the shares until all appropriate
registrations or qualifications under federal and state securities laws have
been completed.
Federal Tax Consequences. The following summarizes the consequences of the
grant and exercise of options under the Directors Plan for federal income tax
purposes, based on management's understanding of existing federal income tax
laws. This summary is necessarily general in nature and does not purport to be
complete. Also, state and local income tax consequences are not discussed and
may vary from locality to locality.
Optionees will not recognize taxable income at the time an option is
granted under the Directors Plan unless the option has a readily ascertainable
market value at the time of grant. Management understands that options granted
under the Directors Plan will not have a readily ascertainable market value;
therefore, income will not be recognized by participants before the time of
exercise of an option. Because options granted under the Directors Plan will not
qualify as incentive stock options under the Code, the difference between the
fair market value of the shares at the time an option is exercised and the
option exercise price generally will be treated as ordinary income to the
optionee. The Company is entitled to a corresponding deduction equal to the
amount of an optionee's ordinary income.
Tax consequences to the holder of the shares will arise again at the time
the shares of Common Stock are sold. In general, if the shares have been held
for more than one year, the gain or loss will be treated as long-term capital
gain or loss, but, under current law, the shares must have been held for more
than 18 months for the most advantageous tax rate. Otherwise, the gain or loss
will be treated as short-term capital gain or loss. The amount of any gain or
loss will be calculated under the general principles for determining gain and
loss, and will equal the difference between the amount realized in the sale and
the tax basis of the shares of Common Stock. The tax basis will generally equal
the cost of the shares (the option exercise price paid) plus any income
recognized upon exercise of the option.
25
<PAGE>
CERTAIN TRANSACTIONS
Lease of Real Property
The Bank leases its Holland office located at 106 E. 8th Street, Holland,
Michigan 49423, from a corporation wholly owned by Benj. A. Smith, III, the
Chairman and a director of the Company and the Bank. The terms of the lease were
negotiated on an arm's-length basis. The Company believes that the rent and
other terms reflect fair market value. See "Business -- Properties."
Pre-Opening Services
Smith & Associates, which is wholly owned by Benj. A. Smith, III, the
Company's Chairman and Chief Executive Officer, received a payment of $50,000
plus expenses for services rendered in connection with the organization and
commencement of operations of the Bank. These services included, among other
things, preparation of regulatory filings and activities associated with the
pre-opening organization of the Bank, including locating and hiring management,
locating and leasing appropriate space, and negotiating and completing the
acquisition of assets and services utilized by the Bank. The Company believes
that the amount represents the fair market value of the services rendered.
Banking Transactions
The directors and officers of the Company and the Bank have had and are
expected to have banking and other transactions with the Company and the Bank in
the ordinary course of business. All transactions between the Company and
affiliated persons, including 5% shareholders, will be on terms no less
favorable to the Company than could be obtained from independent third parties.
Any loans and commitments to lend to such affiliated persons will be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unaffiliated parties of
similar creditworthiness.
Indemnification
The Articles and Bylaws of the Company provide for the indemnification of
directors and officers of the Company and the Bank, including reasonable legal
fees, incurred by such directors and officers while acting for or on behalf of
the Company or the Bank as a director or officer, subject to certain
limitations. See "Description of Capital Stock -- Anti-Takeover Provisions." The
Company has purchased directors' and officers' liability insurance for directors
and officers of the Company and the Bank.
Formation of Bank Holding Company
On February 18, 1997, the Bank became a wholly owned subsidiary of the
Company pursuant to a Consolidation Agreement filed with and approved by the
Federal Reserve Board and the FIB. Pursuant to the Consolidation Agreement, each
issued and outstanding share of common stock of the Bank was converted into 1.15
shares of Common Stock of the Company. Directors and executive officers of the
Company and the Bank held an aggregate of 135,000 shares of common stock of the
Bank and received in exchange for such shares an aggregate of 155,250 shares of
Common Stock of the Company. See "Recent Developments" and "Dilution."
26
<PAGE>
PRINCIPAL SHAREHOLDERS
The table below sets forth, as of January 31, 1998, certain information
regarding the beneficial ownership of the Common Stock by: (i) each person who
is known to the Company to be the beneficial owner of more than 5% of the Common
Stock, (ii) each of the directors of the Company and (iii) all directors and
executive officers of the Company as a group, both before and after giving
effect to this Offering.
<TABLE>
Common Stock Percent of Class Shares expected
Beneficially Prior to to be Purchased Percent of Class
Name and Address Owned(1) Offering in the Offering(2) After Offering
- ---------------- ------------------ -------------------- ------------------- --------------
<S> <C> <C> <C> <C>
Benj. A. Smith, III (3)(4)
167 West 11th Street
Holland, MI 49423........... 40,250 4.3% 17,500 2.6%
Philip J. Koning(4)
51 E. Main Street 11,500 1.2% 5,000 0.7%
Zeeland, MI 49464...........
Thomas Boylan(4)
458 Maple Lane
Saugatuck, MI 49453......... 40,250 4.3% 17,500 2.6%
Robert E. DenHerder(4)
10836 Riley Street
Holland, MI 49424........... 40,250 4.3% 17,500 2.6%
Brian J. Hansen
356 Cottage Lane
Holland, MI 49424........... 23,000 2.5% 10,000 1.8%
All executive officers
and directors as a group
(5 people) (3)(4)........... 155, 250 16.5% 67,500 9.9%
</TABLE>
- ----------------------
(1) For purposes of this disclosure, shares are considered to be
"beneficially" owned if the person has, or shares the power to vote or
direct the voting of shares, the power to dispose of or direct the
disposition of the shares or the right to acquire beneficial ownership
within 60 days. Except as otherwise set forth in the following
footnotes, directors and officers have sole voting and investment power
or share voting and investment power with their wives.
(2) Based upon the number of shares of Common Stock that the persons
indicated have informed the Company that they intend to purchase in
this Offering.
(3) Includes 15,900 shares of Common Stock held by Mr. Smith's wife.
(4) Excludes 4,000 shares of Common Stock subject to options granted to
each of the named directors, other than Mr. Hansen, under the Directors
Stock Option Plan, but which are not exercisable until January 25,
1999.
27
<PAGE>
SUPERVISION AND REGULATION
The following is a summary of certain statutes and regulations affecting
the Company and the Bank. This summary is qualified in its entirety by such
statutes and regulations. A change in applicable laws or regulations may have a
material effect on the Company, the Bank and the business of the Company and the
Bank.
General
Financial institutions and their holding companies are extensively
regulated under federal and state law. Consequently, the growth and earnings
performance of the Company and the Bank can be affected not only by management
decisions and general economic conditions, but also by the statutes administered
by, and the regulations and policies of, various governmental regulatory
authorities. Those authorities include, but are not limited to, the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), the FDIC,
the Commissioner of the Michigan Financial Institutions Bureau ("Commissioner"),
the Internal Revenue Service, and state taxing authorities. The effect of such
statutes, regulations and policies can be significant, and cannot be predicted
with a high degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions and their holding companies regulate, among other things, the scope
of business, investments, reserves against deposits, capital levels relative to
operations, lending activities and practices, the nature and amount of
collateral for loans, the establishment of branches, mergers, consolidations and
dividends. The system of supervision and regulation applicable to the Company
and the Bank establishes a comprehensive framework for their respective
operations and is intended primarily for the protection of the FDIC's deposit
insurance funds, the depositors of the Bank, and the public, rather than
shareholders of the Bank or the Company.
Federal law and regulations establish supervisory standards applicable to
the lending activities of the Bank, including internal controls, credit
underwriting, loan documentation and loan-to-value ratios for loans secured by
real property.
The Company
General. The Company is a bank holding company and, as such, is registered
with, and subject to regulation by, the Federal Reserve Board under the Bank
Holding Company Act, as amended (the "BHCA"). Under the BHCA, the Company is
subject to periodic examination by the Federal Reserve Board, and is required to
file with the Federal Reserve Board periodic reports of its operations and such
additional information as the Federal Reserve Board may require.
In accordance with Federal Reserve Board policy, the Company is expected to
act as a source of financial strength to the Bank and to commit resources to
support the Bank in circumstances where the Company might not do so absent such
policy. In addition, if the Commissioner deems the Bank's capital to be
impaired, the Commissioner may require the Bank to restore its capital by a
special assessment upon the Company as the Bank's sole shareholder. If the
Company were to fail to pay any such assessment, the directors of the Bank would
be required, under Michigan law, to sell the shares of the Bank's stock owned by
the Company to the highest bidder at either a public or private auction and use
the proceeds of the sale to restore the Bank's capital.
Investments and Activities. In general, any direct or indirect acquisition
by the Company of any voting shares of any bank which would result in the
Company's direct or indirect ownership or control of more than 5% of any class
of voting shares of such bank, and any merger or consolidation of the Company
with another bank company, will require the prior written approval of the
Federal Reserve Board under the BHCA. In acting on such applications, the
Federal Reserve Board must consider various statutory factors, including among
others, the effect of the proposed transaction on competition in relevant
geographic and product markets, and each party's financial condition, managerial
resources, and record of performance under the Community Reinvestment Act.
Effective September 29, 1995, bank holding companies may acquire banks located
in any state in the United States without regard to geographic restrictions or
reciprocity requirements imposed by state law, but subject to certain
conditions, including limitations on the aggregate amount of deposits that may
be held by the acquiring company and all of its insured depository institution
affiliates.
