Registration No.
As filed with the Securities and Exchange Commission on January 10, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST MICHIGAN BANK CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-2024376
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
6712
(Primary Standard Industrial Classification Code Number)
10717 Adams Street, Holland, Michigan 49423 (616) 355-9200
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
DAVID M. ONDERSMA
Chairman and Chief Executive Officer
First Michigan Bank Corporation
10717 Adams Street
Holland, Michigan 49423
(616) 355-9200
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
It is requested that copies of communications from the Securities and
Exchange Commission be sent to:
DONALD L. JOHNSON ERIC V. BROWN, JR.
Varnum, Riddering, Schmidt & Miller, Canfield, Paddock &
Howlett LLP Stone, P.L.C.
P.O. Box 352 444 West Michigan Avenue
Grand Rapids, Michigan 49501-0352 Kalamazoo, MI 49007-3751
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum
Title of Amount to be Offering Price Aggregate Amount of
Securities to Registered Per Share(1) Offering Registration
be Registered Price(1) Fee
<S> <C> <C> <C> <C>
Common Stock 653,850 (2) $10.18 (3) $6,656,825 (4) $2,295.46 (5)
($1.00 par
value)
(1) Estimated solely for the purpose of computing the amount of the
registration fee.
(2) Estimate of the maximum number of Registrant's shares of common stock
that may be issued in the Merger considering the terms of the proposed
exchange and the maximum number of outstanding shares of Arcadia
Financial Corporation at the time of the Merger.
(3) Amount (rounded to the nearest cent) determined as described in Note (4)
divided by the number of shares to be registered.
(4) The aggregate book value of the common stock of Arcadia Financial
Corporation at September 30, 1995.
(5) Calculated pursuant to Rule 457(f)(2) based upon amount determined as
described in Note (4).
</TABLE>
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>
First Michigan Bank Corporation
Cross Reference Sheet
Form S-4 Location or Heading in
Item Number and Caption Prospectus/Proxy Statement
1. Forepart of Registration Statement and Cover Page
Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover Page; Table
Pages of Prospectus of Contents
3. Risk Factors, Ratio of Earnings to Introduction; Risk Factors;
Fixed Charges and Other Information Summary
4. Terms of the Transaction Introduction; Summary;
Proposed Merger;
Description of FMBC
Capital Stock
5. Pro Forma Financial Information Pro Forma Condensed Combined
Financial Statements
6. Material Contracts with the Company Proposed Merger
Being Acquired
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Experts and Counsel Not Applicable
9. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
10. Information with Respect to S-3 Not Applicable
Registrants
11. Incorporation of Certain Information Information Incorporated by
by Reference Reference
12. Information with Respect to S-2 or Not Applicable
S-3 Registrants
13. Incorporation of Certain Information Not Applicable
by Reference
14. Information with Respect to Registrants Not Applicable
Other than S-2 or S-3 Registrants
15. Information with Respect to S-3 Not Applicable
Companies
<PAGE>
16. Information with Respect to S-2 or S-3 Not Applicable
Companies
17. Information with Respect to Companies Arcadia Financial Corporation;
Other Than S-2 or S-3 Companies Arcadia Financial Corporation
Financial Statements;
Appendix B - Statistical
Information Regarding
Arcadia Financial Corporation
18. Information if Proxies, Consents or Information Incorporated by
Authorizations Are To Be Solicited Reference; Introduction;
Summary; Meeting Informa-
tion; Proposed Merger
19. Information if Proxies, Consents or Not Applicable
Authorizations Are Not To Be
Solicited in an Exchange Offer
<PAGE>
PROSPECTUS/PROXY STATEMENT
First Michigan Bank Corporation Arcadia Financial Corporation
Prospectus Proxy Statement
In Connection with an Offering of for the
653,850 Shares of Common Stock, Special Meeting of Shareholders
$1.00 Par Value to be held March 6, 1996
The Board of Directors of Arcadia Financial Corporation ("AFC") is
furnishing this Prospectus/Proxy Statement to solicit proxies to vote at
the Special Meeting of AFC's shareholders to be held on March 6, 1996, and
at any adjournment thereof ("Special Meeting"). At the Special Meeting,
AFC's shareholders will be asked to approve an Agreement and Plan of Merger
between AFC and First Michigan Bank Corporation pursuant to which AFC will
be merged into FMBC (the "Merger").
This Prospectus/Proxy Statement is a prospectus of FMBC and pertains to
shares of common stock of FMBC, $1.00 par value ("FMBC Common Stock"), to be
issued in connection with the Merger. If the Merger is consummated, each
outstanding share of common stock of AFC ("AFC Common Stock") will be
automatically converted into 1.648 shares of FMBC Common Stock, subject to
payment of cash for fractional shares. This offering is made only to the
holders of AFC Common Stock. For a more complete description of the terms
of the Merger, see "Proposed Merger."
FMBC Common Stock is traded in the over-the-counter market and is quoted
on the National Association of Securities Dealers Automated Quotation
("NASDAQ") National Market System under the symbol "FMBC". The closing sale
price of FMBC Common Stock on , 1996 was $ per share.
Your vote is important. Approval of the Merger requires the affirmative
vote of a majority of the outstanding shares of AFC Common Stock. Whether
or not you expect to attend the Special Meeting in person, please sign and
date the enclosed Proxy and return it promptly in the enclosed envelope.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Date of this Prospectus/Proxy Statement is , 1996.
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be Held March 6, 1996
To the Shareholders of Arcadia Financial Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Arcadia
Financial Corporation will be held on March 6, 1996 at 4:30 p.m., local time,
at the Kalamazoo Country Club, 1609 Whites Road, Kalamazoo, Michigan, for the
following purposes:
1. To consider and vote upon the approval of an Agreement and Plan of
Merger (the "Plan of Merger") which provides for the merger of
Arcadia Financial Corporation with and into First Michigan Bank
Corporation; and
2. To transact any and all other business that may properly come before
the meeting, or any adjournments thereof.
The Board of Directors has fixed the close of business on January 31, 1996,
as the record date for the determination of shareholders entitled to notice of
and to vote at the meeting and any adjournments thereof.
By Order of the Board of Directors,
Ronald J. Bieke
President
Dated: , 1996
Kalamazoo, Michigan
APPROVAL OF THE MERGER REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A
MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK OF ARCADIA FINANCIAL
CORPORATION. SHAREHOLDERS ARE URGED TO SIGN, DATE AND RETURN THE ENCLOSED
PROXY PROMPTLY IN THE ACCOMPANYING POSTAGE-PREPAID ENVELOPE. IF YOU ATTEND
THE MEETING, YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AND VOTE IN PERSON. THE
PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE IN THE MANNER DESCRIBED
IN THE ATTACHED PROSPECTUS/PROXY STATEMENT.
<PAGE>
AVAILABLE INFORMATION
FMBC is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements, and other information
filed by FMBC with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street N.W., Judiciary Plaza, Washington, D.C. 20549, and at its regional
offices in New York (Room 1330, 7 World Trade Center, New York, New York 10048),
and in Chicago (Suite 1400, Northwestern Atrium Center, 500 West Madison,
Chicago, Illinois 60661-2511). Copies of such material can be obtained by
mail from the Public Reference Section of the Commission, at 450 Fifth Street
N.W., Washington D.C. 20549, at prescribed rates.
FMBC has filed a Registration Statement on Form S-4 ("Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with the Commission covering the shares of FMBC Common Stock to
be issued in connection with the Merger. As permitted by the rules and
regulations of the Commission, this Prospectus/Proxy Statement omits certain
information, exhibits and undertakings contained in the Registration
Statement. For further information pertaining to the securities offered
hereby and each company, reference is made to the Registration Statement,
including the exhibits filed as a part thereof. Copies of the Registration
Statement and the exhibits can be inspected, without charge, at the offices
of the Commission, or obtained from the Public Reference Section of the
Commission at prescribed rates.
INFORMATION INCORPORATED BY REFERENCE
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE UPON REQUEST FROM DAVID M. ONDERSMA, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, FIRST MICHIGAN BANK CORPORATION, 10717 ADAMS STREET, HOLLAND, MICHIGAN
49423 (616-355-9200). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY FEBRUARY 6, 1996.
FMBC undertakes to provide without charge to each person, including any
beneficial owner, to whom a Prospectus/Proxy Statement is delivered, upon
written or oral request, a copy of any and all information that has been
incorporated by reference into this Prospectus/Proxy Statement (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
the Prospectus/Proxy Statement incorporates).
The following information previously filed with the Securities and Exchange
Commission by FMBC is incorporated herein by reference: (a) the Annual Report
of FMBC on Form 10-K for the year ended December 31, 1994; (b) all other
reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended ("Exchange Act") since December 31, 1994 and (c) the
description of FMBC's Common Stock contained in FMBC's Registration Statement
on Form 8-A filed pursuant to Section 12 of the Exchange Act, including any
subsequent amendments or reports filed for the purpose of updating that
description. All other reports FMBC files with the Securities and Exchange
Commission subsequent to the date of this Prospectus/Proxy Statement, but
prior to the date of the special meeting of Arcadia Financial Corporation's
shareholders, pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act shall also be deemed to be incorporated by reference into this
Prospectus/Proxy Statement.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus/Proxy Statement to the extent that a statement
contained herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus/Proxy Statement.
<PAGE>
Arcadia Financial Corporation
PROSPECTUS/PROXY STATEMENT
FOR
Special Meeting of Shareholders
To Be Held March 6, 1996
INTRODUCTION
This Prospectus/Proxy Statement is furnished to the shareholders of record
on January 31, 1996 of Arcadia Financial Corporation ("AFC") in connection
with the solicitation of proxies by the Board of Directors of AFC for use at
a Special Meeting of Shareholders to be held at the Kalamazoo Country Club,
1609 Whites Road, Kalamazoo, Michigan on March 6, 1996, at 4:30 p.m., local
time, and at any adjournments of such meeting.
At the Special Meeting, the shareholders of AFC will be asked to approve
an Agreement and Plan of Merger (the "Plan of Merger") between AFC and First
Michigan Bank Corporation ("FMBC") pursuant to which AFC would be merged with
and into FMBC. A copy of the Plan of Merger is attached as Appendix A and
is incorporated by reference in this Prospectus/Proxy Statement. For a
description of the terms of the Plan of Merger, see the discussion under
the caption "Proposed Merger."
AFC's Board of Directors unanimously voted to adopt the Plan of Merger and
determined that the consummation of the proposed Merger would be in the best
interests of AFC and its shareholders. (See "Arcadia Financial Corporation--
Interests of Certain Persons.")
The principal executive offices of FMBC are located at 10717 Adams Street,
Holland, Michigan 49423, and its telephone number is (616) 355-9200. The
principal executive offices of AFC are located at 251 East Michigan Avenue,
Kalamazoo, Michigan 49007-6414, and its telephone number is (616) 349-0900.
The Prospectus/Proxy Statement is being released for mailing to AFC's
shareholders on or about , 1996.
The Board of Directors of AFC recommends that the shareholders of AFC vote
FOR approval of the Plan of Merger.
<PAGE>
SUMMARY
This summary is necessarily general and has been prepared to assist
shareholders of AFC in their review of this Prospectus/Proxy Statement. This
summary is not intended to be a complete explanation of the matters covered
in this Prospectus/ Proxy Statement and is qualified in all respects by
reference to the more detailed information contained in this Prospectus/Proxy
Statement and the attached Appendices.
The Parties
First Michigan Bank Corporation ("FMBC"). FMBC, a registered bank holding
company, owns all of the outstanding stock of thirteen commercial banks, one
bank engaged primarily in trust services, one insurance company, and one
brokerage services company operating in the State of Michigan. Based on
total consolidated assets at December 31, 1994, FMBC ranked approximately
seventh in size among the bank holding companies located in Michigan. At
September 30, 1995, FMBC had consolidated total assets of $3,027,736,000,
total deposits of $2,628,009,000 and shareholders' equity of $238,704,000.
Arcadia Financial Corporation ("AFC"). AFC, a one-bank holding company,
owns all the outstanding stock of the Arcadia Bank & Trust Company, a Michigan
banking corporation ("Bank"). At September 30, 1995, AFC had total assets of
$100,324,000, total deposits of $92,239,000 and shareholders' equity of
$6,657,000.
The Meeting
AFC's Special Meeting of Shareholders ("Special Meeting") will be held on
March 6, 1996 at 4:30 p.m., local time, at the Kalamazoo Country Club,
1609 Whites Road, Kalamazoo, Michigan. Only holders of record of AFC Common
Stock at the close of business on January 31, 1996, will be entitled to vote
at the Special Meeting and any adjournment thereof. At that date, there were
outstanding and entitled to vote 371,004 shares of AFC Common Stock. Each
share of AFC Common Stock is entitled to one vote. As of the record date, the
directors and executive officers of AFC and their affiliates owned beneficially
143,766 shares, or approximately 37% of the out-standing shares of AFC Common
Stock. See "Arcadia Financial Corporation--AFC Shareholders--Officers and
Directors." It is expected that all directors and executive officers of AFC
will vote in favor of the Merger. See "Meeting Information - Record Date;
Vote Required for Approval."
At the Special Meeting, shareholders of AFC will be asked to approve the
Plan of Merger. Please refer to the discussion under the caption "Proposed
Merger" for more details concerning the Merger. The affirmative vote of the
holders of not less than a majority of the outstanding shares of AFC Common
Stock is required to approve the Merger. See the discussion under the
caption "Meeting Information."
Terms of the Merger
AFC and FMBC have entered into an Agreement and Plan of Merger, dated as
of December 22, 1995 (the "Plan of Merger"), a copy of which is attached as
Appendix A, which provides for the merger of AFC with and into FMBC. The
Plan of Merger sets forth the terms and conditions of the Merger and the basis
upon which the Merger, if approved, will be effected. Following the Merger,
the business of the Bank will be conducted as a wholly-owned subsidiary of
FMBC. See generally "Proposed Merger" and "Proposed Merger-Conditions to the
Merger."
Upon consummation of the Merger, each outstanding share of AFC Common Stock
will be converted into 1.648 shares of FMBC Common Stock. However, FMBC will
not issue fractional shares of FMBC Common Stock in the Merger. An AFC
shareholder who would otherwise be entitled to receive a fraction of a share
of FMBC Common Stock in the Merger will receive instead an amount of cash
determined by multiplying that fraction by the last reported sale price of
FMBC Common Stock as of the close of business on the last trading date
immediately preceding the date of Closing.