28
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The merger or consolidation of an existing bank subsidiary of the Company
with another bank, or the acquisition by such a subsidiary of assets of another
bank, or the assumption of liability by such a subsidiary to pay any deposits in
another bank, will require the prior written approval of the responsible Federal
depository institution regulatory agency under the Bank Merger Act, based upon a
consideration of statutory factors similar to those outlined above with respect
to the BHCA. In addition, in certain such cases an application to, and the prior
approval of, the Federal Reserve Board under the BHCA and/or the Commissioner
under the Michigan Banking Code, may be required.
With certain limited exceptions, the BHCA prohibits any bank holding
company from engaging, either directly or indirectly through a subsidiary, in
any activity other than managing or controlling banks unless the proposed
non-banking activity is one that the Federal Reserve Board has determined to be
so closely related to banking or managing or controlling banks as to be a proper
incident thereto. Under current Federal Reserve Board regulations, such
permissible non-banking activities include such things as mortgage banking,
equipment leasing, securities brokerage, and consumer and commercial finance
company operations. As a result of recent amendments to the BHCA,
well-capitalized and well-managed bank holding companies may engage de novo in
certain types of non-banking activities without prior notice to, or approval of,
the Federal Reserve Board, provided that written notice of the new activity is
given to the Federal Reserve Board within 10 business days after the activity is
commenced. If a bank company wishes to engage in a non-banking activity by
acquiring a going concern, prior notice and/or prior approval will be required,
depending upon the activities in which the company to be acquired is engaged,
the size of the company to be acquired and the financial and managerial
condition of the acquiring bank company.
In evaluating a proposal to engage (either de novo or through the
acquisition of a going concern) in a non-banking activity, the Federal Reserve
Board will consider various factors, including among others the financial and
managerial resources of the bank company, and the relative public benefits and
adverse effects which may be expected to result from the performance of the
activity by an affiliate of the bank company. The Federal Reserve Board may
apply different standards to activities proposed to be commenced de novo and
activities commenced by acquisition, in whole or in part, of a going concern.
Capital Requirements. The Federal Reserve Board uses capital adequacy
guidelines in its examination and regulation of bank holding companies. If
capital falls below minimum guidelines, a bank company may, among other things,
be denied approval to acquire or establish additional banks or non-bank
businesses.
The Federal Reserve Board's capital guidelines establish the following
minimum regulatory capital requirements for bank holding companies: (i) a
leverage capital requirement expressed as a percentage of total assets, and (ii)
a risk-based requirement expressed as a percentage of total risk-weighted
assets. The leverage capital requirement consists of a minimum ratio of Tier 1
capital (which consists principally of shareholders' equity) to total assets of
3% for the most highly rated companies, with minimum requirements of 4% to 5%
for all others. The risk- based requirement consists of a minimum ratio of total
capital to total risk-weighted assets of 8%, of which at least one-half must be
Tier 1 capital.
The risk-based and leverage standards presently used by the Federal Reserve
Board are minimum requirements, and higher capital levels will be required if
warranted by the particular circumstances or risk profiles of individual banking
organizations. For example, Federal Reserve Board regulations provide that
additional capital may be required to take adequate account of, among other
things, interest rate risk and the risks posed by concentrations of credit,
nontraditional activities or securities trading activities. Further, any banking
organization experiencing or anticipating significant growth would be expected
to maintain capital ratios, including tangible capital positions (i.e., Tier 1
capital less all intangible assets), well above the minimum levels. The Federal
Reserve Board has not advised the Company of any specific minimum Tier 1 Capital
leverage ratio applicable to it.
Dividends. The Company is a corporation separate and distinct from the
Bank. Most of the Company's revenues will be received by it in the form of
dividends, if any, paid by the Bank. Thus, the Company's ability to pay
dividends to its shareholders will indirectly be limited by statutory
restrictions on the Bank's ability to pay dividends. See "SUPERVISION AND
REGUATION - the Bank - Dividends." Further, the Federal Reserve Board has issued
a policy statement on the payment of cash dividends by bank holding companies.
In the policy statement, the Federal Reserve Board expressed its view that a
bank company experiencing earnings weaknesses should not pay cash dividends
exceeding its net income or which can only be funded in ways that weakened the
bank company's financial health, such as by borrowing. Additionally, the Federal
Reserve Board possesses enforcement powers over bank holding companies
29
<PAGE>
and their non-bank subsidiaries to prevent or remedy actions that represent
unsafe or unsound practices or violations of applicable statutes and
regulations. Among these powers is the ability to proscribe the payment of
dividends by banks and bank holding companies. Similar enforcement powers over
the Bank are possessed by the FDIC. The "prompt corrective action" provisions of
federal law and regulation authorizes the Federal Reserve Board to restrict the
payment of dividends by the Company for an insured bank which fails to meet
specified capital levels.
In addition to the restrictions on dividends imposed by the Federal Reserve
Board, the Michigan Business Corporation Act provides that dividends may be
legally declared or paid only if after the distribution a corporation, such as
the Company, can pay its debts as they come due in the usual course of business
and its 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 whose preferential rights are superior to those
receiving the distribution. The Company is authorized to issue preferred stock
but it has no current plans to issue any such preferred stock.
The Bank
General. The Bank is a Michigan banking corporation and its deposit
accounts are insured by the Bank Insurance Fund (the "BIF") of the FDIC. As a
BIF-insured Michigan chartered bank, the Bank is subject to the examination,
supervision, reporting and enforcement requirements of the Commissioner, as the
chartering authority for Michigan banks, and the FDIC, as administrator of the
BIF. These agencies and the federal and state laws applicable to the Bank and
its operations, extensively regulate various aspects of the banking business
including, among other things, permissible types and amounts of loans,
investments and other activities, capital adequacy, branching, interest rates on
loans and on deposits, the maintenance of non-interest bearing reserves on
deposit accounts, and the safety and soundness of banking practices.
Deposit Insurance. As an FDIC-insured institution, the Bank is required to
pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions are
placed into one of nine categories and assessed insurance premiums, based upon
their respective levels of capital and results of supervisory evaluation.
Institutions classified as well-capitalized (as defined by the FDIC) and
considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (as defined by the FDIC) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.
The Federal Deposit Insurance Act ("FDIA") requires the FDIC to establish
assessment rates at levels which will maintain the Deposit Insurance Fund at a
mandated reserve ratio of not less than 1.25% of estimated insured deposits.
Accordingly, the FDIC established the schedule of BIF insurance assessments for
the first semi-annual assessment period of 1998, ranging from 0% of deposits for
institutions in the lowest risk category to .27% of deposits for institutions in
the highest risk category.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution or its
directors have engaged or are engaging in unsafe or unsound practices, or have
violated any applicable law, regulation, order, or any condition imposed in
writing by, or written agreement with, the FDIC, or if the institution is in an
unsafe or unsound condition to continue operations. The FDIC may also suspend
deposit insurance temporarily during the hearing process for a permanent
termination of insurance if the institution has no tangible capital.
Commissioner Assessments. Michigan banks are required to pay supervisory
fees to the Commissioner to fund the operations of the Commissioner. The amount
of supervisory fees paid by a bank is based upon the bank's total assets, as
reported to the Commissioner.
FICO Assessments. Pursuant to federal legislation enacted September 30,
1996, the Bank, as a member of the BIF, is subject to assessments to cover the
payments on outstanding obligations of the Financing Corporation ("FICO"). FICO
was created in 1987 to finance the recapitalization of the Federal Savings and
Loan Insurance Corporation, the predecessor to the FDIC's Savings Association
Insurance Fund (the "SAIF") which insures the deposits of thrift institutions.
Until January 1, 2000, the FICO assessments made against BIF members may not
exceed 20% of the amount of FICO assessments made against SAIF members.
Currently, SAIF members pay FICO assessments at a rate
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equal to approximately 0.063% of deposits while BIF members pay FICO assessments
at a rate equal to approximately 0.013% of deposits. Between January 1, 2000 and
the maturity of the outstanding FICO obligations in 2019, BIF members and SAIF
members will share the cost of the interest on the FICO bonds on a pro rata
basis. It is estimated that FICO assessments during this period will be less
than 0.025% of deposits
Capital Requirements. The FDIC has established the following minimum
capital standards for state-chartered, FDIC-insured non-member banks, such as
the Bank: a leverage requirement consisting of a minimum ratio of Tier 1 capital
to total assets of 3% for the most highly-rated banks with minimum requirements
of 4% to 5% for all others, and a risk-based capital requirement consisting of a
minimum ratio of total capital to total risk-weighted assets of 8%, at least
one-half of which must be Tier 1 capital. Tier 1 capital consists principally of
shareholders' equity. These capital requirements are minimum requirements.
Higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual institutions. For example, FDIC
regulations provide that higher capital may be required to take adequate account
of, among other things, interest rate risk and the risks posed by concentrations
of credit, nontraditional activities or securities trading activities. As a
condition to regulatory approval of the Bank's formation, the Bank was required
to have an initial capitalization sufficient to provide a ratio of Tier 1
capital to total estimated assets of at least 8% at the end of the third year of
operation.
Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." Federal regulations define these capital categories as
follows:
<TABLE>
Total Tier 1
Risk-Based Risk-Based
Capital Ratio Capital Ratio Leverage Ratio
<S> <C> <C> <C>
Well capitalized 10% or above 6% or above 5% or above
Adequately capitalized 8% or above 4% or above 4% or above
Undercapitalized Less than 8% Less than 4% Less than 4%
Significantly undercapitalized Less than 6% Less than 3% Less than 3%
Critically undercapitalized -- -- A ratio of tangible
equity to total assets
of 2% or less
</TABLE>
Depending upon the capital category to which an institution is assigned,
the regulators' corrective powers include: requiring the submission of a capital
restoration plan; placing limits on asset growth and restrictions on activities;
requiring the institution to issue additional capital stock (including
additional voting stock) or to be acquired; restricting transactions with
affiliates; restricting the interest rate the institution may pay on deposits;
ordering a new election of directors of the institution; requiring that senior
executive officers or directors be dismissed; prohibiting the institution from
accepting deposits from correspondent banks; requiring the institution to divest
certain subsidiaries; prohibiting the payment of principal or interest on
subordinated debt; and ultimately, appointing a receiver for the institution.
In general, a depository institution may be reclassified to a lower
category than is indicated by its capital levels if the appropriate federal
depository institution regulatory agency determines the institution to be
otherwise in an unsafe or unsound condition or to be engaged in an unsafe or
unsound practice. This could include a failure by the institution, following
receipt of a less-than-satisfactory rating on its most recent examination
report, to correct the deficiency.
Dividends. Under Michigan law, the Bank is 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. A
Michigan state bank may not declare or pay a dividend unless the bank 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 one-half year (in the case of quarterly or semi-annual
dividends) or full-year (in the case of annual dividends) has been transferred
to surplus. A Michigan state bank may, with the approval of the Commissioner, by
vote of shareholders owning 2/3 of the stock eligible to vote increase its
capital stock by a declaration of a stock dividend, provided that after the
increase the bank's
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surplus equals at least 20% of its capital stock, as increased. The Bank may not
declare or pay any dividend until the cumulative dividends on preferred stock
(should any such stock be issued and outstanding) have been paid in full. The
Bank's Articles of Incorporation do not authorize the issuance of preferred
stock and there are no current plans to seek such authorization.
Federal law generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its 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, the FDIC may prohibit the payment of dividends by the Bank, if such
payment is determined, by reason of the financial condition of the Bank, to be
an unsafe and unsound banking practice.
Insider Transactions. The Bank is subject to certain restrictions imposed
by the Federal Reserve Act on any extensions of credit to the Company or its
subsidiaries, on investments in the stock or other securities of the Company or
its subsidiaries and the acceptance of the stock or other securities of the
Company or its subsidiaries as collateral for loans. Certain limitations and
reporting requirements are also placed on extensions of credit by the Bank to
its directors and officers, to directors and officers of the Company and its
subsidiaries, to principal shareholders of the Company, and to "related
interests" of such directors, officers and principal shareholders. In addition,
federal law and regulations may affect the terms upon which any person becoming
a director or officer of the Company or one of its subsidiaries or a principal
shareholder of the Company may obtain credit from banks with which the Bank
maintains a correspondent relationship.
Safety and Soundness Standards. The federal banking agencies have adopted
guidelines to promote the safety and soundness of federally insured depository
institutions. These guidelines establish standards for internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, fees and
benefits, asset quality and earnings. In general, the guidelines prescribe the
goals to be achieved in each area, and each institution will be responsible for
establishing its own procedures to achieve those goals. If an institution fails
to comply with any of the standards set forth in the guidelines, the
institution's primary federal regulator may require the institution to submit a
plan for achieving and maintaining compliance. The preamble to the guidelines
states that the agencies expect to require a compliance plan from an institution
whose failure to meet one or more of the standards is of such severity that it
could threaten the safe and sound operation of the institution. Failure to
submit an acceptable compliance plan, or failure to adhere to a compliance plan
that has been accepted by the appropriate regulator, would constitute grounds
for further enforcement action.
State Bank Activities. Under federal law and FDIC regulations, FDIC-insured
state banks are prohibited, subject to certain exceptions, from making or
retaining equity investments of a type, or in an amount, that are not
permissible for a national bank. Federal law, as implemented by FDIC
regulations, also prohibits FDIC-insured state banks and their subsidiaries,
subject to certain exceptions, from engaging as principal in any activity that
is not permitted for a national bank or its subsidiary, respectively, unless the
bank meets, and continues to meet, its minimum regulatory capital requirements
and the FDIC determines the activity would not pose a significant risk to the
deposit insurance fund of which the bank is a member. Impermissible investments
and activities must be divested or discontinued within certain time frames set
by the FDIC in accordance with federal law. These restrictions are not currently
expected to have a material impact on the operations of the Bank.
Consumer Protection Laws. The Bank's business includes making a variety of
types of loans to individuals. In making these loans, the Bank is subject to
State usury and regulatory laws and to various federal statutes, such as the
Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in
Lending Act, the Real Estate Settlement Procedures Act, and the Home Mortgage
Disclosure Act, and the regulations promulgated thereunder, which prohibit
discrimination, specify disclosures to be made to borrowers regarding credit and
settlement costs, and regulate the mortgage loan servicing activities of the
Bank, including the maintenance and operation of escrow accounts and the
transfer of mortgage loan servicing. In receiving deposits, the Bank is subject
to extensive regulation under State and federal law and regulations, including
the Truth in Savings Act, the Expedited Funds Availability Act, the Bank Secrecy
Act, the Electronic Funds Transfer Act, and the Federal Deposit Insurance Act.
Violation of these laws could result in the imposition of significant damages
and fines upon the Bank and its directors and officers.
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Branching Authority. Michigan banks, such as the Bank, have the authority
under Michigan law to establish branches anywhere in the State of Michigan,
subject to receipt of all required regulatory approvals (including the approval
of the Commissioner and the FDIC).
Effective June 1, 1997 (or earlier if expressly authorized by applicable
state law), the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "IBBEA") allows banks to establish interstate branch networks through
acquisitions of other banks, subject to certain conditions, including certain
limitations on the aggregate amount of deposits that may be held by the
surviving bank and all of its insured depository institution affiliates. The
establishment of de novo interstate branches or the acquisition of individual
branches of a bank in another state (rather than the acquisition of an
out-of-state bank in its entirety) is allowed by IBBEA only if specifically
authorized by state law. The legislation allowed individual states to "opt-out"
of interstate branching authority by enacting appropriate legislation prior to
June 1, 1997.
Michigan did not opt out of IBBEA, and now permits both U.S. and non-U.S.
banks to establish branch offices in Michigan. The Michigan Banking Code
permits, in appropriate circumstances and with the approval of the Commissioner,
(i) the acquisition of all or substantially all of the assets of a
Michigan-chartered bank by an FDIC- insured bank, savings bank, or savings and
loan association located in another state, (ii) the acquisition by a Michigan-
chartered bank of all or substantially all of the assets of an FDIC-insured
bank, savings bank or savings and loan association located in another state,
(iii) the consolidation of one or more Michigan-chartered banks and FDIC-insured
banks, savings banks or savings and loan associations located in other states
having laws permitting such consolidation, with the resulting organization
chartered by Michigan, (iv) the establishment by a foreign bank, which has not
previously designated any other state as its home state under the International
Banking Act of 1978, of branches located in Michigan, and (v) the establishment
or acquisition of branches in Michigan by FDIC-insured banks located in other
states, the District of Columbia or U.S. territories or protectorates having
laws permitting Michigan-chartered banks to establish branches in such
jurisdiction. Further, the Michigan Banking Code permits, upon written notice to
the Commissioner, (i) the acquisition by a Michigan-chartered bank of one or
more branches (not comprising all or substantially all of the assets) of an
FDIC-insured bank, savings bank or savings and loan association located in
another state, the District of Columbia, or a U.S. territory or protectorate,
(ii) the establishment by Michigan-chartered banks of branches located in other
states, the District of Columbia, or U.S. territories or protectorates, and
(iii) the consolidation of one or more Michigan-chartered banks and FDIC-insured
banks, savings banks or savings and loan associations located in other states,
with the resulting organization chartered by one of such other states.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 9,500,000 shares of
Common Stock and 500,000 shares of preferred stock, no par value (the "Preferred
Stock"). No shares of Preferred Stock have been issued by the Company.
Michigan law allows the Company's Board of Directors to issue additional
shares of stock up to the total amount of Common Stock and Preferred Stock
authorized without obtaining the prior approval of the shareholders. Macatawa
Bank is the transfer agent for the Common Stock.
Common Stock
Dividend Rights. Subject to any prior rights of holders of Preferred Stock
then outstanding, the holders of the Common Stock will be entitled to dividends
when, as and if declared by the Company's Board of Directors out of funds
legally available therefor. Under Michigan law, dividends may be legally
declared or paid only if after the distribution the corporation can pay its
debts as they come due in the usual course of business and the corporation's
total assets equal or exceed the sum of its liabilities plus the amount that
would be needed to satisfy the preferential rights upon dissolution of any
holders of Preferred Stock then outstanding whose preferential rights are
superior to those receiving the distribution. See "Supervision and Regulation --
The Bank -- Dividends."
Funds for the payment of dividends by the Company are expected to be
obtained primarily from dividends of the Bank. There can be no assurance that
the Company will have funds available for dividends, or that if they are
available, that dividends will be declared by the Company's Board of Directors.
As the Bank is not expected to be profitable during its start up period, the
Company does not expect to be in a position to declare dividends at any time in
the near future.
Voting Rights. Subject to the rights, if any, of holders of shares of
Preferred Stock then outstanding, all voting rights are vested in the holders of
shares of Common Stock. Each share of Common Stock entitles the holder thereof
to one vote on all matters, including the election of directors. Shareholders of
the Company do not have cumulative voting rights.