<PAGE>
Recommendation of AFC Board of Directors
The Board of Directors of AFC unanimously voted to adopt the Plan of Merger
and determined that consummation of the Merger would be in the best interests
of AFC and its shareholders. Accordingly, the Board of Directors of AFC
recommends that the shareholders of AFC vote FOR approval of the Plan of
Merger. Please refer to the discussion under the caption "Proposed Merger -
Reasons for Approval of the Merger."
Conditions to the Merger
The consummation of the Merger is subject to various conditions, including
approval of the Plan of Merger by AFC's shareholders and the Board of
Governors of the Federal Reserve System ("Federal Reserve Board"), as well
as the satisfaction of various other conditions specified in the Plan of
Merger. An application requesting approval by the Federal Reserve Board has
been submitted to the Federal Reserve Bank of Chicago and is pending approval.
The Merger may be abandoned and the Plan of Merger terminated notwithstanding
shareholder approval if certain specified events occur. In addition, either
AFC or FMBC may terminate the Plan of Merger if the Merger has not been
consummated on or before June 30, 1996. If Arcadia's shareholders fail to
approve the Merger because of a competing proposal, Arcadia will be required
to pay FMBC a fee of $250,000. See "Proposed Merger--Conditions to the Merger
and Abandonment of Merger."
The approval of the Merger by the Federal Reserve Board will reflect only
its view that the Merger does not contravene applicable competitive standards
imposed by law and that the Merger is consistent with regulatory policies.
The approval is not an opinion by the Federal Reserve Board that the proposed
Merger is favorable to the shareholders from a financial point of view or
that the Federal Reserve Board has considered the adequacy of the terms of
the Merger. The Merger cannot be consummated for a waiting period of thirty
(30) days after receipt of the Federal Reserve Board's approval. During this
thirty (30) day period, the United States Department of Justice may review
the competitive effects of the Merger to determine whether it will take action
to block the Merger. Under certain circumstances, the waiting period may be
shortened but in no event may it be less than fifteen (15) days after the
Federal Reserve Board's approval.
Certain Differences in Shareholders' Rights and Other Matters
AFC and FMBC are both corporations organized under the laws of the State
of Michigan. As a result, the shareholders of AFC and FMBC have the same
rights as such under Michigan law. However, there are certain differences
between AFC and FMBC with respect to certain shareholder rights and other
matters. FMBC has a classified Board of Directors, a Shareholder Protection
Rights Plan, and a provision in its Articles of Incorporation requiring a
higher than normal shareholder vote on certain transactions. FMBC is also
subject to the requirements of the Securities Exchange Act of 1934. See
"Proposed Merger -- Certain Differences in Shareholder Rights and Other
Matters."
Dissenters' Rights
Because of the nature of the consideration to be received in the proposed
Merger, shareholders of AFC will not have statutory dissenters' rights. See
"Meeting Information--Rights of Dissenting Shareholders."
Federal Income Tax Consequences
As a condition to the Merger, AFC and FMBC must receive an opinion of legal
counsel to the effect, among other things, that the Merger, when consummated
in accordance with the terms set forth in the Plan of Merger, will constitute
a reorganization within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Code"), and, to the extent AFC Common
Stock is exchanged solely for FMBC Common Stock, that such exchange will not
give rise to taxable gain or loss to the shareholders of AFC. See "Proposed
Merger--Federal Income Tax Consequences." DUE TO THE COMPLEXITIES OF FEDERAL,
STATE AND LOCAL INCOME TAX LAWS, IT IS STRONGLY RECOMMENDED THAT SHAREHOLDERS
OF AFC CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE AND LOCAL
TAX CONSEQUENCES OF THE MERGER AND THE IMPACT OF RECEIVING FMBC COMMON STOCK.
<PAGE>
Accounting Treatment
FMBC expects to account for the Merger under the pooling of interests method
of accounting. See "Proposed Merger - Accounting Treatment."
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
The following table sets forth selected audited and unaudited historical
financial information for FMBC and AFC. The table also sets forth selected
unaudited pro forma combined financial information for FMBC and AFC. The
information presented below should be read in conjunction with other financial
information included elsewhere or incorporated by reference in this
Prospectus/Proxy Statement, the separate historical statements of FMBC and
notes thereto, incorporated by reference herein, and the separate historical
financial statements of AFC and notes thereto, included elsewhere herein.
The unaudited pro forma information has been prepared on the assumption that
the Merger will be accounted for using the pooling-of-interests method of
accounting. The pro forma results of operations are not necessarily
indicative of the results that may be attained in the future or that would
have actually occurred in the past if the transaction had been consummated
at the beginning of the periods presented.
(in thousands) Nine Months
----------Ended-----------
FMBC HISTORICAL (A) 9/30/95 9/30/94
<S> <C> <C>
Income Statement Data
Net interest income $92,185 $83,664
Provision for loan
losses 5,614 4,622
Income from
continuing
operations 26,042 23,961
Net Income 26,042 23,961
Balance Sheet Data (period end)
Total assets 3,027,736 2,756,584
Securities 689,420 720,197
Loans 2,080,864 1,826,814
Deposits 2,628,009 2,382,175
Long term debt 6,575 7,453
Shareholder's equity 238,704 215,388
Per Share Data
Income from operations
(fully diluted) $ 1.42 1.30
Net income
(fully diluted) 1.42 1.30
Cash Dividends 0.56 0.48
AFC HISTORICAL (unaudited) (unaudited)
Income Statement Data
Net interest income $ 3,109 2,452
Provision for loan losses 219 151
Income from
continuing
operations 1,025 711
Net income 1,025 711
Balance Sheet Data (period end)
Total assets $100,324 85,246
Securities 13,688 12,983
Loans 78,490 64,873
Deposits 92,239 78,268
Long term debt 550 1,300
Shareholders' equity 6,657 4,869
Per Share Data
Income from
continuing
operations $ 2.76 1.97
Net income 2.76 1.97
Cash dividends 0.00 0.00
PRO FORMA COMBINED (B) (unaudited) (unaudited)
Income Statement Data
Net interest income $95,294 86,116
Provision for loan
losses 5,833 4,773
Income from continuing
operations 27,067 24,672
Net income 27,067 24,672
Balance Sheet Data (period end)
Total assets $3,128,343 2,841,830
Securities 703,108 733,180
Loans 2,159,354 1,891,687
Deposits 2,720,248 2,460,443
Long term debt 7,125 8,753
Shareholders' equity 245,644 220,257
Per Share Data
Income from operations
(fully diluted) $ 1.42 1.29
Net income
(fully diluted) 1.42 1.29
Cash dividends 0.54 0.45
</TABLE>
<TABLE>
(in thousands) ----------------Year Ended December 31,----------------
1994 1993 1992 1991 1990
FMBC HISTORICAL (A) (audited) (audited) (audited) (audited) (audited)
<S> <C> <C> <C> <C> <C>
Income Statement Data
Net interest income $113,733 $99,059 $93,769 $ 82,951 $ 71,706
Provision for loan
losses 6,459 5,262 6,497 5,571 4,875
Income from
continuing
operations 32,380 29,477 25,676 21,395 18,973
Net Income 32,380 29,477 25,676 21,395 18,973
Balance Sheet Data (period end)
Total
assets $2,827,261 $2,520,818 $2,347,350 $2,146,406 $1,919,963
Securities 714,033 719,179 662,534 602,890 492,555
Loans 1,891,480 1,616,269 1,444,716 1,360,701 1,239,741
Deposits 2,404,669 2,172,333 2,023,184 1,859,075 1,664,967
Long term debt 7,412 9,345 10,219 11,971 8,114
Shareholder's equity 217,870 204,228 186,010 165,753 139,237
Per Share Data
Income from operations
(fully diluted) $ 1.76 $ 1.59 $ 1.39 $ 1.20 $ 1.12
Net income
(fully diluted) 1.76 1.59 1.39 1.20 1.12
Cash dividends 0.66 0.52 0.40 0.37 0.32
AFC HISTORICAL (audited) (audited) (audited) (audited) (audited)
Income Statement Data
Net interest income $ 3,431 $ 2,533 $ 2,066 $ 1,766 $ 1,410
Provision for loan
losses 211 126 154 283 128
Income from continuing
operations 1,347 535 355 194 95
Net income 1,347 535 421 282 126
Balance Sheet Data (period end)
Total assets $ 90,431 $ 75,336 $ 59,935 $ 50,494 $ 41,470
Securities 14,974 11,818 9,339 7,165 1,478
Loans 67,757 57,089 46,456 38,394 31,094
Deposits 83,163 68,712 55,012 46,152 37,427
Long term debt 650 550 650 750 850
Shareholders' equity 5,581 4,186 3,650 3,229 2,927
Per Share Data
Income from continuing
operations $ 3.72 $ 1.48 $ 0.98 $ 0.54 $ 0.26
Net income 3.72 1.48 1.16 0.78 0.35
Cash dividends 0.00 0.00 0.00 0.00 0.00
PRO FORMA COMBINED(B)(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Income Statement Data
Net interest
income $117,164 $101,592 $95,835 $84,717 $73,116
Provision for
loan losses 6,670 5,388 6,651 5,854 5,003
Income from
continuing
operations 33,727 30,012 26,031 21,589 19,068
Net income 33,727 30,012 26,097 21,677 19,099
Balance Sheet Data (period end)
Total assets 2,917,962 $2,596,154 $2,407,285 $2,196,900 $1,961,433
Securities 729,007 730,997 671,873 610,055 494,033
Loans 1,959,237 1,673,358 1,491,172 1,399,095 1,270,835
Deposits 2,487,832 2,241,045 2,078,196 1,905,227 1,702,394
Long term debt 8,062 9,895 10,869 12,721 8,964
Shareholders'
equity 223,451 208,414 189,660 168,982 142,164
Per Share Data
Income from operations (fully
diluted) $ 1.77 $ 1.57 $ 1.36 $ 1.17 $ 1.09
Net income
(fully diluted) 1.77 1.57 1.37 1.17 1.09
Cash dividends 0.62 0.48 0.37 0.34 0.30
(A) FMBC's financial data includes FMB-Maynard Allen Bank from December 31,
1990, and FMB-Northwestern Bank from May 31, 1991, their respective
dates of acquisition. FMBC's financial data has been restated to reflect
the acquisitions of FMB-Old State Bank on June 20, 1994 and Superior
Financial Corporation on March 10, 1995 as poolings-of-interests.
(B) See the "Pro Forma Condensed Combined Balance Sheet" and the "Pro Forma
Condensed Combined Statement of Earnings" appearing elsewhere herein.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPARATIVE PER SHARE DATA
The following table presents audited and unaudited historical FMBC and AFC
per share data, unaudited pro forma combined FMBC per share data and unaudited
equivalent pro forma combined AFC per share data. The information is based on
the historical financial statements of FMBC and AFC and the pro forma combined
financial statements. The pro forma data does not purport to be indicative of
results of future operations or the mutual results that would have occurred
had the Merger been consummated at the beginning of the periods presented. The
pro forma data has been included as required by the rules of the Securities and
Exchange Commission and is provided for comparative purposes only. The data
presented below should be read in conjunction with other unaudited pro forma
information included elsewhere in this Prospectus/Proxy Statement, the
separate historical consolidated financial statements of FMBC and notes
thereto, incorporated by reference herein, and the separate historical
financial statements of AFC and notes thereto, included elsewhere herein.
FIRST MICHIGAN BANK CORPORATION
Nine Months
---- Ended ---- -------Year Ended December 31,-------
9/30/95 9/30/94 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS PER SHARE (a)
HISTORICAL
Income from Continuing
Operations:
Primary. . . . . $ 1.42 $ 1.30 $ 1.76 $ 1.59 $ 1.39 $ 1.20 $ 1.12
Fully-diluted. . $ 1.42 $ 1.30 $ 1.76 $ 1.59 $ 1.39 $ 1.20 $ 1.12
Net Income:
Primary. . . . . $ 1.42 $ 1.30 $ 1.76 $ 1.59 $ 1.39 $ 1.20 $ 1.12
Fully-diluted. . $ 1.42 $ 1.30 $ 1.76 $ 1.59 $ 1.39 $ 1.20 $ 1.12
PRO FORMA (b)
Income from Continuing
Operations:
Primary. . . . . $ 1.42 $ 1.29 $ 1.77 $ 1.57 $ 1.36 $ 1.17 $ 1.09
Fully-diluted. . $ 1.42 $ 1.29 $ 1.77 $ 1.57 $ 1.36 $ 1.17 $ 1.09
Net Income:
Primary. . . . . $ 1.42 $ 1.29 $ 1.77 $ 1.57 $ 1.37 $ 1.17 $ 1.09
Fully-diluted. . $ 1.42 $ 1.29 $ 1.77 $ 1.57 $ 1.37 $ 1.17 $ 1.09
CASH DIVIDENDS PER SHARE (a)
HISTORICAL . . . . $ 0.56 $ 0.48 $ 0.66 $ 0.52 $ 0.40 $ 0.37 $ 0.32
PRO FORMA (c). . . $ 0.54 $ 0.45 $ 0.62 $ 0.48 $ 0.37 $ 0.34 $ 0.30
BOOK VALUE PER SHARE (a)(d)
HISTORICAL . . . . $13.12 $11.84 $12.03 $11.23 $10.11 $ 9.10 $ 8.14
PRO FORMA (e). . . $13.04 $11.72 $11.93 $11.10 $ 9.98 $ 8.99 $ 8.04
</TABLE>
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
<TABLE>
<CAPTION>
COMPARATIVE PER SHARE DATA (continued)
ARCADIA FINANCIAL CORPORATION
Nine Months
---- Ended ---- ------Year Ended December 31,-------
9/30/95 9/30/94 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS PER SHARE
HISTORICAL
Income from Continuing
Operations: . . $ 2.76 $ 1.97 $ 3.72 $ 1.48 $ 0.98 $ 0.54 $ 0.26
Net Income . . . . 2.76 1.97 3.72 1.48 1.16 0.78 0.35
EQUIVALENT PRO FORMA (f)
Income from Continuing
Operations:
Primary. . . . . $ 2.34 $ 2.13 $ 2.92 $ 2.59 $ 2.24 $ 1.93 $ 1.80
Fully-diluted. . 2.34 2.13 2.92 2.59 2.24 1.93 1.80
Net Income:
Primary. . . . . $ 2.34 $ 2.13 $ 2.92 $ 2.59 $ 2.26 $ 1.93 $ 1.80
Fully-diluted. . 2.34 2.13 2.92 2.59 2.26 1.93 1.80
CASH DIVIDENDS PER SHARE
HISTORICAL . . . . $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
EQUIVALENT PRO
FORMA (f) . . . $ 0.89 $ 0.74 $ 1.02 $ 0.79 $ 0.61 $ 0.56 $ 0.49
BOOK VALUE PER SHARE (d)
HISTORICAL . . . . $17.94 $13.45 $15.04 $11.56 $10.08 $ 8.92 $ 8.09
EQUIVALENT PRO
FORMA (f). . . $21.49 $19.31 $19.66 $18.29 $16.45 $14.82 $13.25
</TABLE>
Exchange Ratio - As determined in the Agreement and Plan of Merger, each share
of AFC common stock outstanding shall be exchanged for 1.648 shares of FMBC
common stock.