Preemptive Rights. Holders of Common Stock do not have preemptive rights.
Liquidation Rights. Subject to any rights of any Preferred Stock then
outstanding, holders of Common Stock are entitled to share on a pro rata basis
in the net assets of the Company which remain after satisfaction of all
liabilities.
Reports to Shareholders. The Company will furnish its shareholders with
annual reports containing audited financial information and, for the first three
quarters of each fiscal year, quarterly reports containing unaudited financial
information. See "Available Information."
Shares Available for Issuance. The availability for issuance of a
substantial number of shares of Common Stock and Preferred Stock at the
discretion of the Board of Directors will provide the Company with the
flexibility to take advantage of opportunities to issue such stock in order to
obtain capital, as consideration for possible acquisitions and for other
purposes (including, without limitation, the issuance of additional shares
through stock splits and stock dividends in appropriate circumstances). There
are, at present, no plans, understandings, agreements or arrangements concerning
the issuance of additional shares of the Company capital stock, except for the
shares of Common Stock reserved for issuance under the Company's stock
compensation and stock option plans.
Uncommitted authorized but unissued shares of Common Stock may be issued
from time to time to such persons and for such consideration as the Board of
Directors of the Company may determine and holders of the then outstanding
shares of Common Stock may or may not be given the opportunity to vote thereon,
depending upon the nature of any such transactions, applicable law and the
judgment of the Board of Directors of the Company regarding the submission of
such issuance to the Company's shareholders. As noted, the Company's
shareholders will have no preemptive rights to subscribe to newly issued shares.
Moreover, it will be possible that additional shares of Common Stock would
be issued for the purpose of making an acquisition by an unwanted suitor of a
controlling interest in the Company more difficult, time consuming
34
<PAGE>
or costly or would otherwise discourage an attempt to acquire control of the
Company. Under such circumstances, the availability of authorized and unissued
shares of Common Stock may make it more difficult for shareholders to obtain a
premium for their shares. Such authorized and unissued shares could be used to
create voting or other impediments or to frustrate a person seeking to obtain
control of the Company by means of a merger, tender offer, proxy contest or
other means. Such shares could be privately placed with purchasers who might
cooperate with the Board of Directors of the Company in opposing such an attempt
by a third party to gain control of the Company. The issuance of new shares of
Common Stock could also be used to dilute ownership of a person or entity
seeking to obtain control of the Company. Although the Company does not
currently contemplate taking any such action, shares of Company capital stock
could be issued for the purposes and effects described above, and the Board of
Directors reserves its rights (if consistent with its fiduciary
responsibilities) to issue such stock for such purposes.
Preferred Stock
The Board of Directors of the Company is authorized to issue Preferred
Stock, in one or more series, from time to time, with such voting powers, full
or limited, or without voting powers, and with such designations, preferences
and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as may be provided in the
resolution or resolutions adopted by the Board of Directors. The authority of
the Board of Directors includes, but is not limited to, the determination or
fixing of the following with respect to shares of such class or any series
thereof: (i) the number of shares and designation of such series; (ii) the
dividend rate and whether dividends are to be cumulative; (iii) whether shares
are to be redeemable, and, if so, whether redeemable for cash, property or
rights; (iv) the rights to which the holders of shares shall be entitled, and
the preferences, if any, over any other series; (v) whether the shares shall be
subject to the operation of a purchase, retirement or sinking fund, and, if so,
upon what conditions; (vi) whether the shares shall be convertible into or
exchangeable for shares of any other class or of any other series of any class
of capital stock and the terms and conditions of such conversion or exchange;
(vii) the voting powers, full or limited, if any, of the shares; (viii) whether
the issuance of any additional shares, or of any shares of any other series,
shall be subject to restrictions as to issuance, or as to the powers,
preferences or rights of any such other series; and (ix) any other preferences,
privileges and powers and relative, participating, optional or other special
rights and qualifications, limitations or restrictions.
Anti-Takeover Provisions
In addition to the utilization of authorized but unissued shares as
described above, the Company's Articles and the Michigan Business Corporation
Act (the "MBCA") contain other provisions which could be utilized by Company to
impede certain efforts to acquire control of the Company. Those provisions
include the following:
Control Share Act. The MBCA contains provisions intended to protect
shareholders and prohibit or discourage certain types of hostile takeover
activities. These provisions regulate the acquisition of "control shares" of
large public Michigan corporations (the "Control Share Act").
The Control Share Act establishes procedures governing "control share
acquisitions." A control share acquisition is defined as an acquisition of
shares by an acquirer which, when combined with other shares held by that person
or entity, would give the acquirer voting power at or above any of the following
thresholds: 20%, 33-1/3% or 50%. Under the Control Share Act, an acquirer may
not vote "control shares" unless the corporation's disinterested shareholders
vote to confer voting rights on the control shares. The acquiring person,
officers of the target corporation, and directors of the target corporation who
are also employees of the corporation are precluded from voting on the issue of
whether the control shares shall be accorded voting rights. The Control Share
Act does not affect the voting rights of shares owned by an acquiring person
prior to the control share acquisition.
The Control Share Act entitles corporations to redeem control shares from
the acquiring person under certain circumstances. In other cases, the Control
Share Act confers dissenters' rights upon all of a corporation's shareholders
except the acquiring person.
The Control Share Act applies only to an "issuing public corporation." The
Company falls within the statutory definition of an "issuing public
corporation." The Control Share Act automatically applies to any "issuing public
corporation" unless the corporation "opts out" of the statute by so providing in
its articles of incorporation or bylaws. The Company has not "opted out" of the
Control Share Act.
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<PAGE>
Fair Price Act. Certain provisions of the MBCA (the "Fair Price Act")
establish a statutory scheme similar to the supermajority and fair price
provisions found in many corporate charters. The Fair Price Act provides that a
supermajority vote of 90% of the shareholders and no less than two-thirds of the
votes of non-interested shareholders must approve a "business combination." The
Fair Price Act defines a "business combination" to encompass any merger,
consolidation, share exchange, sale of assets, stock issue, liquidation, or
reclassification of securities involving an "interested shareholder" or certain
"affiliates." An "interested shareholder" is generally any person who owns 10%
or more of the outstanding voting shares of the company. An "affiliate" is a
person who directly or indirectly controls, is controlled by, or is under common
control with a specified person.
The supermajority vote required by the Fair Price Act does not apply to
business combinations that satisfy certain conditions. These conditions include,
among others, that: (i) the purchase price to be paid for the shares of the
company is at least equal to the greater of (a) the market value of the shares
or (b) the highest per share price paid by the interested shareholder within the
preceding two-year period or in the transaction in which the shareholder became
an interested shareholder, whichever is higher; and (ii) once a person has
become an interested shareholder, the person must not become the beneficial
owner of any additional shares of the company except as part of the transaction
which resulted in the interested shareholder becoming an interested shareholder
or by virtue of proportionate stock splits or stock dividends.
The requirements of the Fair Price Act do not apply to business
combinations with an interested shareholder that the Board of Directors has
approved or exempted from the requirements of the Fair Price Act by resolution
at any time prior to the time that the interested shareholder first became an
interested shareholder.
Classified Board. The Board of Directors of the Company is classified into
three classes, with each class serving a staggered, three-year term.
Classification of the Board could have the effect of extending the time during
which the existing Board of Directors could control the operating policies of
Company even though opposed by the holders of a majority of the outstanding
shares of Common Stock.
Under the Company's Articles, all nominations for directors by a
shareholder must be delivered to the Company in writing at least 60, but not
more than 90, days prior to the annual meeting of the shareholders. A nomination
that is not received within this period will not be placed on the ballot. The
Board believes that advance notice of nominations by shareholders will afford a
meaningful opportunity to consider the qualifications of the proposed nominees
and, to the extent deemed necessary or desirable by the Board of Directors, will
provide an opportunity to inform shareholders about such qualifications.
Although this nomination procedure does not give the Board of Directors any
power to approve or disapprove of shareholder nominations for the election of
directors, this nomination procedure may have the effect of precluding a
nomination for the election of directors at a particular annual meeting if the
proper procedures are not followed.
The Company's Articles provide that any one or more directors may be
removed at any time, with or without cause, but only by either: (i) the
affirmative vote of a majority of "Continuing Directors" and at least 80% of the
directors; or (ii) the affirmative vote, at a meeting of the shareholders called
for that purpose, of the holders of at least 80% of the voting power of the
then-outstanding shares of capital stock of the Company entitled to vote
generally in the election of directors, voting together as a single class. A
"Continuing Director" is generally defined in the Articles as any member of the
Board who is unaffiliated with any "interested shareholder" (generally, an owner
of 10% or more of the Company's outstanding voting shares) and was a member of
the Board prior to the time an interested shareholder became an interested
shareholder, and any successor of a Continuing Director who is unaffiliated with
an interested shareholder and is recommended to succeed a Continuing Director by
a majority of the Continuing Directors then on the Board.
Any vacancies in the Board of Directors for any reason, and any newly
created directorships resulting from any increase in the number of directors,
may be filled only by the Board of Directors, acting by an affirmative vote of a
majority of the Continuing Directors and an 80% majority of all of the directors
then in office, although less than a quorum. Any directors so chosen shall hold
office until the next annual meeting of shareholders at which directors are
elected to the class to which such a director was named and until their
respective successors shall be duly elected and qualified or their resignation
or removal. No decrease in the number of directors may shorten the term of any
incumbent director.
36
<PAGE>
Notice of Shareholder Proposals. Under the Company's Articles, the only
business that may be conducted at an annual or special meeting of shareholders
is business that has been brought before the meeting by or at the direction of
the majority of the directors or by a shareholder of the Company: (i) who
provides timely notice of the proposal in writing to the secretary of the
Company and the proposal is a proper subject for action by shareholders under
Michigan law or (ii) whose proposal is included in the Company's proxy materials
in compliance with all the requirements set forth in the applicable rules and
regulations of the Securities and Exchange Commission. To be timely, a
shareholder's notice of proposal must be delivered to, or mailed to and received
at the principal executive offices of the Company not less than 60 days prior to
the date of the originally scheduled annual meeting regardless of any
postponements, deferrals or adjournments of that meeting to a later date. With
respect to special meetings, notice must be received by the Company not more
than 10 days after the Company mails notice of the special meeting. The
shareholder's notice of proposal must set forth in writing each matter the
shareholder proposes to bring before the meeting including: (i) the name and
address of the shareholder submitting the proposal, as it appears on the
Company's books and records; (ii) a representation that the shareholder: (a) is
a holder of record of stock of the Company entitled to vote at the meeting, (b)
will continue to hold such stock through the date on which the meeting is held,
and (c) intends to vote in person or by proxy at the meeting and to submit the
proposal for shareholder vote; (iii) a brief description of the proposal desired
to be submitted to the meeting for shareholder vote and the reasons for
conducting such business at the meeting; and (iv) the description of any
financial or other interest of the shareholder in the proposal. This procedure
may limit to some degree the ability of shareholders to initiate discussions at
annual shareholders meetings. It may also preclude the conducting of business at
a particular meeting if the proposed notice procedures have not been followed.
Certain Shareholder Action. The Company's Articles require that any
shareholder action must be taken at an annual or special meeting of
shareholders, that any meeting of shareholders must be called by the Board of
Directors or the Chairman of the Board, and prohibit shareholder action by
written consent. Shareholders of the Company are not permitted to call a special
meeting of shareholders or require that the Board call such a special meeting.
The MBCA permits shareholders holding in the aggregate 10% or more of all of the
shares entitled to vote at a meeting to request the Circuit Court of the County
in which the Company's principal place of business or registered office is
located to order a special meeting of shareholders for good cause shown.
Amendment or Repeal of Certain Provisions of the Articles. Under Michigan
law, the Board of Directors need not adopt a resolution setting forth an
amendment to the Articles before the shareholders may vote on it. Unless the
Articles provide otherwise, amendments of the Articles generally require the
approval of the holders of a majority of the outstanding stock entitled to vote
thereon, and if the amendment would increase or decrease the number of
authorized shares of any class or series, or the par value of such shares, or
would adversely affect the rights, powers, or preferences of such class or
series, a majority of the outstanding stock of such class or series also would
be required to approve the amendment.
The Company's Articles require that in order to amend, repeal or adopt any
provision inconsistent with Article VIII relating to the Board of Directors,
Article IX relating to shareholder proposals or Article X with respect to
certain shareholder action, the affirmative vote of at least 80% of the issued
and outstanding shares of Common Stock entitled to vote in the election of
directors, voting as a single class must be received; provided, however, that
such amendment or repeal or inconsistent provision may be made by a majority
vote of such shareholders at any meeting of the shareholders duly called and
held where such amendment has been recommended for approval by at least 80% of
all directors then holding office and by a majority of the "continuing
directors." These amendment provisions could render it more difficult to remove
management or for a person seeking to effect a merger or otherwise gain control
of the Company. These amendment requirements could, therefore adversely affect
the potential realizable value of shareholders' investments.
Board Evaluation of Certain Offers. Article XII of the Company's Articles
provides that the Board of Directors shall not approve, adopt or recommend any
offer of any person or entity (other than the Company) to make a tender or
exchange offer for any Common Stock, to merge or consolidate the Company with
any other entity, or to purchase or acquire all or substantially all of the
Company's assets, unless and until the Board has evaluated the offer and
determined that it would be in compliance with all applicable laws and that the
offer is in the best interests of the Company and its shareholders. In doing so,
the Board may rely on an opinion of legal counsel who is independent from the
offeror, and/or it may test such legal compliance in front of any court or
agency that may have appropriate jurisdiction over the matter.
37
<PAGE>
In making its determination, the Board must consider all factors it deems
relevant, including but not limited to: (i) the adequacy and fairness of the
consideration to be received by the Company and/or its shareholders, considering
historical trading prices of the capital stock of the Company, the price that
could be achieved in a negotiated sale of the Company as a whole, past offers,
and the future prospects of the Company; (ii) the potential social and economic
impact of the proposed transaction on the Company, its subsidiaries, its
employees, customers and vendors; (iii) the potential social and economic impact
of the proposed transaction on the communities in which the Company and its
subsidiaries operate or are located; (iv) the business and financial condition
and earnings prospects of the proposed acquiring person or entity; and (v) the
competence, experience and integrity of the proposed acquiring person or entity
and its or their management.
In order to amend, repeal, or adopt any provision that is inconsistent with
Article XII, at least 80% of the shareholders, voting together as a single
class, must approve the change, unless the change has been recommended for
approval by at least 80% of the directors, in which case a majority of the
voting stock could approve the action.
38
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company expects to have approximately
2,240,125 shares of its Common Stock outstanding. The 1,300,000 shares of the
Company's Common Stock purchased in this Offering (plus any additional shares
sold upon the Underwriter's exercise of its over-allotment option) have been
registered with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"), and may generally
be resold without registration under the Securities Act unless they were
acquired by directors, executive officers, or other affiliates of the Company or
the Bank (collectively, "Affiliates"). Affiliates of the Company may generally
only sell shares of the Common Stock pursuant to the Commission's Rule 144.
In general, under Rule 144 as currently in effect, an affiliate (as defined
in Rule 144) of the Company may sell shares of the Common Stock within any
three-month period in an amount limited to the greater of 1% of the outstanding
shares of the Company's Common Stock (22,401 shares immediately after the
completion of this Offering) or the average weekly trading volume in the
Company's Common Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company.
The Company and the directors and officers of the Company and the Bank (who
are expected to hold an aggregate of approximately 222,750 shares after this
Offering), have agreed, or will agree, that they will not issue, offer for sale,
sell, grant any options for the sale of or otherwise dispose of any shares of
Common Stock or any rights to purchase shares of Common Stock, in the open
market or otherwise, without the prior written consent of the Underwriter for a
period of one year from the date of this Prospectus. In addition, all of those
investors who owned stock in the Bank before it was acquired by the Company,
have agreed not to sell any of the Company shares exchanged for their Bank
shares prior to November 10, 1998. Prior to this Offering, there has been no
public trading market for the Common Stock, and no predictions can be made as to
the effect, if any, that sales of shares or the availability of shares for sale
will have on the prevailing market price of the Common Stock after completion of
this Offering. Nevertheless, sales of substantial amounts of Common Stock in the
public market could have an adverse effect on prevailing market prices.
39
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Robert
W. Baird & Co. Incorporated, as Underwriter, has agreed to purchase from the
Company an aggregate of up to 1,300,000 shares of Common Stock at the initial
offering price less the Underwriting Discounts and Commissions set forth on the
cover page of this Prospectus.
The Underwriting Agreement provides that the Underwriter's obligation to
pay for and accept delivery of the shares of Common Stock offered hereby is
subject to certain conditions precedent and that the Underwriter will be
obligated to purchase all such shares, excluding shares covered by the
over-allotment option, if any are purchased.
The Company has been advised by the Underwriter that the Underwriter will
purchase the shares of Common Stock offered hereunder at an initial offering
price of $10.00 per share less Underwriting Discounts and Commissions of $0.70
per share. However, Underwriting Discounts and Commissions will be reduced to
$0.30 per share with respect to sales of shares to any director or officer of
the Company or the Bank or their immediate family members ("Affiliated
Purchasers"), and will be reduced to $0.525 for potential investors whose name,
address and telephone number are furnished to the Underwriter by the Company
prior to the commencement by the Underwriter of the offering process. In
addition, with respect to a maximum of 400,000 shares of Common Stock to be sold
to persons who previously invested in the Bank in 1997 and were shareholders of
the Company prior to this Offering, the Underwriter has agreed that there will
be no Underwriting Discounts or Commissions.
The Underwriter has informed the Company that it does not intend to confirm
sales of the shares of Common Stock offered hereby to any accounts over which it
exercises discretionary authority.
The Company has granted the Underwriter an option exercisable for 30 days
after the date of this Prospectus to purchase up to 195,000 additional shares of
Common Stock to cover over-allotments, if any, at the same price per share to be
paid by the Underwriter for the other shares of Common Stock offered hereby. The
Underwriter may exercise such option only for the purpose of covering any
over-allotments of the 1,300,000 shares of Common Stock offered hereby.
The Company, its directors and executive officers and those of the Bank
have agreed with the Underwriter, for a period of one year after the date of
this Prospectus, not to issue, sell, offer to sell, grant any options for the
sale of, or otherwise dispose of any shares of Common Stock or any rights to
purchase shares of Common Stock, in the open market or otherwise, without the
prior written consent of the Underwriter.