(a) The number of shares used in the computations has been adjusted to give
retroactive effect to the stock dividends and splits paid by FMBC in
each year and to reflect the acquisitions of FMB-Old State Bank on
June 20, 1994 and Superior Financial Corporation on March 10, 1995 as
poolings-of-interests.
(b) The pro forma combined earnings per share data of FMBC is computed by
combining AFC's income with that of FMBC and dividing by the combined
average number of shares outstanding, after multiplying AFC's average
number of shares outstanding by the Exchange Ratio. AFC's shares
outstanding as of September 30, 1995 have been adjusted for the
pro forma exercise and issuance of 25,750 shares under option that are
required to be exercised by the date of the merger.
(c) The pro forma combined cash dividends declared per share of FMBC are
computed by combining AFC's cash dividends declared with those of FMBC
and dividing by the combined number of shares outstanding, after
multiplying AFC's number of shares outstanding by the Exchange Ratio.
AFC's shares outstanding as of September 30, 1995 have been
adjusted for the pro forma exercise and issuance of 25,750 shares under
option that are required to be exercised by the date of the merger.
(d) Book value per share is based on shares outstanding as of period end.
(e) The pro forma combined book value per share is computed by combining
ending shareholders' equity of AFC with that of FMBC and dividing by the
combined number of shares outstanding, after multiplying AFC's number
of shares outstanding by the Exchange Ratio. AFC's ending
shareholders' equity and shares outstanding as of September 30, 1995
have been adjusted for the pro forma exercise and issuance of 25,750
shares under option that are required to be exercised by the date of
the merger.
(f) The equivalent pro forma combined per share information of AFC is computed
by multiplying the pro forma combined per share data by the Exchange
Ratio.
<PAGE>
Market Value of Securities
FMBC Common Stock is traded in the over-the-counter market and is quoted on
the National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System under the symbol "FMBC." There is no public market
for AFC Common Stock and AFC is not aware of any sales during calendar years
1993, 1994 and 1995. Sales of AFC's Common Stock are discussed under the
caption "Arcadia Financial Corporation--Market for Common Stock and Related
Shareholder Matters." The following table presents a comparison of the per
share historical prices of FMBC's and the "equivalent" per share market value
of Common Stock based on the conversion ratios explained in the notes
following the table.
FMBC AFC
Historical Equivalent
Basis Basis
$ 27.00 (1) $ 44.50 (2)
$ 28.50 (3) $ 46.97 (4)
(1) Closing sale price per share as reported by NASDAQ at the close of
business on the last trading day preceding the public announcement of the
proposed Merger (October 23, 1995).
(2) Calculated on the basis that one share of AFC Common Stock is equivalent
to 1.648 shares of FMBC Common Stock.
(3) Closing sale price per share as reported by NASDAQ at the close of business
on January 8, 1996.
(4) Calculated on the basis that one share of AFC Common Stock is equivalent
to 1.648 shares of FMBC Common Stock.
Approval of the Merger by the shareholders of AFC requires the affirmative
vote of a majority of the outstanding shares of AFC Common Stock. As of
January 31, 1996, AFC's directors, executive officers and their affiliates
own approximately 37% of the outstanding shares of AFC Common Stock entitled
to vote on the Merger. See "Arcadia Financial Corporation--AFC Shareholders--
Officers and Directors." Approval of the Merger by the shareholders of FMBC
is not required.
MEETING INFORMATION
Record Date
Shareholders of record of AFC Common Stock at the close of business on
January 31, 1996, will be entitled to vote on the approval of the Merger
and any other matter that may be brought before the Special Meeting on
March 6, 1996 and any adjournment thereof. As of January 31, 1996, there
were 371,004 shares of AFC Common Stock outstanding. Each share of AFC
Common Stock is entitled to one vote.
<PAGE>
Voting by Proxy; Revocability of Proxy
If a proxy in the form distributed by AFC is properly executed and returned,
the shares represented by that proxy will be voted at the Special Meeting and
at any adjournment of that meeting. The shares represented by the proxy will
be voted as specified in the proxy, or if no specification is made, the
shares will be voted for approval of the Plan of Merger. AFC does not
currently anticipate that any matter other than the proposed Merger will be
presented at the Special Meeting. If other matters are presented, the shares
represented by the proxy will be voted in accordance with the judgment of the
persons named as proxies. A proxy may be revoked at any time prior to its
exercise by written notice of revocation delivered to the President of AFC,
executing and delivering a proxy at a later date or attending the meeting and
voting in person. However, attendance at the meeting does not automatically
serve to revoke a proxy.
Vote Required for Approval
The affirmative vote of the holders of at least a majority of the shares of
the outstanding AFC Common Stock is required for approval of the Plan of
Merger. Any abstention from voting or failure to vote will effectively
constitute a vote against the proposed Merger. Accordingly, if holders of
one-half or more of the outstanding shares of AFC fail to vote or vote
against the proposed Merger, the Merger will not take place. Directors and
executive officers of AFC, who beneficially own approximately 37% of the
outstanding shares of AFC Common Stock, have entered into agreements with
FMBC, whereby such persons have agreed with FMBC to vote their respective
shares in favor of the Merger. A more detailed description of stock ownership
by these persons is set forth in the section entitled "Arcadia Financial
Corporation--AFC Shareholders--Officer and Directors and --Interests of
Certain Persons."
Solicitation of Proxies
AFC and FMBC each will bear their respective expenses incurred in connection
with the proposed Merger. Direct expenses in connection with the solicitation
of proxies will be borne by AFC. In addition to solicitation by mail, further
solicitation may be undertaken by telephone, telegraph or personal contact by
directors, officers or regular employees of AFC who will receive no additional
compensation for such efforts. Upon request, AFC will reimburse brokers,
dealers, banks, trustees or other custodians, or their nominees, for their
reasonable expenses incurred in forwarding copies of the proxy materials to,
and obtaining instructions from, the beneficial owners of shares which such
persons hold of record. Although it does not presently plan to do so, AFC's
management may request that directors, officers and employees of FMBC and its
subsidiaries assist in the proxy solicitation. If management makes such a
request, such persons may also solicit proxies of AFC shareholders by mail,
telephone and personal interview without additional compensation.
Rights of Dissenting Shareholders
Under the Michigan Business Corporation Act a shareholder of a Michigan
corporation may dissent from, and obtain payment of the fair value of his
or her shares, as a result of a merger of the type proposed by AFC and FMBC,
except in such transactions where shareholders receive cash or shares held
of record by not less than 2,000 persons. As of September 30, 1995, shares
of FMBC Common Stock were held of record by more than 8,000 persons.
Accordingly, because the shareholders of AFC will receive FMBC Common Stock,
shareholders of AFC are not entitled to statutory dissenters' rights.
Shareholder Proposals
If the shareholders of AFC approve the Plan of Merger and AFC and FMBC
consummate the Merger, AFC shareholders will become shareholders of FMBC.
Proposals of FMBC shareholders intended to be presented at the annual FMBC
shareholders' meeting to be held in 1997 must be received by FMBC for
inclusion in its proxy statement and form of proxy relating to that meeting
by November 10, 1996 or earlier. All such shareholders should make their
proposals in accordance with Rule 14a-8 issued under the Securities Exchange
Act of 1934, as amended.
<PAGE>
PROPOSED MERGER
The respective boards of directors of AFC and FMBC have adopted an Agreement
and Plan of Merger dated as of December 22, 1995 ("Plan of Merger").
Background of Merger
AFC was organized in 1987 for purposes of acquiring control of the Arcadia
Bank & Trust Company ("Bank")(then known as Arcadia Bank). The Bank was a
new bank organized by the same persons who organized AFC. The Bank and AFC
became profitable in their eighteenth month of operation and have operated
profitably since then. However, there has been little trading in AFC stock.
When FMBC approached AFC about possible affiliation, the directors determined
that if a satisfactory exchange ratio could be negotiated, AFC's shareholders
would be given the alternative of having liquidity in this investment and of
being able to realize the appreciation in value of their AFC stock.
The AFC Board approved FMBC's proposal on October 19, 1995, after extensive
deliberation and negotiation, and consultation with AFC's legal and financial
advisers. After further discussions and negotiations, the parties entered
into the Plan of Merger.
The following discussion summarizes certain provisions of the Plan of Merger
and aspects of the Merger. This summary discussion does not purport to be a
complete description of the Merger and is qualified in its entirety by
reference to the Plan of Merger, which is attached as Appendix A and
incorporated by reference into this Prospectus/Proxy Statement.
The Agreement and Plan of Merger
On December 22, 1995, AFC and FMBC executed the Plan of Merger. The Plan of
Merger provides for the merger of AFC with and into FMBC. If the Plan of
Merger is approved by AFC's shareholders, and if the other conditions to the
Merger are satisfied, each share of AFC Common Stock that is outstanding
immediately prior to the effective date of the Merger (the date the Merger
is consummated) will be converted, in accordance with the conversion terms
and procedures set forth in the Plan of Merger, into 1.648 shares of FMBC
Common Stock. The number of shares of FMBC Common Stock into which shares
of AFC Common Stock are to be converted is subject to upward or downward
adjustment, as the case may be, to prevent dilution upon the occurrence of
certain events specified in the Plan of Merger which result in changes in
the number of shares of FMBC Common Stock.
Following the effective date of the Merger, shareholders of AFC will be
entitled to exchange their share certificates of AFC Common Stock for a new
certificate evidencing shares of FMBC Common Stock. No fractional shares of
FMBC Common Stock will be issued as a result of the Merger; in lieu thereof,
cash will be paid in an amount equal to such fraction, multiplied by the
market value of one share of FMBC Common Stock. On or before the third (3rd)
business day following the effective date of the Merger, FMBC will send each
AFC shareholder a notice and a transmittal form. The notice and transmittal
form will describe the procedure for surrendering AFC Common Stock certificates
in exchange for FMBC Common Stock certificates. Until so exchanged, the
certificates formerly representing shares of AFC Common Stock will represent
shares of FMBC Common Stock, based on the manner in which the shares of AFC
Common Stock shall have been converted. No dividends, distributions or other
payments will be made to persons entitled to receive certificates of FMBC
Common Stock until such persons have surrendered their AFC Common Stock
certificate(s). However, when a shareholder submits his or her AFC Common
Stock certificate(s) for exchange, the shareholder will be paid, without
interest, all dividends, distributions and other payments payable as of or
subsequent to the effective date of the Merger on the FMBC Common Stock for
which AFC Common Stock certificate(s) shall have been so exchanged, less the
amount of any taxes which may have been imposed or paid by FMBC thereon.
On the effective date of the Merger, AFC will be merged with and into FMBC.
As a result of the Merger, the corporate existence of AFC will cease, and FMBC
will own all of the stock of the Bank. It is contemplated <PAGE> that the
name of the Bank following the effective date of the Merger will be "FMB-
Arcadia Bank ." FMBC, as the surviving corporation of the Merger with AFC,
will have all the rights and properties of AFC, and FMBC will be subject to
all of the obligations of AFC. The directors and officers of the Bank are
expected to continue in office after the consummation of the Merger, serving
at the pleasure of FMBC, except that Merle J. Prins will become a director of
the Bank.
Assuming receipt of all requisite approvals and that all conditions precedent
to the Merger are met, it is expected that the Merger will be consummated soon
thereafter. It is anticipated that the Merger will be consummated early in
the second quarter of 1996. Either AFC or FMBC may terminate and abandon the
Merger if the effective date of the Merger shall not have occurred on or
before June 30, 1996.
Determination of Exchange Ratio
The terms of the proposed Merger were arrived at as a result of arm's length
negotiations between the managements of FMBC and of AFC. The structure of
the Merger and the exchange ratio of FMBC shares for AFC shares were based
on the proposal of FMBC and negotiations between management of AFC and
management of FMBC, which considered such factors as existing assets,
operations and earnings of the Bank relative to FMBC, as well as consideration
with respect to the prospects and future worth of AFC and the Bank as part
of FMBC. It was concluded that the exchange ratio represented a fair and
equitable method for accomplishing the Merger and for determining the basis
upon which the equity interests of shareholders of AFC would be converted
into equity interests in FMBC. Book values and the relationship of the past,
current and estimated future earnings of each business and available market
prices of FMBC Common Stock were the primary determinants used to establish
the exchange ratio.
Reasons for Approval of the Merger
AFC's Board of Directors unanimously determined that the Merger of AFC with
FMBC and the resulting affiliation of the Bank with FMBC is in the best
interests of AFC's shareholders. If the proposed Merger is consummated, the
shareholders of AFC will have ownership interests in a larger and more
diversified financial enterprise. FMBC has substantially more outstanding
stock held by far more shareholders than AFC, and there has been significant
trading in FMBC Common Stock compared with very little trading in AFC Common
Stock. For these reasons, and because FMBC Common Stock is quoted on the
NASDAQ National Market System, the shareholders of AFC, following their
receipt of FMBC Common Stock, will have a much broader market for the shares
they hold.
In considering the proposed Merger, AFC's directors also gave great
consideration to the business philosophies and practices of FMBC and the
general impact of the Merger on AFC's employees, customers and the
communities served by the Bank.
In the opinion of AFC's directors, the Merger will give the Bank greater
flexibility in responding to the expanding financial needs of its customers
and in meeting the increased competition for the furnishing of financial
services. The Bank, as a wholly-owned subsidiary of FMBC, will be able to
respond more effectively to the financial needs of its customers through
access to more diversified product lines and the opportunity to obtain the
participation of other subsidiaries of FMBC in loan transactions. Also,
because FMBC has broader access than AFC to capital markets, AFC will have
greater availability of additional capital in the future. The effect of the
Merger will also permit beneficial sharing of management and operational
expertise with subsidiaries of FMBC.