The Underwriting Agreement contains indemnity provisions between the
Underwriter and the Company and the controlling persons thereof against certain
liabilities, including liabilities arising under the Securities Act. The Company
is generally obligated to indemnify the Underwriter in connection with losses or
claims arising out of any untrue statement of a material fact contained in this
Prospectus or in related documents filed with the Commission or with any state
securities administrator or any omission of certain material facts from such
documents.
There has been no public trading market for the Common Stock. The initial
offering price was determined by negotiations between the Company and the
Underwriter. This price is not based upon earnings or any history of operations
and should not be construed as indicative of the present or anticipated future
value of the Common Stock. Several factors were considered in determining the
initial offering price of the Common Stock, including the fact that the Bank has
commenced operations, the size of the Offering, the desire that the security
being offered be attractive to individuals and the Underwriter's experience in
dealing with initial public offerings for financial institutions. Prior to this
Offering, the Bank sold shares of its common stock to its original investors for
a price equivalent to $8.70 per share of Common Stock.
40
<PAGE>
LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to any pending legal
proceeding. Management believes there is no litigation threatened in which the
Company or the Bank faces potential loss or exposure or which will materially
affect shareholders' equity or the Company's business or financial condition
upon completion of this Offering.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Varnum, Riddering, Schmidt & Howlett LLP, Grand Rapids,
Michigan. Barrack Ferrazzano Kirschbaum Perlman & Nagelberg, Chicago, Illinois,
is acting as counsel for the Underwriter in connection with certain legal
matters relating to the shares of Common Stock offered hereby.
Members of Varnum, Riddering, Schmidt & Howlett LLP own, in the aggregate,
11,500 shares of Common Stock.
EXPERTS
The financial statements of the Company included in this Prospectus have
been audited by Crowe, Chizek and Company LLP, independent public accountants,
as indicated in their report with respect thereto. Such financial statements are
included herein and in the Registration Statement in reliance upon such reports
given upon the authority of such firm as experts in auditing and accounting.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 concerning
certain aspects of the business of the Company. When used in this prospectus,
words such as "believe," "anticipate," "intend," "goal," "expects," and similar
expressions may identify forward-looking statements. Forward-looking statements
are subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated in such forward-looking statements.
Prospective investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Prospectus.
The Company undertakes no obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement with the Commission in
accordance with the provisions of the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. For further information pertaining to the shares of Common Stock
offered hereby and to the Company, reference is made to the Registration
Statement, including the Exhibits filed as a part thereof, copies of which can
be inspected at and copied at the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 606661, and Room 1400, 75 Park Place, New York, New York
10007. Copies of such materials can also be obtained at prescribed rates by
writing to the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition the Company is required to file
electronic versions of these documents with the Commission through the
Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
The Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions discussed above under "Description of Capital Stock
- -- Anti-Takeover Provisions" or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
41
<PAGE>
MACATAWA BANK CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
<PAGE>
MACATAWA BANK CORPORATION
Zeeland, Michigan
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
CONTENTS
REPORT OF INDEPENDENT AUDITORS...............................................F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET..............................................F-3
CONSOLIDATED STATEMENT OF INCOME........................................F-4
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY...............F-5
CONSOLIDATED STATEMENT OF CASH FLOWS....................................F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..............................F-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Macatawa Bank Corporation
Zeeland, Michigan
We have audited the accompanying consolidated balance sheet of Macatawa Bank
Corporation and Subsidiary as of December 31, 1997 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
period from May 21, 1997 (date of inception) through December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit 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 audit provides a reasonable basis for opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Macatawa Bank
Corporation and Subsidiary at December 31, 1997, and the results of their
operations and their cash flows for the period from May 21, 1997 (date of
inception) through December 31, 1997 in conformity with generally accepted
accounting principles.
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
February 25, 1998
<PAGE>
MACATAWA BANK CORPORATION
CONSOLIDATED BALANCE SHEET
December 31, 1997
<TABLE>
1997
<S> <C>
ASSETS
Cash and due from banks ........................... $ 415,120
Short-term investments ............................ 7,000,000
----------
Cash and cash equivalents ..................... 7,415,120
Securities available for sale, at fair value ...... 2,000,400
Total loans ....................................... 497,704
Allowance for loan losses ......................... (7,500)
490,204
Premises and equipment - net ...................... 681,807
Accrued interest receivable ....................... 38,532
Organizational costs .............................. 66,139
Other assets ...................................... 29,991
-----------
Total assets .................................. $10,722,193
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing ........................... $ 245,812
Interest-bearing .............................. 2,466,411
-----------
Total .................................... 2,712,223
Accrued expenses and other liabilities ............ 37,963
Total liabilities ............................. 2,750,186
Shareholders' equity
Preferred stock, no par value, 500,000 shares
authorized; no shares issued and outstanding
Common stock, no par value: 9,500,000 shares
authorized; 1997 - 940,125
shares issued and outstanding ................... 8,137,268
Retained deficit .................................. (165,525)
Net unrealized appreciation on securities available
for sale, net of tax of $136 .................... 264
Total shareholders' equity .................... 7,972,007
-----------
Total liabilities and shareholders' equity $10,722,193
===========
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Period from May 21, 1997 (date of inception) through
December 31, 1997
<TABLE>
1997
<S> <C>
Interest income
Loans, including fees ........................ $ 3,448
Securities ................................... 72,834
---------
Total interest income .................... 76,282
Interest expense
Deposits ..................................... 5,339
Other ........................................ 213
Total interest expense ................... 5,552
Net interest income ............................... 70,730
Provision for loan losses ......................... (7,500)
Net interest income after provision for loan losses 63,230
Noninterest expense
Salaries and benefits ........................ 111,341
Occupancy expense of premises ................ 9,226
Furniture and equipment expense .............. 5,328
Legal and professional fees .................. 18,437
Advertising .................................. 27,698
Supplies ..................................... 30,729
Other expense ................................ 25,996
---------
Total noninterest expenses ............... 228,755
Loss before federal income tax .................... (165,525)
Federal income tax ................................ 0
Net loss .......................................... $(165,525)
=========
Basic loss per share .............................. $ (.18)
=========
Average shares outstanding ........................ 940,125
=========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Period from May 21, 1997 (date of inception) through December 31, 1997
<TABLE>
Net Unrealized
Appreciation
on Securities
Available Total
Common Retained for Sale, Shareholders'
Stock Deficit Net of Tax Equity
<S> <C> <C> <C> <C>
Balance, May 21, 1997 $ 0 $ 0 $ 0 $ 0
Common stock sale on November 7, 1997 8,137,268 8,137,268
Net loss for the period from May 21, 1997 (date
of inception) through December 31, 1997 $(165,525) (165,525)
Net change in unrealized appreciation on securities
available for sale, net of tax of $136 $ 264 264
----------- ---------- ------ --------
Balance, December 31, 1997 8,137,268 (165,525) 264 7,972,007
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Period from May 21, 1997 (date of inception) through December 31, 1997
<TABLE>
1997
<S> <C>
Cash flows from operating activities
Net loss ............................................ $ (165,525)
Adjustments to reconcile net loss to net
cash from operating activities
Depreciation and amortization ................... 5,769
Provision for loan losses ....................... 7,500
Net change in
Organizational costs ....................... (66,139)
Accrued interest receivable and other assets (68,523)
Accrued expenses and other liabilities ..... 37,827
-----------
Net cash from operating activities ..... (249,091)
Cash flows from investing activities
Net increase in loans ............................... (497,704)
Purchase of
Securities available for sale ................... (2,000,000)
Premises and equipment .......................... (687,576)
Net cash from investing activities ......... (3,185,280)
Cash flows from financing activities
Net increase in deposits ............................ 2,712,223
Proceeds from the issuance of 940,125 shares
of common stock ................................... 8,137,268
Net cash from financing activities .............. 10,849,491
Net change in cash and cash equivalents .................. 7,415,120
Cash and cash equivalents at beginning of period ......... 0
-----------
Cash and cash equivalents at end of period ............... $ 7,415,120
===========
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest ....................................... $ 640
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: The Company became the bank holding company for Macatawa
Bank (the "Bank") on February 23, 1998, when all of the Bank's outstanding
common stock (817,500 shares) was converted into all of the outstanding common
stock of the Company (940,125 shares) and all of the Bank's shareholders became
all of the Company's shareholders. The exchange ratio in the conversion was 1.15
shares of Company common stock for each share of Bank common stock. The Bank's
common stock had been issued to its shareholders as of November 27, 1997 as a
result of a private offering of the Bank's common stock at a price of $10 per
share or a total of $8,175,000. As this was an internal reorganization, the
consolidated financial statements are presented by including operations of the
Company and Bank. Further, share and per share data has been adjusted for the
conversion ratios of 1.15 shares of Company stock for one share of Bank stock.
Macatawa Bank is a community-based financial institution, located in the Holland
and Zeeland, Michigan area. The Bank's primary services include accepting
deposits and making commercial, mortgage and installment loans in the Michigan
counties of Ottawa and Kent. The Bank commenced its application process on May
21, 1997, completed its common stock sale on November 7, 1997 and opened for
operations on November 25, 1997 after several months of work by incorporators
and employees in preparing applications with the various regulatory agencies and
obtaining insurance and building space. While a portion of these costs, those
associated with organizational costs ($66,139), have been capitalized and are
being amortized over 60 months, the remaining costs ($70,059) are included in
the 1997 income statement. These financial statements include the results of
operations for the period since the commencement of the application process.
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 securities (securities
with maturities of equal to or less than 90 days) 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. Securities held to maturity are investment securities for which
the Bank has the positive intent and ability to hold to maturity and are
reported at cost, adjusted for premiums and discounts that are recognized in
interest income using the interest method over the period to maturity.
(Continued)
F-7
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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, the allowance for loan losses, and charge-offs. 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 known and inherent risks in the portfolio, economic conditions and
other factors. 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. There
were no loans classified as impaired for the periods presented.
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.
Income Taxes: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the 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.
(Continued)
F-8
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
Dividend Restriction: The Company and Bank are subject to banking regulations
which require the maintenance of certain capital levels and which may limit the
amount of dividends which may be paid.
Basic Earnings (Loss) Per Share: Basic earnings (loss) per share is based on net
income (loss) divided by the weighted average number of shares outstanding
during the period.
NOTE 2 - SECURITIES
The amortized cost and fair values of securities were as follows:
<TABLE>
Available for Sale
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
<S> <C> <C> <C> <C>
December 31, 1997
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 2,000,000 $ 400 $ 2,000,400
=============== ============ ===========
</TABLE>
The Bank held only one security at year-end 1997 which matures on December 18,
1998.
There were no sales of securities for the period from May 21, 1997 (date of
inception) through December 31, 1997.
(Continued)
F-9
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 3 - LOANS
<TABLE>
Loans are as follows:
December 31,
1997
<S> <C>
Commercial $ 130,000
Mortgage 207,245
Consumer 160,459
------------
497,704
Allowance for loan losses (7,500)
$ 490,204
============
</TABLE>
Activity in the allowance for loan losses is as follows:
<TABLE>
Period from
May 21, 1997,
(date of inception)
through
December 31,
1997
<S> <C>
Balance at beginning of period $ 0
Provision charged to operating expense 7,500
------------
Balance at end of period $ 7,500
============
</TABLE>
NOTE 4 - PREMISES AND EQUIPMENT - NET
Premises and equipment are as follows:
<TABLE>
Accumulated Carrying
Cost Depreciation Value
<S> <C> <C> <C>
December 31, 1997
Building and improvements $ 196,761 $ (1,055) $ 195,706
Furniture and equipment 490,815 (4,714) 486,101
------------ ------------ ------------
$ 687,576 $ (5,769) $ 681,807
============ ============ ============
</TABLE>
(Continued)
F-10
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 5 - DEPOSITS
Deposits are summarized as follows:
<TABLE>
December 31,
1997
<S> <C>
Noninterest-bearing demand deposit accounts $ 245,812
Money market accounts 1,173,742
NOW and Super NOW accounts 628,653
Savings accounts 146,973
Certificates of deposit 517,043
-----------
$ 2,712,223
===========
</TABLE>
At period end, maturities of certificates of deposits were as follows, for the
next five years:
<TABLE>
December 31,
1997
<S> <C>
1998 $352,203
1999 158,945
2000 4,805
2001 0
2002 1,090
$517,043
========
</TABLE>
The Bank had approximately $200,000 in time certificates of deposit which were
in denominations of $100,000 or more at December 31, 1997.
(Continued)
F-11
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 6 - FEDERAL INCOME TAXES
The Company recorded no current or deferred benefit for income taxes as a result
of recording the valuation allowance in the amount of net deferred tax assets.
Deferred tax assets and liabilities consist of:
<TABLE>
December 31,
1997
<S> <C>
Deferred tax assets
Net operating loss carryforward (expiring in 2018) $ 53,656
Provision for loan losses 2,550
Deferred tax liabilities
Net unrealized appreciation on securities available for sale (136)
--------------
Net deferred tax asset 56,070
Valuation allowance for deferred tax assets (56,070)
Net deferred tax asset after valuation allowance $ 0
===============
</TABLE>
As a result of the valuation allowance, the Company's effective tax rate was
reduced from the statutory rate of 34% to 0%.
NOTE 7 - RELATED PARTIES
In the ordinary course of business, certain officers, directors and companies
with which they are affiliated have loan and deposit transactions with the
Company. There were no loans to these related parties at December 31, 1997.
Related party deposits totaled approximately $611,000 at year end 1997.
(Continued)
F-12
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 8 - COMMITMENTS AND OFF-BALANCE-SHEET RISK
Some financial instruments are used to meet customer financing needs and to
reduce exposure to interest rate changes. These financial instruments include
commitments to extend credit and standby letters of credit. These involve, to
varying degrees, credit and interest-rate risk in excess of the amount reported
in the financial statements.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment, and
generally have fixed expiration dates. Standby letters of credit are conditional
commitments to guarantee a customer's performance to a third party. Exposure to
credit loss if the other party does not perform is represented by the
contractual amount for commitments to extend credit and standby letters of
credit. Collateral or other security is normally not obtained for these
financial instruments prior to their use, and many of the commitments are
expected to expire without being used.
A summary of the notional or contractual amounts of financial instruments with
off-balance-sheet risk is as follows:
<TABLE>
December 31,
1997
<S> <C>
Commitments to make loans $ 2,290,000
Commercial unused lines of credit 2,000
Consumer unused lines of credit 129,763
</TABLE>
The Company has no commitments to make loans and unused lines of credit at fixed
rates. The commitments noted above are all at variable rates tied to prime.
The Company conducts substantially all of its business operations in western
Michigan.
The Company leases certain office and branch premises and equipment under
operating lease agreements. Total rental expense for all operating leases
aggregated $1,600 in 1997. Future minimum rentals under noncancelable operating
leases as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 72,000
1999 60,100
2000 30,800
--------
$162,900
</TABLE>
(Continued)
F-13
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 9 - REGULATORY MATTERS
The Company 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>
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 6 3 3
</TABLE>
Actual capital levels (in thousands) and minimum required levels for the Company
and Bank were:
<TABLE>
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)
Company $ 7,980 133.8% $ 477 8.0% $ 596 10.0%
Bank 7,980 133.8% 477 8.0% 596 10.0%
Tier 1 capital (to risk weighted assets)
Company 7,972 133.7 239 4.0 358 6.0
Bank 7,972 133.7 239 4.0 358 6.0
Tier 1 capital (to average assets)
Company 7,972 83.3 383 4.0 478 5.0
Bank 7,972 83.3 383 4.0 478 5.0
</TABLE>
The Company and Bank were categorized as well capitalized at December 31, 1997.
(Continued)
F-14
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company opened for operations on November 25, 1997. As there have been no
significant changes in interest rates from November 25, 1997 to December 31,
1997, the values shown on the balance sheet approximate market value at December
31, 1997. The interest rates offered by the Company for its loan products
increased .10% during the period while deposit rates stayed the same. Investment
securities are disclosed at fair value in Note 2.
While the estimates of fair value are based on management's judgment of the most
appropriate factors, there is no assurance that were the Company to have
disposed of such items, the estimated fair values would necessarily have been
achieved at those dates, since market values may differ depending on various
circumstances. The estimated fair values should not necessarily be considered to
apply to subsequent dates.
In addition, other assets and liabilities of the Company that are not defined as
financial instruments are not included in the above disclosures, such as
property and equipment. Also, non-financial instruments typically not recognized
in the financial statements nevertheless may have value but are not included in
the above disclosures. These include, among other items, the estimated earnings
power of core deposit accounts, the trained work force, customer goodwill and
similar items.
NOTE 11 - SUBSEQUENT EVENTS
Branch Expansion
In 1998, the Bank opened a full service branch office and a loan production
center in Holland, Michigan. In addition, the Bank is in the process of opening
additional branch facilities in Holland, Jenison and Zeeland, Michigan.
Appropriate regulatory approvals are required for these branch locations. Lease
commitments for the Holland and Zeeland locations have been reflected with other
lease commitments in Note 8. The cost of the land and premises for the
additional Zeeland and Jenison locations is estimated to be $1,686,000.
Employee Stock Compensation Plan
In 1998, the Company adopted and its shareholders have approved the Macatawa
Bank Corporation Stock Compensation Plan (the "Plan"). The purpose of the Plan
is to promote the long-term success of the Company for the benefit of its
shareholders through stock-based compensation, by aligning the personal
interests of the Company's key employees with those of its shareholders. The
Plan is designed to allow key employees of the Company and certain of its
subsidiaries to participate in the Company's future, as well as to enable the
Company to attract, retain and reward such employees.
(Continued)
F-15
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 11 - SUBSEQUENT EVENTS (Continued)
The Plan provides for the granting of a variety of stock-based awards, such as
stock options, including incentive stock options, as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), restricted stock,
performance shares, and other stock-based awards. The term of the Plan is 10
years; no Awards may be granted under the Plan after January 25, 2008.
One hundred thousand (100,000) shares of the Company's common stock are set
aside for use under the Plan. The shares to be issued under the Plan will be
authorized and unissued shares, including shares reacquired by the Company which
have that status. The number of shares that may be issued under the Plan and the
number of shares subject to options are subject to adjustments in the event of a
merger, reorganization, consolidation, recapitalization, stock dividends, stock
splits, or other change in corporate structure affecting the common stock.
Subject to certain restrictions, unexercised options, lapsed shares of
restricted stock, and shares surrendered in payment for exercising options may
be reissued under the Plan.
1998 Directors' Stock Option Plan
In 1998, the Company also adopted and its shareholders have approved the
Macatawa Bank Corporation 1998 Directors' Stock Option Plan (the "Directors
Plan"). Options have been granted under the Directors' Plan to each of the
Bank's original directors to purchase a total of 20,000 shares of the Company's
common stock at a price of $10 per share ("Organizer Options"). In the future
options under the Plan may only be granted to directors who are not employed by
the Company or any subsidiary. The Directors' Plan authorizes the Board of
Directors to develop a formula for future option grants but that formula has not
yet been developed.