FOR THESE REASONS, THE DIRECTORS OF AFC ADOPTED AND RECOMMEND TO THE
SHAREHOLDERS OF AFC THE APPROVAL OF THE PLAN OF MERGER.
<PAGE>
Conditions to the Merger
The Merger will not take effect unless and until certain conditions have been
satisfied or waived, including, among others, each of the following:
(a) The representations, warranties and covenants of AFC and FMBC, set
forth in the Plan of Merger, must be true as of the Closing;
(b) The Plan of Merger has been approved by the affirmative vote of the
shareholders of AFC owning at least a majority of the outstanding shares of
AFC;
(c) The Merger has received the approval of the Federal Reserve Board;
(d) No proceeding is pending which challenges or seeks to prevent the
consummation of the Merger or asserts liability against any director or
officer of either party with respect to the Merger;
(e) AFC and FMBC have delivered to each other certain opinions of
counsel;
(f) All actions required by the Securities Act of 1933, as amended, to
register the shares of FMBC for issuance to AFC shareholders shall have
been completed in accordance with the provisions of that statute and the
regulations promulgated thereunder;
(g) AFC and FMBC shall have each received an opinion from counsel to
FMBC, concerning certain tax matters effected by the Merger described in
"Proposed Merger--Federal Income Tax Consequences";
(h) AFC shall have caused the Bank to have conducted its business and
operations in the usual and ordinary course of business and in accordance
with applicable banking laws and regulations, and the Bank shall have, at
the effective date of the Merger, an allowance for loan losses in an amount
not less than the greater of (1) 1.45% (without regard to the Bank's Capital
Access Program) of its total loans or (2) an adequate level based on past
practices and experiences and applicable industry, regulatory and accounting
standards;
(i) AFC shall not have engaged in certain activities or made any changes
in its Articles of Incorporation or Bylaws;
(j) All 25,750 options to purchase AFC Common Stock must have been
exercised for cash consideration to AFC of not less than $282,999;
(k) FMBC shall have received an opinion of BDO Seidman, LLP to the effect
that the Merger will be accounted for as a "pooling of interests."
Abandonment of Merger
The Merger may be abandoned at any time before the effective date of the
Merger by the mutual written consent of AFC and FMBC. Either AFC or FMBC
may on its own action abandon the Merger if:
(a) The Merger has not become effective on or before June 30, 1996;
(b) There has occurred any change in the business, business prospects,
asset portfolio, financial condition, liabilities or management of the other
party that is materially adverse;
(c) Either AFC or FMBC discovers any warranty or representation made by
the other party in the Plan of Merger to be false in any material respect
and such breach is not cured within thirty (30) days; or
(d) Either AFC or FMBC has materially breached any covenant of the Plan
of Merger and such breach is not cured without material cost or damage
within thirty (30) days.
<PAGE>
AFC also has the right to terminate and abandon the Merger if, prior to the
effective date of the Merger, a change in control of FMBC occurs.
If the Merger is abandoned because AFC's shareholders fail to approve it and
if such failure is due in whole or in part to the existence of a competing
proposal, AFC will be required to pay FMBC a $250,000 fee to reimburse FMBC
for its efforts and expenses in connection with the Merger.
Certain Differences in Shareholders' Rights and Other Matters
The rights of the shareholders of AFC, as well as the rights of the
shareholders of FMBC, are governed by the laws of the State of Michigan and
the Michigan Business Corporation Act ("MBCA"). Consequently, the
shareholders of AFC and FMBC have the same rights as such under Michigan
law. There are, however, certain differences between AFC and FMBC with
respect to shareholder rights as those matters are governed by, among other
things, the respective Articles of Incorporation and Bylaws of AFC and FMBC.
Classified Board of Directors. FMBC has a classified board of directors
with approximately one-third of the board elected each year to three year
terms. AFC's entire board of directors is elected each year.
Preemptive Rights of Holders of AFC Common Stock. Holders of FMBC Common
Stock and holders of AFC Common Stock do not have preemptive rights with
respect to the issuance or sale of any securities by FMBC or AFC. Accordingly,
additional securities of FMBC may be issued in the future without offering
such shares first to existing FMBC shareholders or to AFC shareholders who
become shareholders of FMBC as a result of the Merger.
Shareholder Rights Plan of FMBC. The Board of Directors of FMBC has adopted
a Shareholder Protection Rights Plan, which is designed to protect the
shareholders of FMBC against certain unsolicited acquisitions. AFC does not
have such a plan. For a further description of the FMBC Shareholder
Protection Rights Plan, see "Description of FMBC Capital Stock--Anti-Takeover
Provisions."
Matters Requiring Shareholder Vote. Article VII of FMBC's Articles of
Incorporation requires the affirmative vote of the holders of not less than
two-thirds of its outstanding capital stock with respect to a merger or a
consolidation as a result of which FMBC would not be the surviving corporation,
the sale of all or substantially all of FMBC's assets, the voluntary dissolution
of FMBC, or an amendment to or deletion of Article VII. (See "Description
of FMBC Capital Stock--Anti-Takeover Provisions.") AFC's Articles of
Incorporation do not contain a provision comparable to Article VII of FMBC's
Articles.
Applicability of Securities Act of 1933. Although the FMBC Common Stock to
be issued upon consummation of the proposed Merger is to be registered
pursuant to the Securities Act of 1933, as amended (the "Act"), the resale of
such shares of FMBC Common Stock by the present directors, executive officers
and principal shareholders of AFC who are deemed to be "affiliates," as that
term is defined under the Act, will be governed by rules promulgated by the
Securities and Exchange Commission under the Act. All such persons have
agreed not to resell such shares except in compliance with these rules, as
set forth under the terms and conditions of the separate Affiliate Agreements
with each of those persons.
Securities Exchange Act of 1934. FMBC is subject to the reporting and other
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and regularly files reports with the Securities and Exchange
Commission required by the Exchange Act. Therefore, there is publicly
available financial and other information with respect to FMBC. AFC is not
subject to the Exchange Act reporting requirements.
If the Merger is consummated, a person holding a given percentage of the
outstanding shares of AFC Common Stock will hold a lesser percentage of the
outstanding shares of FMBC Common Stock after the Merger. In addition,
because FMBC is a larger entity than AFC, the universe of financial
institutions and other persons or entities that have the resources to
acquire FMBC is smaller than for AFC.
<PAGE>
AFC Common Stock is closely held and is not listed or quoted on a national
quotation system. FMBC's shareholders enjoy an active market for FMBC Common
Stock. Listing on NASDAQ provides market quotations which are useful in
resolving questions of fair valuation.
Federal Income Tax Consequences
A condition to consummation of the Merger is the receipt by both AFC and
FMBC of an opinion of FMBC's legal counsel substantially to the effect that
the Merger, when consummated in accordance with the terms set forth in the
Plan of Merger and based on certain assumptions and representations of AFC
and FMBC, will constitute a reorganization within the meaning of Section 368
(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), and
that the exchange of AFC Common Stock for FMBC Common Stock will not give
rise to taxable gain or loss to the shareholders of AFC, except to the extent
described below.
The following is a summary of the anticipated federal income tax consequences
of the Merger to AFC shareholders. It is not intended as tax advice and is
based upon the parties' understanding of the federal tax laws as currently
in effect and interpreted and does not address issues of state or local
taxation. It does not constitute a representation by AFC, FMBC or their
counsel. The following discussion is included solely for purposes of general
information only.
DUE TO THE COMPLEXITIES OF FEDERAL, STATE AND LOCAL INCOME TAX LAWS, IT
IS STRONGLY RECOMMENDED THAT AFC SHAREHOLDERS CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE
MERGER AND THE IMPACT OF THEIR RECEIPT OF FMBC COMMON STOCK.
This summary is limited to those persons who hold shares of AFC Common Stock
as "capital assets" (generally, property held for investment) within the
meaning of Section 1221 of the Code. (Any reference herein to a "Section"
is a reference to a section of the Code, unless otherwise specified.) The
tax consequences to any particular shareholder of AFC may be affected by
matters not discussed below. For example, certain taxpayers, such as life
insurance companies, tax-exempt organizations and foreign taxpayers, may be
subject to special rules
not addressed below.
Assuming that the Merger satisfies all requirements of Sections 368(a)(1)(A),
it will have the federal income tax consequences described below: A
shareholder of AFC who receives only shares of FMBC Common Stock in exchange
for shares of AFC Common Stock in the Merger will not recognize gain or loss
on the exchange, except to the extent of cash received in lieu of fractional
shares. The shareholder's tax basis in the FMBC Common Stock received will
be the same as that shareholder's tax basis in the shares of AFC Common Stock
exchanged in the Merger, and the holding period of FMBC Common Stock received
will include the holding period of AFC Common Stock exchanged.
Accounting Treatment
It is anticipated that the proposed Merger will be accounted for on a pooling
of interests basis. Reference is made to the Section of this Prospectus/Proxy
Statement captioned "Pro Forma Condensed Combined Financial Statements." As
a result of the proposed Merger being accounted for as a pooling of interests,
the affiliates of FMBC and AFC, including directors and executive officers of
FMBC and AFC, have agreed not to sell or dispose of their shares of FMBC
Common Stock until such time as financial results covering at least thirty
(30) days of the post-Merger operations have been published.
<PAGE>
DESCRIPTION OF FMBC CAPITAL STOCK
Under its Articles of Incorporation, as amended, FMBC's authorized capital
stock consists of 24,000,000 common shares, par value $1.00 per share, and
1,000,000 shares of preferred stock without par value. As of September 30,
1995, 18,187,411 shares of FMBC Common Stock were issued and outstanding, and
1,614,702 shares had been reserved for issuance in connection with FMBC's
stock option, dividend reinvestment, employee stock purchase and directors
deferred compensation, deferred stock and current stock purchase plans. No
shares of preferred stock are issued or outstanding; however, 120,000 shares
are reserved for issuance in connection with FMBC's shareholder rights plan.
Preferred Stock
The Board of Directors of FMBC is authorized to issue Preferred Stock in one
or more series, from time to time, and to fix the particular designations and
terms thereof, including dividend rates, conversion prices, voting rights,
redemption prices and other matters without further approval of FMBC's
shareholders. No series of Preferred Stock has been authorized or is
presently contemplated, except for 120,000 shares reserved under the
Shareholder Protection Rights Plan described below. The issuance of
Preferred Stock could materially affect the voting rights, dividend
participation rights, and other rights of holders of shares of FMBC Common
Stock.
Common Stock
The outstanding shares of FMBC Common Stock are, and the shares to be issued
in the Merger upon issuance thereof will be, fully paid and nonassessable.
Holders of FMBC's Common Stock are entitled to receive such dividends as are
declared by the Board of Directors out of funds legally available therefor.
As a Michigan business corporation, FMBC may generally declare and pay
dividends, provided that FMBC is not insolvent and the payment of the dividend
would not render it insolvent and, after giving effect to the distribution,
FMBC's total assets would equal or exceed its total liabilities plus the
dissolution preferences of any senior equity securities. However, FMBC's
ability to pay dividends to its shareholders is also limited by its ability
to obtain funds from its subsidiary banks and other subsidiaries and by
regulatory capital guidelines applicable to FMBC.
FMBC's principal sources of income are dividends and fees paid to it by its
subsidiary banks and, to a lesser extent, its non-bank subsidiaries. Dividends
and fees paid by its subsidiary banks are dependent upon their earnings,
financial condition, compliance with regulatory requirements (including legal
limitations and restrictions on the payment of dividends and requirements as
to maintenance of capital) and other factors, and as to dividends, are subject
to declaration by the Boards of Directors of each bank. In addition,
dividends may be subject to any preferential, participation and other rights
of holders of Preferred Stock provided in the resolutions providing for the
issuance of Preferred Stock.
Dividends of FMBC in the future will depend upon its consolidated earnings
and financial condition, state and federal regulations, the amount of FMBC
Common Stock outstanding from time to time and other factors affecting FMBC's
dividend policy which are not presently ascertainable.
All voting rights are vested in the holders of shares of FMBC Common Stock,
with each share entitling the holder thereof to one vote. The shares of FMBC
Common Stock do not have cumulative voting rights in the election of directors,
and holders thereof have no preemptive right to subscribe to any additional
securities which may be issued by FMBC. In the event of liquidation of FMBC,
the holders of FMBC Common Stock are entitled to receive pro rata any assets
distributable to shareholders in respect of shares held by them, but subject
to any preferential, participation and other rights of holders of Preferred
Stock provided in the resolutions providing for the issuance of Preferred
Stock.
FMBC is the registrar and transfer agent for FMBC Common Stock.
<PAGE>
Anti-Takeover Provisions
The FMBC Articles of Incorporation and Bylaws and the MBCA contain
provisions that could be utilized to impede efforts to acquire control of
FMBC, namely:
Issuance of Preferred Voting Stock. FMBC's Articles of Incorporation give
the Board of Directors of FMBC the authority, without prior shareholder
approval, to issue shares of Preferred Stock with such voting rights as may
be determined by the Board of Directors. Accordingly, this provision could
be utilized to dilute the voting strength of any person or group which
attempts to acquire voting control of FMBC.
Classified Board of Directors. FMBC's Bylaws provide that one-third (1/3)
of the directors of FMBC will be elected each year for a three-year term of
office. Accordingly, a purchaser of a majority of the FMBC Common Stock
could not necessarily obtain majority control of the Board of Directors of
FMBC until the second annual meeting of FMBC's shareholders following the
acquisition of a majority of the FMBC Common Stock.
The "Fair Price" Provisions of the MBCA. The MBCA contains provisions
regulating certain business combinations involving Michigan corporations
such as FMBC. Except in cases in which certain minimum price,form of
consideration and procedural requirements are satisfied or for certain
transactions that may be approved in advance by FMBC's Board of Directors,
higher than normal voting requirements are imposed with respect to various
transactions involving persons who own 10 percent or more of FMBC's voting
stock ("Interested Shareholders"). Transactions to which the higher voting
requirements apply require an advisory statement from the Board of Directors
of FMBC and must be approved by not less than 90 percent of the votes of each
class of stock entitled to vote and by not less than two-thirds (2/3) of the
votes, other than the votes of Interested Shareholders who are (or whose
affiliates are) a party to the proposed transaction or an affiliate of the
Interested Shareholder, of each class entitled to vote.