The term of each option granted under the Directors' Plan is 10 years from the
date of grant subject to earlier termination at the end of three years following
the director's termination of services as a director, except for organizer
options which continue for a full 10 years from the date granted. The option
price for each option must equal 100% of the fair market value of the Company's
common stock on the date the option is granted. In general, no option may be
exercisable in whole or in part prior to the first anniversary of the date of
grant of the option.
A total of 40,000 shares of the Company's common stock are reserved for issuance
under the Directors' Plan. The shares of common stock that may be delivered
under the Directors' Plan pursuant to the exercise of options will consist of
authorized and unissued shares, which may include shares reacquired by the
Company. The Directors' Plan provides for an equitable adjustment in the number,
kind or price of shares of common stock covered by options in the event the
outstanding shares of common stock are increased, decreased or changed into or
exchanged for a different number or kind of shares of the Company through stock
dividends or similar changes.
(Continued)
F-16
<PAGE>
No dealer, salesperson or any other person has been authorized to give
information or make any representation not contained in this Prospectus in
connection with the offer made in this Prospectus, and if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or the Underwriter. This Prospectus does not constitute an offer
to sell or a solicitation by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
the affairs of the Company since the date hereof or the information herein is
correct as of any time subsequent to the date of this Prospectus.
----------------
TABLE OF CONTENTS
Page
Prospectus Summary.......................................................... 3
Risk Factors................................................................ 6
Use of Proceeds.............................................................11
Dividend Policy.............................................................11
Recent Developments.........................................................12
Capitalization..............................................................13
Dilution....................................................................13
Business....................................................................14
Plan of Operation...........................................................18
Management..................................................................19
Certain Transactions........................................................26
Principal Shareholders......................................................27
Supervision and Regulation..................................................28
Description of Capital Stock................................................34
Shares Eligible for Future Sale.............................................39
Underwriting................................................................40
Legal Proceedings...........................................................41
Legal Matters...............................................................41
Experts.....................................................................41
Forward-Looking Statements..................................................41
Additional Information......................................................41
Index to Financial Statements...............................................F-1
--------------------
Until _______________, 1998, all dealers effecting transactions in the
Common Stock, whether or not participating in this distribution, may be required
to deliver a Prospectus. This delivery requirement is in addition to the
obligation of dealers to deliver a Prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
1,300,000 Shares
MACATAWA BANK
CORPORATION
Common Stock
PROSPECTUS
Robert W. Baird & Co.
Incorporated
____________, 1998
<PAGE>
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Directors and Officers.
Sections 561-571 of the Michigan Business Corporation Act, as amended (the
"MBCA"), grant the Registrant broad powers to indemnify any person in connection
with legal proceedings brought against him by reason of his present or past
status as an officer or director of the Registrant, provided that the person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Registrant, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The MBCA also gives the Registrant broad powers to indemnify any
such person against expenses and reasonable settlement payments in connection
with any action by or in the right of the Registrant, provided the person acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Registrant, except that no indemnification may be made
if such person is adjudged to be liable to the Registrant unless and only to the
extent the court in which such action was brought determines upon application
that, despite such adjudication, but in view of all the circumstances of the
case, the person is fairly and reasonably entitled to indemnity for reasonable
expenses as the court deems proper. In addition, to the extent that any such
person is successful in the defense of any such legal proceeding, the Registrant
is required by the MBCA to indemnify him against expenses, including attorneys'
fees, that are actually and reasonably incurred by him in connection therewith.
The Registrant's Articles of Incorporation contain provisions entitling
directors and executive officers of the Registrant to indemnification against
certain liabilities and expenses to the full extent permitted by Michigan law.
Under an insurance policy maintained by the Registrant, the directors and
officers of the Registrant are insured within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of certain claims, actions, suits or proceedings, and certain
liabilities which might be imposed as a result of such claims, actions, suits or
proceedings, which may be brought against them by reason of being or having been
such directors and officers.
The Registrant has agreed to indemnify the Underwriter, and the Underwriter
has agreed to indemnify the Registrant, against certain civil liabilities,
including liabilities under the Securities Act, as amended. Reference is made to
the Underwriting Agreement filed as Exhibit 1 herewith.
Item 25. Other Expenses of Issuance and Distribution.
Expenses in connection with the issuance and distribution of the securities
being registered are estimated as follows, all of which are to be paid by the
Company:
<TABLE>
<S> <C>
SEC Registration Fee....................................... $ 4,411
NASD Filing Fee............................................ 1,995
Printing and Mailing Expenses.............................. 20,000
Accounting Fees............................................ 15,000
Transfer and Registrar's Fees.............................. 4,000
Legal Fees and Expenses.................................... 100,000
Blue Sky Fees and Expenses................................. 20,000
Miscellaneous.............................................. 5,000
---------
$170,406
</TABLE>
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
The Company has 940,125 shares of its Common Stock issued and outstanding.
These shares were issued on February 23, 1998, in exchange for the 817,500
outstanding shares of Common Stock of the Bank, pursuant to a reorganization in
which the Bank became a wholly-owned subsidiary of the Company. The shares of
Common Stock were not registered pursuant to the Securities Act of 1933, as
amended (the "1933 Act"), pursuant to an exemption claimed under Section
3(a)(10) of the 1933 Act. No underwriter was involved in the reorganization and
formation of the holding company.
The shares of stock of the Bank were sold in 1997 and were not required to
be registered under the 1933 Act pursuant to an exemption claimed under Section
3(a)(5) of the 1933 Act. No underwriter was involved in the sale.
Item 27. Exhibits.
Reference is made to the Exhibit Index which appears at page II-4 of the
Registration Statement.
Item 28. Undertakings.
Insofar as indemnification for liabilities under the Securities Act of
1933, as amended (the "1933 Act") may be permitted to directors, officers and
controlling persons of the Company pursuant of the foregoing provisions, or
otherwise, the Company has been advised that, in the opinion of the Securities
and Exchange Commission such indemnification is against the public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Company 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 Company 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 1933 Act and
will be governed by the final adjudication of such issue.
The undersigned Company hereby undertakes that: (1) For purposes of
determining any liability under the Securities Act of 1933, 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
Company pursuant to Rule 424(b)(1) or (4) or Rule 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as of the time it
was declared effective; and (2) For the purpose of determining any liability
under the Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Amendment No. 1 to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Holland, State of Michigan, on
February 25, 1998.
MACATAWA BANK CORPORATION
By: /s/ Benj. A. Smith, III
Benj. A. Smith, III
Chairman of the Board
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Benj. A. Smith, III and Philip J. Koning, and
each of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or his substitute may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
Signature Date
/s/ Benj. A. Smith, III February 25, 1998
Benj. A. Smith, III, Principal Executive Officer and a Director
/s/ Philip J. Koning February 25, 1998
Philip J. Koning, Principal Financial and Accounting Officer
and a Director
/s/ G. Thomas Boylan February 25, 1998
G. Thomas Boylan, Director
/s/ Robert E. DenHerder* February 25, 1998
Robert E. DenHerder, Director
Brian J. Hansen, Director
*By /s/ Benj. A. Smith, III
Benj. A. Smith, III, Attorney-in-fact
II-3
<PAGE>
EXHIBIT INDEX
Sequentially
Numbered
Exhibit Number and Description Page
1** Form of Underwriting Agreement
2* Consolidation Agreement dated December 10, 1997
3.1* Articles of Incorporation of Macatawa Bank Corporation
3.2* Bylaws of Macatawa Bank Corporation
4** Specimen stock certificate of Macatawa Bank Corporation
5* Opinion of Varnum, Riddering, Schmidt & Howlett LLP
10.1* Macatawa Bank Corporation Stock Compensation Plan
10.2* Macatawa Bank Corporation 1998 Directors' Stock Option Plan
10.3* Lease Agreement dated July 8, 1997, for the facility located
at 51 E. Main Street, Zeeland, Michigan 49464
10.4* Lease Agreement dated January 1, 1998, for the facility
located at 139 East 8th Street, Holland, Michigan 49423
10.5* Lease Agreement dated December 22, 1997, for the facility
located at 106 E. 8th Street, Holland, Michigan 49423
10.6* Lease Agreement dated January 1, 1998, for the facility
located at 701 Maple Street, Holland, Michigan 49424
10.7* Real Estate Purchase/Sale Agreement dated January 23,
1998, for the facility located at 2020 Baldwin Street,
Jenison, Michigan
10.8* RDSI Banking Systems Data Processing Agreement with
Macatawa Bank dated October 1, 1997.
21* Subsidiaries of the Registrant
23.1 Consent of Crowe, Chizek and Company LLP, independent public
accountants
23.2* Consent of Varnum, Riddering, Schmidt & Howlett LLP
(included in opinion filed as Exhibit 5)
24* Power of Attorney (included on the signature page on
page II-3 of the Registration Statement)
27* Financial Data Schedule
* Previously filed
** To be filed by amendment.
::ODMA\PCDOCS\GRR\119797\6
II-4
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUTANTS
We hereby consent to the use of our report dated February 25, 1998 on the
financial statements of Macatawa Bank Corporation for the period ended December
31, 1997, to be included within this Registration Statement on Form SB-2 and
Prospectus of Macatawa 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
February 23, 1998