Shareholder Rights Plan. Effective October 11, 1990, the Board of
Directors of FMBC adopted a Shareholder Protection Rights Plan. This Plan
is designed to protect the shareholders of FMBC against unsolicited attempts
to acquire control of FMBC in a manner that does not offer a fair price to
all of the shareholders. This Plan provides for the distribution of one
"Right" as a dividend on each outstanding share of Common Stock. Each Right
entitles a shareholder of FMBC to buy one one-hundredth of a share of
Preferred Stock from FMBC at an exercise price of $29.38. The Rights become
exercisable only if a person or group acquires 15 percent or more of FMBC
Common Stock or announces a tender offer which would result in such ownership.
Further, upon the actual ownership of 15 percent or more of FMBC Common Stock,
each Right is adjusted so that it entitles the holder to purchase, for the
exercise price, shares of FMBC Common Stock having a market value of twice
the exercise price. In addition, if any person or group acquires between
15 percent and 50 percent of the Common Stock of FMBC, the Board of Directors
of FMBC may elect to exchange one share of FMBC Common Stock or one one-
hundredth of a share of preferred stock for each Right. FMBC is entitled
to redeem the rights at $.01 per Right at any time before any person or
group acquires 15 percent or more of the Common Stock of FMBC. In addition,
under the Plan, if FMBC merges with a shareholder holding 15 percent or more
of FMBC Common Stock, or such shareholder engages in certain "self dealing"
transactions,or causes 50 percent or more of the assets of FMBC to be sold
or transferred, and upon certain other events, holders of the Rights will be
entitled to purchase stock in the acquiring entity at half of the market
value of such securities.
Approval of Certain Business Combinations. Article VII of FMBC's Articles
of Incorporation provides that the authorization and approval of any proposed
(a) merger or consolidation of FMBC as a result of which FMBC would not be
the surviving corporation, (b) sale of all or substantially all of the assets
of FMBC, (c) dissolution of FMBC or (d) amendment to or deletion of Article VII
requires the affirmative vote or consent of at least two-thirds (2/3) of the
outstanding stock of FMBC entitled to vote on any such merger, consolidation
sale of assets, dissolution or amendment. Absent such provision and subject
to the applicability of the fair price provisions of the MBCA discussed above,
approval of such transactions would require a simple majority vote of the
outstanding stock of FMBC.
<PAGE>
The "Shareholder Equity" Provisions of the MBCA. In addition to the
foregoing, the MBCA affects the voting rights of persons who acquire control
in excess of the following thresholds: 20 percent, 33-1/3 percent or 50
percent of a Michigan corporation's voting stock ("Control Shares"). The
MBCA denies shareholder voting rights to those who make purchase offers or
investors who increase their holdings above any of the Control Share levels,
unless they are granted voting rights by a majority vote of all disinterested
shareholders (shareholders excluding the bidders or owners of Control Shares
and the corporation's management). If the shareholders do not elect to grant
voting rights to Control Shares, under certain circumstances, the Control
Shares may become subject to redemption by the corporation. In addition, in
some cases, the Shareholder Equity provisions grant dissenters' rights to all
shareholders other than the acquirer.
In addition to the Shareholder Rights Plan, the classified Board of
Directors, the fair price and shareholder equity provisions of the MBCA and
Article VII of FMBC's Articles of Incorporation could be used in a manner
calculated to prevent the removal of management of FMBC and make more
difficult or discourage a change in control of FMBC. The provisions of
FMBC's Articles of Incorporation have been approved by the directors and
shareholders of FMBC in order to assist in ensuring a fair price for all of
the shareholders of FMBC in an acquisition of FMBC and to provide for the
stability and continuity of the management of FMBC.
ARCADIA FINANCIAL CORPORATION
Business of Arcadia Financial Corporation
AFC was incorporated under the laws of the State of Michigan on
January 2, 1987, for the purpose of acquiring all of the outstanding stock
of the Bank which was incorporated on May 26, 1987. AFC acquired all of the
issued and outstanding shares of the Bank, effective May 27, 1987, when AFC
provided the Bank's initial capital of $3,500,000. Prior to that date
neither AFC nor the Bank engaged in any business. As of a result of the
acquisition of all of the stock of the Bank, AFC became a bank holding
company, regulated by the Bank Holding Company Act of 1956, as amended.
The Bank provides customary retail and commercial banking services to its
customers, including checking and savings accounts, time deposits, safe
deposit facilities, personal loans and installments loans. The Bank also
makes secured and unsecured commercial loans. The Bank also provides
personal and corporate trust services through its trust department. Total
loan and similar commitments, including construction loans, available but
unused amounts of commercial credit lines, letters of credit, and undisbursed
real estate mortgages amounted to approximately $14,021,000 and $12,476,000
at December 31, 1994, and December 31, 1993, respectively.
Market Area and Competition
The Bank defines its primary market area as Kalamazoo County, Michigan.
The Bank competes with other financial institutions in its market area,
including commercial banks, savings and loan associations, mortgage companies,
insurance companies, consumer finance companies, securities brokerage firms,
credit unionsand money market funds. The Bank is one of the smallest
commercial banks in the Kalamazoo County market.
The Bank's deposits are generated in the normal course of business, and
the loss of any one depositor would not have a materially adverse effect on
the business of the Bank. No material portion of the Bank's loans is
concentrated within a single industry or group of related industries. As of
December 31, 1994, the Bank's certificates of deposits of $100,000 or more
constituted approximately 12% of total deposit liabilities. The Bank's
deposits are primarily from its service area, and the Bank does not seek or
encourage large deposits from outside such area.
The Bank's principal sources of revenue are interest and fees on loans
and interest on investment securities. Interest and fees on loans constituted
approximately 69% and 74% of total revenues for the periods ended December 31,
1994, and December 31, 1993, respectively. Interest on investment securities,
including short-term investments and federal funds sold, constituted
approximately 8% and 10% of total revenues for the <PAGE> year ended
December 31, 1994 and December 31, 1993, respectively. Revenues are also
generated from deposit service charges, trust fees and other financial
service fees.
For more detailed statistics pertaining to the business of AFC, please
refer to AFC's Selected Statistical Information, attached to this
Prospectus/Proxy Statement as Appendix B. The Selected Statistical
Informationsets forth information pertaining to: (1) AFC's distribution
of assets, liabilities, and shareholders' equity; (2) interest rates and
interest differential; (3) the effect of volume/rate changes; (4) investment
portfolio; (5) loan portfolio; (6) a summary of loan loss experience;
(7) deposits; and (8) AFC's return on shareholders' equity and total assets.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion is provided by AFC's management as its analysis of
the company's financial condition and results of operations as presented in
the selected financial data appearing in the following table. This analysis
should be read in conjunction with the separate historical financial
statements of AFC and notes theretoincluded elsewhere in this Prospectus/Proxy
Statement.
<TABLE>
<CAPTION>
FINANCIAL SUMMARY
The following table presents selected financial information for AFC:
(in thousands, except per share data)
Nine Months
---- Ended ---- -------Year Ended December 31,-------
9/30/95 9/30/94 1994 1993 1992 1991 1990
(unaudited) (audited) (audited) (audited)
(unaudited) (audited) (audited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Interest income $ 6,225 $ 4,267 $ 6,112 $ 4,498 $ 3,994 $ 4,018 $ 3,787
Interest expense (3,116) (1,815) (2,681) (1,965) (1,928) (2,252) (2,377)
Net interest
income. . . 3,109 2,452 3,431 2,533 2,066 1,766 1,410
Loan loss provision (219) (151) (211) (126) (154) (283) (128)
Noninterest
income. . . 449 961 1,786 891 698 588 474
Noninterest
expense . . (1,790) (2,196) (2,993) (2,520) (2,078) (1,789) (1,630)
Income before
taxes. . . 1,549 1,066 2,013 778 532 282 126
Income taxes . (524) (355) (666) (243) (177) F (88) (31)
Income from continuing
operations. 1,025 711 1,347 535 355 194 95
Extraordinary
items . . . . 0 0 0 0 66 88 31
Net income . . $1,025 $ 711 $ 1,347 $ 535 $ 421 $ 282 $ 126
Balance Sheet Data (period end)
Total assets . $100,324 $85,246 $90,431 $75,336 $59,935 $50,494 $41,470
Securities . . 13,688 12,983 14,974 11,818 9,339 7,165 1,478
Loans. . . . . 78,490 64,873 67,757 57,089 46,456 38,394 31,094
Deposits . . . 92,239 78,268 83,163 68,712 55,012 46,152 37,427
Long term debt 550 1,300 650 550 650 750 850
Shareholders'
equity. . . . 6,657 4,869 5,581 4,186 3,650 3,229 2,927
Per Share Data
Income from continuing
operations. . . $ 2.76 $ 1.97 $ 3.72 $ 1.48 $ 0.98 $ 0.54 $ 0.26
Net income . . . 2.76 1.97 3.72 1.48 1.16 0.78 0.35
Cash dividends . 0.00 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1995
Earnings
Net income for the nine months ended September 30, 1995 was $1,025,000, a 44%
increase over the $711,000 recorded for the first nine months of 1994. The
improved earnings resulted primarily from an increase of $657,000 in net
interest income and a decrease of $406,000 in noninterest expenses that were
partially offset by a $512,000 decrease in noninterest income. The decrease
in both the noninterest income and expenses were in large part a result of
the sale of Arcadia Investment Management Company ("AIMC")in December 1994.
<TABLE>
<CAPTION>
Net Interest Income
The increase of $657,000 in net interest income is comprised of the
following (in thousands):
Nine Months Nine Months
Ended Ended
9/30/95 Change 9/30/94
<S> <C> <C> <C>
NET INTEREST INCOME
Interest Income $ 6,225 $ 1,958 $ 4,267
Tax-equivalent adjustment 7 0 7
Tax-equivalent interest income 6,232 1,958 4,274
Interest expense 3,116 1,301 1,815
Net interest income $ 3,116 657 $ 2,459
Reverse tax-equivalent adjustment 0
Increase in net interest income $ 657
AVERAGE VOLUMES
Interest earning assets $ 89,432 $ 15,772 $ 73,660
Interest bearing liabilities 77,196 13,258 63,938
Net differential $ 12,236 $ 2,514 $ 9,722
AVERAGE YIELD EARNED/RATE PAID
Yield earned on assets 9.29% 1.55% 7.74%
Rate paid on liabilities 5.38% 1.60% 3.78%
Interest spread 3.91% -0.05% 3.96%
Interest margin 4.65% 0.20% 4.45%
</TABLE>
Average earning assets increased by $15,772,000 to $89,432,000, while
average interest bearing liabilities increased by $13,258,000 to
$77,196,000. The impact of rising market rates influenced the cost of
funds to the same extent as the yield on earning assets. As a result,
the change in the net interest spread and net interest margin due to
rates was minimal.
Provision for Loan Losses
The provision for loan losses was $219,000 for the nine months ended
September 30, 1995, an increase of $68,000 from the $151,000 provided
during the same period of 1994. At September 30, 1995, the allowance for
loan losses was $1,270,000, or 1.62% of total loans, compared to an
allowance of $1,017,000, or 1.57% of total loans, at September 30, 1994.
Net charge-offs for the nine months ended September 30, 1995 were $42,000,
compared to net charge-offs of $200 for the same period of 1994. Management
rates the overall quality of the loan portfolio as very good and the
allowance for loan losses as adequate, given the ratio of the allowance
to total loans of 1.62% as of September 30, 1995.
<PAGE>
Noninterest Income
Total noninterest income for the nine months ended September 30, 1995,
was $449,000, a decrease of $512,000 from the $961,000 recorded for the
same period in 1994. Decreases of $522,000, or 54%, in investment
management fees and $32,000, or 18%, in deposit service charges offset
by an increase in trust fees of $50,000, or 23% were primarily responsible
for the overall decrease. The decrease in investment management fees was
due to the sale of AIMC in December 1994. Declines in service charges
were due in part to an increase in the credit offset rate on commercial
checking accounts. The increase in trust income was due to the growth in
the number of trust accounts.
Noninterest Expense
Noninterest expense was $1,790,000 for the nine months ended September 30,
1995, compared to $2,196,000 for the same period in 1994. Overall
noninterest expense decreased $479,000, or 21%, due to the sale of AIMC.
In addition, salaries and benefits increased $113,000, or 13%, as a result
of staff additions and normal merit increases. This increase was partially
offset by decreases of $33,000 in FDIC insurance and $16,000 in advertising.
Income Tax Expense
The level of income tax expense fluctuates according to changes in the
level of profitability. For the first nine months of 1995, income tax
expense increased $169,000 to $524,000, compared to the $355,000
recorded for the same period of 1994. The overall increase in income
before federal income taxes of $483,000 was the main factor for the
increase in income tax expense.
Balance Sheet and Liquidity
Total assets at September 30, 1995 amounted to $100,324,000, an increase
of $15,078,000, or 18% from the $85,246,000 total asset figure for
September 30, 1994. Comparing total loans and deposits at September 30,
1995 to the same period a year earlier, loans increased by $13,616,000
to $78,489,000 and deposits increased $13,971,000 to $92,239,000. As of
September 30, 1995, the loan-to-deposit ratio was 85.1%, up from a ratio
of 82.9% the year before.
Capital Resources
The ratio of total equity to total assets was 6.6% at September 30, 1995
compared to a 5.7% ratio at September 30, 1994. The increased ratio of
equity to assets resulted from growth in equity due to earnings for the
period. Regulatory agencies have developed minimum guidelines by which
the adequacy of a financial institution's capital may be evaluated. The
Federal Reserve Board has published guidelines on the adequacy of capital,
commonly referred to as "risk-based capital," that were applied to bank
holding companies beginning in 1990.
<TABLE>
<CAPTION>
The following table illustrates AFC's leverage and risk-based capital
ratios compared to the regulatory requirements:
Minimum Regulatory AFC
Requirements 09/30/95 09/30/94
<S> <C> <C> <C>
Tier 1 Capital ................ 4.0 % 9.1 % 7.8 %
Tier 1 and Tier 2 Capital ..... 8.0 10.4 9.0
Leverage Ratio ................ 3.0 6.9 5.7
</TABLE>
Gap Analysis
Through the asset/liability management process, particular attention is
placed on the bank's interest rate sensitivity, which is the degree net
interest income is affected by the change in market interest rates. One
method of estimating sensitivity is by a gap analysis. Gap is the
difference between assets and liabilities maturing or repricing in the
same period. Minimizing exposure to changes in the market rates is
accomplished by keeping the relationship of the rate sensitive assets
and liabilities in a relatively balanced position.
<PAGE>
Monitoring of assets and liabilities that are rate sensitive within 90 days
and one year is a continuing aspect of AFC's rate sensitivity management
process. AFC's policy is to maintain a reasonable balance of rate-sensitive
assets and liabilities on a cumulative basis, thus minimizing the risk related
to fluctuating interest rates. As of September 30, 1995, AFC had a cumulative
90 day gap position of 1.07 and a one year gap of 0.84. Based upon gap and
other analyses, management believes AFC is well positioned to respond to
interest rate movements in either direction.
<TABLE>
<CAPTION>
The schedule that follows illustrates AFC's asset/liability sensitivity
(gap) position as of September 30, 1995 (in thousands):
Up to 3 4 to 12 1 to 4 After
Months Months Years 4 Years Total
<S> <C> <C> <C> <C> <C>
Assets
Loans $60,249 $ 5,616 $ 6,300 $ 6,324 $ 78,489
Securities 3,193 2,638 6,085 1,772 13,688
Federal funds sold 3,000 0 0 0 3,000
Other assets 0 0 0 5,147 5,147
Total assets $66,442 $ 8,254 $ 12,385 $ 13,243 $100,324
Reverse rate swap (10,000) 0 0 10,000 0
Total assets
after rate swap $56,442 $ 8,254 $ 12,385 $ 23,243 $100,324
Liabilities
Deposits $52,287 $24,618 $ 4,494 $ 10,840 $ 92,239
Notes payable 550 0 0 0 550
Other liabilities
and equity 0 0 0 7,535 7,535
Total liabilities
and equity $52,837 $24,618 $ 4,494 $18,375 $100,324
Gap $ 3,605 $(16,364) $ 7,891 $ 4,868
Cumulative gap $ 3,605 $(12,759) $ (4,868) $ 0
Cumulative rate
sensitive ratio 1.07 0.84 0.94 1.00
</TABLE>
<PAGE>
TWELVE MONTHS ENDED DECEMBER 31, 1994
Earnings
Net income for the twelve months ended December 31, 1994 was $1,347,000, an
$812,000 increase over the $535,000 recorded for the year earlier period.
The improvement in earnings resulted primarily from an increase of $898,000
in net interest income, as well as an increase in noninterest income of
$895,000, which were partially offset by an increase in the provision for
loan losses of $85,000, and an increase of $473,000 in noninterest
expenses. Over half of the increase in noninterest income is due to a
gain of $475,000 resulting from the sale of Arcadia Investment Management
Company ("AIMC").
<TABLE>
<CAPTION>
Net Interest Income
The increase of $898,000 in net interest income is comprised of the
following (in thousands):
Year Year
Ended Ended
12/31/94 Change 12/31/93
<S> <C> <C> <C>
NET INTEREST INCOME
Interest Income $ 6,112 $ 1,614 $ 4,498
Tax-equivalent adjustment 10 4 6
Tax-equivalent interest income 6,122 1,618 4,504
Interest expense 2,681 716 1,965
Net interest income $ 3,441 902 $ 2,539
Reverse tax-equivalent adjustment (4)
Increase in net interest income $ 898
AVERAGE VOLUMES
Interest earning assets $ 76,604 $ 14,058 $ 62,546
Interest bearing liabilities 66,498 11,333 55,165
Net differential $ 10,106 $ 2,725 $ 7,381
AVERAGE YIELD EARNED/
RATE PAID
Yield earned on assets 7.99% 0.79% 7.20%
Rate paid on liabilities 4.03% 0.47% 3.56%
Interest spread 3.96% 0.32% 3.64%
Interest margin 4.49% 0.43% 4.06%
Average earning assets increased $14.1 million to $76,604,000 for the year
ended December 31, 1994, while average interest bearing liabilities
increased $11.3 million to $66,498,000. The average yield on earning
assets, on a tax equivalent basis, of 7.99% increased .79% from the prior
year, while the average rate paid on liabilities increased by .47% to
4.03% for the year 1994. The impact of rising market rates influenced
the yield on earning assets to a greater extent than the cost of funds.
As a result, net interest spread and net interest margin increased .32%
and .43% respectively for the two periods.
</TABLE>
<PAGE>
Provision for Loan Losses
The provision for loan losses was $211,000 for 1994, an increase of
$85,000 from the $126,000 provided in the prior year. The provision for
loan losses of $211,000 in 1994 increased the allowance for loan losses
to 1.60% of total loans as of December 31, 1994. This compares to an
allowance for loan losses of 1.43% of total loans as of December 31, 1993.
The increase in allowance for loan losses resulted from a reduction of net
charge-offs in 1994, and an increase for projected loan growth.
Noninterest Income
Noninterest income for 1994 totalled $1,786,000 compared to $891,000 in
the prior year. The increase over 1993 resulted primarily from the
$475,000 gain on sale of AIMC. Noninterest income also experienced growth
due to an increase of $234,000 or 377% in income from trust operations,
as well as an increase of $61,000 or 35% in service charges on deposit
accounts. Also contributing to the increase in noninterest income was a
$23,000 or 53% increase in other noninterest income, which included
significant increases in credit card fees and income from other real
estate property owned disposed of during the year.
Noninterest Expense
Total noninterest expense for 1994 was $2,993,000, an increase of 19%
over the prior year. Significant factors leading to this increase were
a 13% increase in salaries and employee benefits to $1,645,000, an 18%
increase in occupancy and equipment expense to $478,000, and a 31% or
$207,000 increase in other operating expenses. The increases in salary
expense and occupancy and equipment expense were due to a full year of
trust department expense in 1994, compared to only a partial year in
1993. Included in the rise in other operating expenses were a $28,600
increase in advertising expense to $64,700, and a $38,500 increase in
FDIC insurance expense to $166,000.
Income Tax Expense
The level of income tax expense fluctuates with changes in profitability
and variations in the amount of tax exempt income. Income tax expense
for 1994 increased $423,000 to $666,000 compared to $243,000 in the prior
year. This increase resulted from increases in earnings from the sources
described above, slightly offset by an increase in tax exempt income.
Balance Sheet and Liquidity
Total loans increased $10,668,000 or 19% from December 31, 1993 to
December 31, 1994. Total deposits also increased $14,451,000 or 21% for
the same period. These increases resulted in a loan-to-deposit ratio of
81.5% at December 31, 1994, compared to 83.1% at December 31, 1993.
Capital Resources
Shareholder's equity grew by 33% during 1994 as a result of improved
earnings for the year. The ratio of total equity to total assets
increased to 6.2% at December 31, 1994 from the ratio of 5.6% for the
year earlier period.
<PAGE>
TWELVE MONTHS ENDED DECEMBER 31, 1993
Earnings
Net income for the twelve months ended December 31,1993 was $535,000, a
51% increase over the $355,000 recorded for the year earlier period. The
improved earnings resulted primarily from an increase of $467,000 in net
interest income, as well as an increase in noninterest income of $193,000.
The improvement was further aided by a decrease of $28,000 in the provision
for loan losses. The impact of these increases was partially offset by an
increase of $442,000 in noninterest expenses.
<TABLE>
<CAPTION>
Net Interest Income
The increase of $467,000 in net interest income is comprised of the
following (in thousands):
Year Year
Ended Ended
12/31/93 Change 12/31/92
<S> <C> <C> <C>
NET INTEREST INCOME
Interest Income $ 4,498 $ 504 $ 3,994
Tax-equivalent adjustment 6 1 5
Tax-equivalent interest income 4,504 505 3,999
Interest expense 1,965 37 1,928
Net interest income $ 2,539 468 $ 2,071
Reverse tax-equivalent adjustment (1)
Increase in net interest income $ 467
AVERAGE VOLUMES
Interest earning assets $ 62,546 $ 11,303 $ 51,243
Interest bearing liabilities 55,165 9,235 45,930
Net differential $ 7,381 $ 2,068 $ 5,313
AVERAGE YIELD EARNED/
RATE PAID
Yield earned on assets 7.20% -0.60% 7.80%
Rate paid on liabilities 3.56% -0.64% 4.20%
Interest spread 3.64% 0.04% 3.60%
Interest margin 4.06% 0.02% 4.04%
Average earning assets increased $11.3 million to $62,546,000 for the year
ended December 31, 1993, while average interest bearing liabilities
increased $9.2 million to $55,165,000. The average yield on earning
assets, on a tax equivalent basis, of 7.20% declined .60% from the prior
year, while the average rate paid on liabilities decreased by .64% to
3.56% for the year 1993. The impact of falling market rates influenced
the cost of funds to the same extent as the yield on earning assets. As
a result, net interest spread and net interest margin were minimally
impacted for the two periods.
</TABLE>
Provision for Loan Losses
The provision for loan losses was $126,000 for 1993, a decrease of $28,000
from the $154,000 provided in the prior year. The provision for loan losses
of $126,000 in 1993 maintained the allowance for loan losses at 1.43% of
total loans as of December 31, 1993, and 1992.
<PAGE>
Noninterest Income
Noninterest income for 1993 totalled $891,000 compared to $698,000 in the
prior year. The improvement over 1992 resulted primarily from an increase
of $51,000 or 42% in service charges on deposit accounts, as well as a
$62,000 addition to income from trust services which were established in
1993. Another contributor to the increase in noninterest income was a
$48,000 rise in investment management fees resulting from an increase in
assets under management.
Noninterest Expense
Total noninterest expense for 1993 was $2,520,000, an increase of 21%
over the prior year. Significant factors leading to this increase were
a 28% increase in salaries and employee benefits to $1,452,000, and a
23% increase in occupancy and equipment expense to $405,000. A majority
of these increases were a result of the establishment of a trust
department during 1993.
Income Tax Expense
The level of income tax expense fluctuates with changes in profitability.
Income tax expense for 1993 increased $66,000 to $243,000 compared to
$177,000 in the prior year. This increase resulted primarily from
increases in earnings from the sources described above.
Balance Sheet and Liquidity
Total loans increased $10,633,000 or 23% from December 31, 1992 to
December 31, 1993. Total deposits also increased $13,700,000 or 25%
for the same period. These increases resulted in a loan-to-deposit ratio
of 83.1% at December 31, 1993, compared to 84.4% at December 31, 1992.
Capital Resources
Shareholder's equity grew by 15% during 1993 as a result of improved
earnings for the year. The ratio of total equity to total assets decreased
to 5.6% at December 31, 1993 from the ratio of 6.1% for the year earlier
period, as the growth in the balance sheet outpaced the growth in equity.
<PAGE>
Market for AFC Common Stock and Related Shareholder Matters
There are 1,000,000 shares of AFC Common Stock authorized, of which 371,004
shares were issued and outstanding as of September 30, 1995. There were one
hundred sixty-four (164) shareholders of record. There is no public trading
market for AFC Common Stock, and there is no published information with
respect to its market price. Management is not aware of any trading in AFC's
Common Stock during the past three years.
The holders of AFC's Common Stock are entitled to dividends when, as and
if declared by the Board of Directors of AFC out of funds legally available
for that purpose. AFC has not paid regular cash dividends. Shareholders of
AFC will participate in the FMBC dividends with a record date later than the
effective date of the Merger.
Under the terms of the Plan of Merger, AFC is prohibited from the
declaration or payment of any dividends or any other distributions in respect
of its Common Stock. AFC's ability to pay dividends is dependent upon the
earnings of the Bank, its ability to distribute dividends to AFC, and the
declaration of any dividends by the Bank's Board of Directors. AFC does not
plan to pay any dividends prior to consummation of the Merger.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
AFC Shareholders
Principal Shareholders. At September 30, 1995, AFC had issued and
outstanding 371,004 shares of Common Stock held by 164 shareholders of
record. The following table sets forth information as to the number of
shares of AFC Common Stock held as of September 30, 1995, by each shareholder
known to AFC's management to be the beneficial owner of more than 5 percent
of AFC's Common Stock. The table also shows information as to FMBC Common
Stock to be owned by each such person assuming that the Merger is consummated.
<TABLE>
Amount
of FMBC
Name and Amount and Common Stock
Address of Nature of Percent of Ownership
Beneficial Beneficial AFC Following
Owner Ownership(1) Common Stock Merger(2)(3)
<S> <C> <C> <C>
Ronald J. Beike (4) 18,951 5.1% 31,231
7950 Moorsbridge Road
Portage, MI 49002
Sherwood M. Boudeman 19,530 5.3% 32,185
227 East Michigan Avenue
Kalamazoo, MI 49083
Robert M. Brown 21,560 5.8% 35,531
7950 Moorsbridge Road
Portage, MI 49002
John C. Wattles (5) 28,400 7.7% 46,803
2850 Oakland Drive
Kalamazoo, MI 49008
See footnotes under following table.
</TABLE>
<PAGE>
Officers and Directors. The following table sets forth information as to
the number of shares of AFC Common Stock held as of September 30, 1995, by
each director of AFC and by all directors and executive officers of AFC as a
group. The table also shows information as to FMBC Common Stock to be
beneficially owned by each such person or group assuming that the Merger is
consummated and that each such director and executive officer receives the
maximum permitted number of shares of FMBC Common Stock in exchange for his
or her shares of AFC Common Stock.
<TABLE>
<CAPTION>
Amount
of FMBC
Name and Amount and Common Stock
Address of Nature of Percent of Ownership
Beneficial Beneficial AFC Following
Owner Ownership(1) Common Stock Merger(2)(3)
<S> <C> <C> <C>
William K. Becker 16,341 4.4% 26,930
7950 Moorsbridge Road
Portage, MI 49002
Mr. Ronald J. Bieke (4) 18,951 5.1% 31,231
7950 Moorsbridge Road
Portage, MI 49002
Sherwood M. Boudeman 19,530 5.3% 35,531
227 East Michigan Avenue
Kalamazoo, MI 49007
Eric V. Brown, Jr. 3,290 0.9% 5,422
444 West Michigan Avenue
Kalamazoo, MI 49007
Robert M. Brown 21,560 5.8% 35,531
7950 Moorsbridge Road
Portage, MI 49002
Lawrence B. Fitch (6) 13,037 3.4% 21,485
251 East Michigan Avenue
Kalamazoo, MI 49083
John W. Garside 8,786 2.4% 14,479
309 East Water Street
Kalamazoo, MI 49005
Ronald N. Kilgore (7) 2,500 0.7% 4,120
251 East Michigan Avenue
Kalamazoo, MI 49083
A. John Todd, III 11,371 3.1% 18,739
P.O. Box 711
Kalamazoo, MI 49005
John C. Wattles (5) 28,400 7.7% 46,803
2850 Oakland Drive
Kalamazoo, MI 49008
<PAGE>
Amount
of FMBC
Name and Amount and Common Stock
Address of Nature of Percent of Ownership
Beneficial Beneficial AFC Following
Owner Ownership(1) Common Stock Merger(2)(3)
All officers and 143,766 37.0% 236,926
directors as a group
(10 persons)
(1) This information is based upon AFC's records as of September 30, 1995,
and information supplied by the persons listed. The number of shares stated in
this column includes shares owned of record by the shareholder and shares which,
under federal securities regulations, are deemed to be beneficially owned by
the shareholder. Unless otherwise noted, the individuals have sole voting
and investment power or share voting and investment power with their respective
spouses.
(2) This column reflects AFC Common Shares owned multiplied by 1.648.
(3) No shareholder of AFC will, as a result of the transaction, own in
excess of .2% of the FMBC Common Stock outstanding following the Merger.
Percentages are based on 18,187,411 shares of FMBC outstanding as of
September 30, 1995, plus the assumed issuance of 653,850 shares of FMBC
Common Stock in the Merger.
(4) Includes 3,500 shares as to which Mr. Bieke has the right to acquire
beneficial ownership pursuant to AFC's Stock Option Plan (the "Option Plan").
(5) Includes 4,580 shares owned by APM Limited Partnership as to which
Mr. Wattles shares voting and investment power.
(6) Includes 11,500 shares as to which Mr. Fitch has the right to acquire
beneficial ownership pursuant to the Option Plan.
(7) Mr. Kilgore has the right to acquire beneficial ownership of the
shares indicated pursuant to the Option Plan.
</TABLE>
Interests of Certain Persons
Directors and officers of AFC have no substantial interest, direct or
indirect, in the proposed Merger except insofar as they will be entitled to
receive FMBC Common Stock in exchange for their respective shares of AFC
Common Stock. Reference is made to the preceding section, "Principal
Shareholders," which discusses stock ownership of AFC's principal shareholders
and stock ownership of directors and executive officers of AFC. Directors of
neither AFC nor the Bank will, by virtue of the consummation of the Merger,
become directors of FMBC. Directors of the Bank immediately prior to the
Merger will continue in that capacity immediately following the Merger,
serving at the pleasure of FMBC. Other changes in the Bank's directors and
officers are described in the section "Proposed Merger - The Affiliation
Agreement and Plan of Merger."
Each director and executive officer of AFC has agreed not to sell,
transfer or otherwise dispose of shares of FMBC Common Stock received in the
Merger until financial results covering at least thirty (30) days of post-
Merger operations of AFC and FMBC have been published and, thereafter, not
to transfer any such shares in a manner which would result in a violation of
the Securities Act of 1933 or applicable rules or regulations. In addition,
each director and executive officer of AFC has agreed to vote in favor of the
Merger and not to <PAGE> compete for five (5) years with the Bank in Kalamazoo
County through a new bank formed during the period beginning December 22, 1995
and ending four (4) years after the effective date of Merger.
LEGAL MATTERS
Certain legal matters in connection with the Merger will be passed upon
by Miller, Canfield, Paddock & Stone, P.L.C., Kalamazoo, Michigan and certain
matters with respect to the legality of the issuance of the FMBC Common Stock
will be passed upon for FMBC by Varnum, Riddering, Schmidt & Howlett LLP, Grand
Rapids, Michigan.
EXPERTS
The financial statements of FMBC incorporated by reference in this
Prospectus/Proxy Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report incorporated herein by reference, and are incorporated herein
in reliance upon such reports given upon the authority of said firm as
experts in accounting and auditing.
The financial statements of AFC as of December 31, 1994, 1993 and 1992
and for each of the three years in the period ended December 31, 1994 included
in this Prospectus/Proxy Statement have been audited by BDO Seidman, LLP,
independent certified public accountants, as stated in their report appearing
elsewhere herein, and have been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
SOURCES OF INFORMATION
The information concerning AFC contained in this Prospectus/Proxy
Statement has been supplied by management of AFC. Information concerning
FMBC contained in this Prospectus/Proxy Statement and incorporated herein
has been supplied by management of FMBC. Neither AFC nor FMBC has any reason
to believe that the information so furnished contains any material
misstatements or omits to state a material fact required to be stated herein
or necessary to make the statements herein not misleading. AFC has relied
upon FMBC with respect to the accuracy and completeness of the information
concerning FMBC. FMBC has relied upon AFC with respect to the accuracy and
completeness of the information concerning AFC.
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited pro forma condensed combined financial statements
and explanatory notes are presented to show the impact of the proposed Merger
of AFC with FMBC on FMBC's historical financial position and on its results
of operations.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1995 (unaudited)
The unaudited pro forma condensed combined balance sheet assumes that the
Merger was consumated on September 30, 1995. The Merger is expected to be
accounted for using the pooling-of-interests method of accounting. This
statement should be read in conjunction with the other unaudited pro forma
financial information and the separate historical financial statements of
FMBC and AFC appearing elsewhere or incorporated by reference in this
Prospectus/Proxy Statement.
(in thousands, except per share data) PRO FORMA PRO FORMA
FMBC (A) AFC ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks. . . . .$ 108,617 $ 4,906(E) $ $ 113,523
Interest bearing deposits. . . . 6,914 0 6,914
Federal funds sold . . . . . . . 49,500 3,000 52,500
Securities: Available-for-Sale. 201,899 6,280 208,179
Held-to-Maturity. 487,521 7,408 494,929
Loans. . . . . . . . . . . . . . 2,080,864 78,490 2,159,354
Allowance for loan losses . . (25,947) (1,270) (27,217)
Net loans. . . . . . . . . 2,054,917 77,220 0 2,132,137
Net premises and equipment . . . 67,159 650 67,809
Goodwill . . . . . . . . . . . . 6,495 0 6,495
Other assets . . . . . . . . . . 44,714 1,143 45,857
Total assets . . . . . . .$3,027,736 $100,607 $ 0 $3,128,343
LIABILITIES
Deposits: Noninterest bearing. .$ 306,519 $ 10,278 $ $ 316,797
Interest bearing. . 2,321,490 81,961 2,403,451
Total deposits. . . . . . . . 2,628,009 92,239 0 2,720,248
Short-term borrowings. . . . . . 125,239 0 125,239
Other liabilities. . . . . . . . 29,209 878 30,087
Long-term debt . . . . . . . . . 6,575 550 7,125
Total liabilities . . . . . . 2,789,032 93,667 0 2,882,699
SHAREHOLDERS' EQUITY
Common stock . . . . . . . . . . 18,187 (B) 397 (E) (397) (C) 18,841
654 (C)
Surplus. . . . . . . . . . . . . 143,028 3,477 (E) (3,477) (C) 146,248
3,220 (C)
Retained earnings. . . . . . . . 76,752 3,064 79,816
Securities valuation . . . . . . 737 2 739
Total shareholders' equity. . 238,704 6,940 0 245,644
Total liabilities and
shareholders' equity . . .$3,027,736 $100,607 $ 0 $3,128,343
Book value per common share
based on 18,187,411 shares
(18,841,261 including AFC) . . . . $ 13.12 $ 13.04
See notes to pro forma condensed combined financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995 (unaudited)
PRO FORMA
(in thousands, except per share data) FMBC (A) AFC COMBINED
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans. . $143,550 $5,555 $149,105
Interest on securities:
Taxable . . . . . 21,669 459 22,128
Tax-exempt. . . . 10,429 38 10,467
Other interest income . . . . 1,502 173 1,675
Total interest income. . . 177,150 6,225 183,375
INTEREST EXPENSE
Interest on deposits. . . . . 80,078 3,071 83,149
Interest on short-term borrowings. . . 4,396 2 4,398
Interest on long-term debt. . 491 43 534
Total interest expense . . 84,965 3,116 88,081
NET INTEREST INCOME. . 92,185 3,109 95,294
Provision for loan losses . . 5,614 219 5,833
Net interest income after
provision for loan losses. 86,571 2,890 89,461
NONINTEREST INCOME
Service charges on deposits . 9,351 145 9,496
Trust and investment management fees 5,024 265 4,165
Other operating income. . . . 7,629 39 8,792
Securities gains (losses) . . 36 0 36
Total noninterest income . 22,040 449 22,489
NONINTEREST EXPENSE
Salaries and employee benefits . . . . 40,045 971 41,016
Occupancy and equipment expense. . . . 9,145 305 9,450
Other operating expense . . . 24,550 514 25,064
Total noninterest expense. 73,740 1,790 75,530
Income before income taxes. . . . . 34,871 1,549 36,420
Income tax expense . 8,829 524 9,353
INCOME FROM CONTINUING
OPERATIONS. . . . . $ 26,042 $1,025 $ 27,067
Income per share from
continuing operations (D)
Primary. . . . $ 1.42 $ 2.76 $ 1.42
Fully diluted. 1.42 1.42
See notes to pro forma condensed combined financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994 (unaudited)
PRO FORMA
(in thousands, except per share data) FMBC (A) AFC COMBINED
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans. . $109,200 $3,845 $113,045
Interest on securities:
Taxable . . . . . 20,262 366 20,628
Tax-exempt. . . . 10,725 29 10,754
Other interest income . . . . 722 27 749
Total interest income. . . 140,909 4,267 145,176
INTEREST EXPENSE
Interest on deposits. . . . . 53,719 1,745 55,464
Interest on short-term borrowings. . . 2,916 25 2,941
Interest on long-term debt. . 610 45 655
Total interest expense . . 57,245 1,815 59,060
NET INTEREST INCOME. . 83,664 2,452 86,116
Provision for loan losses . . 4,622 151 4,773
Net interest income after
provision for loan losses. 79,042 2,301 81,343
NONINTEREST INCOME
Service charges on deposits . 8,705 177 8,882
Trust and investment management fees 4,826 737 4,625
Other operating income. . . . 7,871 47 8,856
Securities gains (losses) . . (159) 0 (159)
Total noninterest income . 21,243 961 22,204
NONINTEREST EXPENSE
Salaries and employee benefits . . . . 36,219 1,199 37,418
Occupancy and equipment expense. . . . 8,639 393 9,032
Other operating expense . . . 24,062 604 24,666
Total noninterest expense. 68,920 2,196 71,116
Income before income taxes. . . . . 31,365 1,066 32,431
Income tax expense . 7,404 355 7,759
INCOME FROM CONTINUING
OPERATIONS. . . . . $ 23,961 $ 711 $ 24,672
Income per share from
continuing operations (D)
Primary. . . . $ 1.30 $ 1.97 $ 1.29
Fully diluted. 1.30 1.29
See notes to pro forma condensed combined financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1994
PRO FORMA
(in thousands, except per share data) FMBC (A) AFC COMBINED
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans. . $151,440 $5,447 $156,887
Interest on securities:
Taxable . . . . . 27,628 526 28,154
Tax-exempt. . . . 14,267 39 14,306
Other interest income . . . . 926 100 1,026
Total interest income. . . 194,261 6,112 200,373
INTEREST EXPENSE
Interest on deposits. . . . . 75,371 2,586 77,957
Interest on short-term borrowings. . . 4,370 25 4,395
Interest on long-term debt. . 787 70 857
Total interest expense . . 80,528 2,681 83,209
NET INTEREST INCOME. . 113,733 3,431 117,164
Provision for loan losses . . 6,459 211 6,670
Net interest income after
provision for loan losses. 107,274 3,220 110,494
NONINTEREST INCOME
Service charges on deposits . 11,723 234 11,957
Trust and investment management fees 6,534 1,482 8,016
Other operating income. . . . 10,268 66 10,334
Securities gains (losses) . . (297) 4 (293)
Total noninterest income . 28,228 1,786 30,014
NONINTEREST EXPENSE
Salaries and employee benefits . . . . 48,994 1,645 50,639
Occupancy and equipment expense. . . . 11,422 478 11,900
Other operating expense . . . 32,596 870 33,466
Total noninterest expense. 93,012 2,993 96,005
Income before income taxes. . . . . 42,490 2,013 44,503
Income tax expense . 10,110 666 10,776
INCOME FROM CONTINUING
OPERATIONS. . . . . $ 32,380 $ 1,347 $ 33,727
Income per share from
continuing operations (D)
Primary. . . . $ 1.76 $ 3.72 $ 1.77
Fully diluted. 1.76 1.77
See notes to pro forma condensed combined financial statements.
</TABLE>
<PAGE>
<TABLE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1993
PRO FORMA
(in thousands, except per share data) FMBC (A) AFC COMBINED
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans. . $127,970 $3,972 $131,942
Interest on securities:
Taxable . . . . . 29,328 432 29,760
Tax-exempt. . . . 13,627 34 13,661
Other interest income . . . . 870 60 930
Total interest income. . . 171,795 4,498 176,293
INTEREST EXPENSE
Interest on deposits. . . . . 68,488 1,920 70,408
Interest on short-term borrowings. . . 3,368 5 3,373
Interest on long-term debt. . 880 40 920
Total interest expense . . 72,736 1,965 74,701
NET INTEREST INCOME. . 99,059 2,533 101,592
Provision for loan losses . . 5,262 126 5,388
Net interest income after
provision for loan losses. 93,797 2,407 96,204
NONINTEREST INCOME
Service charges on deposits . 10,532 173 10,705
Trust and investment management fees 5,869 675 6,544
Other operating income. . . . 14,627 43 14,670
Securities gains (losses) . . 127 0 127
Total noninterest income . 31,155 891 32,046
NONINTEREST EXPENSE
Salaries and employee benefits . . . . 45,185 1,452 46,637
Occupancy and equipment expense. . . . 10,814 405 11,219
Other operating expense . . . 30,867 663 31,530
Total noninterest expense. 86,866 2,520 89,386
Income before income taxes. . . . . 38,086 778 38,864
Income tax expense . 8,609 243 8,852
INCOME FROM CONTINUING
OPERATIONS. . . . . $ 29,477 $ 535 $ 30,012
Income per share from
continuing operations (D)
Primary. . . . $ 1.59 $ 1.48 $ 1.57
Fully diluted. 1.59 1.57
See notes to pro forma condensed combined financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1992
PRO FORMA
(in thousands, except per share data) FMBC (A) AFC COMBINED
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans. . $129,260 $3,543 $132,803
Interest on securities:
Taxable . . . . . 32,217 366 32,583
Tax-exempt. . . . 12,721 34 12,755
Other interest income . . . . 1,389 51 1,440
Total interest income. . . 175,587 3,994 179,581
INTEREST EXPENSE
Interest on deposits. . . . . 77,854 1,874 79,728
Interest on short-term borrowings. . . 3,385 7 3,392
Interest on long-term debt. . 579 47 626
Total interest expense . . 81,818 1,928 83,746
NET INTEREST INCOME. . 93,769 2,066 95,835
Provision for loan losses . . 6,497 154 6,651
Net interest income after
provision for loan losses. 87,272 1,912 89,184
NONINTEREST INCOME
Service charges on deposits . 9,235 122 9,357
Trust and investment management fees 5,034 565 5,599
Other operating income. . . . 13,088 29 13,117
Securities gains (losses) . . 237 (18) 219
Total noninterest income . 27,594 698 28,292
NONINTEREST EXPENSE
Salaries and employee benefits . . . . 42,027 1,138 43,165
Occupancy and equipment expense. . . . 9,979 330 10,309
Other operating expense . . . 30,367 610 30,977
Total noninterest expense. 82,373 2,078 84,451
Income before income taxes. . . . . 32,493 532 33,025
Income tax expense . 6,817 177 6,994
INCOME FROM CONTINUING
OPERATIONS. . . . . $ 25,676 $ 355 $ 26,031
Income per share from
continuing operations (D)
Primary. . . . $ 1.39 $ 0.98 $ 1.36
Fully diluted. 1.39 1.36
See notes to pro forma condensed combined financial statements.
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (Unaudited)
A) FMBC's financial data has been restated to reflect the March 10, 1995
acquisition of Superior Financial Corporation on a pooling-of-interests
basis.
B) FMBC's common stock consists of 24,000,000 shares authorized at $1.00 par
value, of which 18,187,411 shares were outstanding as of September 30, 1995.
C) To record the acquisition of all of the stock of AFC in exchange for 653,850
shares of FMBC common stock using an exchange rate of 1.648 shares of FMBC
common stock for each share of AFC stock, assuming the issuance of an
additional 25,750 AFC shares under option. See note E.
D) The income per share data is based on average shares outstanding during
each period including the assumed exercise of dilutive stock options.
The data has been adjusted to give retroactive effect to the stock
dividends and splits paid by FMBC in each year and to reflect the
March 10, 1995 acquisition of Superior Financial Corporation on a
pooling-of-interests basis.
E) The balance sheet for AFC as of September 30, 1995 has been adjusted for
the pro forma exercise and issuance of 25,750 shares of AFC common stock
under all outstanding stock options. The Plan of Merger requires all AFC
stock options to be exercised by the Closing Date for the merger for cash
consideration to AFC of not less than $282,999.
<PAGE>
ARCADIA FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
CONTENTS
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Balance Sheets F3-4
Consolidated Statements of Income F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F7-8
Summary of Significant Accounting Policies F9-12
Notes to Consolidated Financial Statements F13-20
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
Arcadia Financial Corporation
Kalamazoo, Michigan
We have audited the accompanying consolidated balance sheets of
Arcadia Financial Corporation and Subsidiaries as of December 31,
1994 and 1993, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1994. These financial
statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Arcadia Financial Corporation and
Subsidiaries at December 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Kalamazoo, Michigan
January 18, 1995
<PAGE>
<TABLE>
<CAPTION>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1994 1993
<S> <C> <C>
Assets
Cash and Due from Banks $ 4,315,883 $ 5,642,676
Federal Funds Sold 2,850,000 -
Total Cash and Cash Equivalents 7,165,883 5,642,676
Investment Securities (Note 2):
Available-for-sale 8,567,293 -
Held-to-maturity (estimated market
value of $6,230,340 and
$11,821,547) 6,406,360 11,817,543
Total Investment Securities 14,973,653 11,817,543
Loans (Note 3):
Commercial 55,722,863 47,542,388
Real estate mortgages 6,524,921 6,617,270
Consumer 5,509,598 2,929,583
67,757,382 57,089,241
Less allowance for loan losses 1,081,082 819,579
Net Loans 66,676,300 56,269,662
Premises and Equipment, net (Note 4) 612,827 796,066
Accrued Interest and Other Assets 1,002,568 810,060
$90,431,231 $75,336,007
</TABLE>
<PAGE>
<TABLE>
December 31, 1994 1993
<S> <C> <C>
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest bearing demand $10,574,449 $11,218,768
Interest bearing demand 18,677,343 18,002,535
Savings and money market accounts 8,184,749 8,496,957
Time (Note 5) 45,726,864 30,994,139
Total Deposits 83,163,405 68,712,399
Federal Funds Purchased - 1,250,000
Accrued Interest and Other Liabilities 1,036,981 638,037
Note Payable to Bank (Note 6) 650,000 550,000
Total Liabilities 84,850,386 71,150,436
Commitments and Contingencies
(Notes 9, 11, 12, and 13)
Stockholders' Equity:
Common stock, $1 par, 1,000,000
shares authorized; 371,004
and 362,004 shares outstanding
(Note 10) 371,004 362,004
Additional paid-in capital 3,219,536 3,130,536
Securities valuation (Note 2) (50,040) -
Retained earnings 2,040,345 693,031
Total Stockholders' Equity 5,580,845 4,185,571
$90,431,231 $75,336,007
See accompanying summary of significant accounting policies and
notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31, 1994 1993 1992
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans $5,446,597 $3,972,215 $3,542,619
Interest on investment securities:
Taxable 526,354 432,426 366,290
Tax exempt 39,327 33,827 34,154
Interest on federal funds sold 99,803 60,307 50,952
Total Interest Income 6,112,081 4,498,775 3,994,015
Interest Expense 2,680,611 1,964,670 1,927,170
Net Interest Income 3,431,470 2,534,105 2,066,845
Provision for Loan Losses (Note 3) 210,575 126,100 154,150
Net Interest Income After Provision for
Loan Losses 3,220,895 2,408,005 1,912,695
Other Income:
Investment management fees 710,288 613,360 565,167
Gain on sale of subsidiary
(Note 14) 475,274 - -
Trust income 296,024 61,506 -
Service charges on deposit
accounts 234,259 172,903 121,964
Other 69,864 43,289 28,498
Total Other Income 1,785,709 891,058 715,629
Other Expenses:
Salaries and employee
benefits 1,644,657 1,452,451 1,138,075
Equipment expenses 255,834 192,214 160,163
Occupancy expenses 222,759 213,082 169,771
FDIC insurance 166,307 127,830 106,256
Other 703,733 535,128 522,124
Total Other Expenses 2,993,290 2,520,705 2,096,389
Income Before Taxes on Income and
Extraordinary Item 2,013,314 778,358 531,935
Taxes on Income (Note 7) 666,000 243,000 177,000
Income Before Extraordinary Item 1,347,314 535,358 354,935
Extraordinary Item - Reduction of income
taxes resulting from carryforward
of prior years' net operating
losses (Note 7) - - 66,000
Net Income $1,347,314 $ 535,358 $ 420,935
Earnings Per Share of Common Stock $ 3.72 $ 1.48 $ 1.16
See accompanying summary of significant accounting policies and
notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Retained
Common Paid-in Securities Earnings
Stock Capital Valuation (Deficit)
<S> <C> <C> <C> <C>
Balance, January 1, 1992 $362,004 $3,130,536 $ - $ (263,262)
Net income for the year - - - 420,935
Balance, December 31, 1992 362,004 3,130,536 - 157,673
Net income for the year - - - 535,358
Balance, December 31, 1993 362,004 3,130,536 - 693,031
Issuance of 9,000 shares of
common stock
(Note 10) 9,000 89,000 - -
Net income for the year - - - 1,347,314
Unrealized losses
(Note 2) - - (50,040) -
Balance, December 31, 1994 $371,004 $3,219,536 $ (50,040) $2,040,345
See accompanying summary of significant accounting policies and
notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, 1994 1993 1992
<S> <C> <C> <C>
Operating Activities:
Interest received $ 5,661,400 $ 4,163,068 $ 3,858,687
Fees received 1,448,667 1,069,770 911,987
Interest paid (2,573,880) (1,885,431) (1,893,831)
Income taxes received (paid) (446,449) (375,233) 8,871
Cash paid to suppliers
and employees (2,550,835) (2,376,514) (1,925,532)
Cash Provided by Operating
Activities 1,538,903 595,660 960,182
Investing Activities:
Investment securities
available-for-sale:
Purchases (8,966,400) - -
Proceeds from sales 34,597 - 5,652,507
Proceeds from
maturities 5,557,000 - -
Investment securities
held-to-maturity:
Purchases (1,265,000) (7,502,300) (18,402,429)
Proceeds from
maturities 1,370,000 5,112,000 10,519,571
Proceeds from sale of
subsidiary 525,000 - -
Net increase in loans (10,617,213) (10,607,632) (8,129,904)
Capital expenditures (47,031) (125,851) (141,322)
Increase in cash surrender
value of officer's
life insurance (5,655) (5,655) (5,655)
Cash Used in Investing
Activities (13,414,702) (13,129,438) (10,507,232)
Financing Activities:
Net increase (decrease) in
demand deposit and
savings accounts (281,719) 7,530,159 379,385
Net increase in certificates
of deposit 14,732,725 6,170,290 8,480,749
Net increase (decrease) in
federal funds purchased (1,250,000) 1,250,000 -
Proceeds from issuance of
long-term debt 1,300,000 - -
Principal payments of debt (1,200,000) (100,000) (100,000)
Proceeds from issuance of
stock 98,000 - -
Cash Provided by Financing
Activities 13,399,006 14,850,449 8,760,134
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, 1994 1993 1992
<S> <C> <C> <C>
Net Increase (Decrease) in Cash and
Cash Equivalents 1,523,207 2,316,671 (786,916)
Cash and Cash Equivalents,
beginning of year 5,642,676 3,326,005 4,112,921
Cash and Cash Equivalents,
end of year $ 7,165,883 $ 5,642,676 $ 3,326,005
Reconciliation of Net Income to
Cash Provided by Operating
Activities:
Net income $ 1,347,314 $ 535,358 $ 420,935
Gain on sale of subsidiary (475,274) - -
Depreciation, amortization,
and accretion 169,130 29,996 169,536
Loss (gain) on sale of
investment securities
available-for-sale (3,976) - 18,208
Loss on disposal of premises
and equipment 62,337 - -
Provision for loan losses 210,575 126,100 154,150
Deferred income tax benefit (74,000) (80,000) (104,000)
Other non-cash transactions 132 6,310 17,712
Changes in related assets
and liabilities:
Interest receivable (252,813) (70,635) 32,493
Interest payable 106,731 79,239 3,640
Income taxes payable 293,751 (33,233) 187,800
Prepaid expenses 136,184 37,850 25,680
Fees receivable (1,446) (2,410) 1,035
Accrued expenses and
accounts payable 21,273 (31,720) (3,204)
Deferred revenue - fees (1,015) (1,195) 6,197
Cash Provided by Operating
Activities $ 1,538,903 $ 595,660 $ 960,182
See accompanying summary of significant accounting policies and
notes to consolidated financial statements.
</TABLE>
<PAGE>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
Arcadia Financial Corporation and all of its subsidiaries. All
material intercompany accounts and transactions are eliminated.
Cash Equivalents
For purposes of the statements of cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, and
federal funds sold.
Federal Funds
Federal funds are generally purchased and sold for one-day periods.
Investment Securities
The Corporation adopted Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," as of January 1, 1994. Under this statement,
investment securities are required to be classified as "held-to-maturity,"
"available-for-sale," or "trading." Held-to-maturity securities, for
which the Corporation has the positive intent and ability to hold to
maturity, are stated at cost adjusted for amortization of premiums and
accretion of discounts. Available-for-sale securities, which may be
sold in the future to meet the Corporation's investment objectives of
quality, liquidity and yield and to avoid significant market value
deterioration, are adjusted to fair value each reporting period.
Unrealized gains and losses on available-for-sale securities are
reported as a net amount in a separate component of stockholders'
equity, until realized. The Corporation does not hold any trading
securities.
The adjusted cost of each specific security sold is used to compute
gains and losses on all security transactions.
Loans and Allowance for Loan Losses
Loans are carried at their principal amount outstanding. Interest
on commercial, real estate mortgages, and consumer loans is accrued
and credited to income based upon the principal amount outstanding.
See accompanying notes to consolidated financial statements.
<PAGE>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Corporation defers loan origination and commitment fees, net of
certain direct loan origination costs, and the net deferred fees
are amortized into interest income over the lives of the related
loans as yield adjustments.
Loan performance is reviewed regularly by loan officers and senior
management. When reasonable doubt exists concerning collectibility
of interest or principal, the loan is placed on a nonaccrual basis.
Any interest previously accrued but not collected is reversed and
charged against current earnings.
The allowance for loan losses is established by charges to
operations based upon management's evaluation of loans, economic
conditions, and other factors considered necessary to maintain the
allowance at an adequate level to absorb future loan charge-offs.
Credits deemed uncollectible are charged to the allowance.
Provisions for credit losses and recoveries on loans previously
charged off are added to the allowance.
The Corporation participates in a Capital Access program with the
Michigan Strategic Fund. Under this program, the Corporation makes
loans to companies who might not otherwise be able to obtain
financing. In return, the borrower and the Michigan Strategic Fund
contribute a percentage of the loan amount to establish a reserve
for potential loan losses for all loans included in this program.
At December 31, 1994, the total reserve for these loans was
$106,040.
In May, 1993, the Financial Accounting Standards Board issued
"Accounting by Creditors for Impairment of a Loan" (SFAS No. 114),
which was subsequently amended in October 1994, by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan-Income Recogni-
tion and Disclosures." The provisions of these statements are
effective for fiscal years beginning after December 15, 1994. The
statements address the accounting by creditors for impairment of
certain loans and require that impaired loans that are within the
scope of the statements be measured based on the present value of
expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observ-
able market price or the fair value of the collateral if the loan
is collateral dependent. It is anticipated that the adoption of
SFAS No. 114 and 118 will not have a significant impact on the
Company's financial statements.
See accompanying notes to consolidated financial statements.
<PAGE>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Premises, Equipment, and Depreciation
Premises and equipment are stated at cost. Depreciation is
computed primarily by the straight-line method for financial
reporting purposes and accelerated methods for income tax purposes.
Other Real Estate
Other real estate, which is included in other assets, is carried at
the lower of the amount of the related loan or the net realizable
value (fair market value less estimated selling costs) of the
property.
Taxes on Income
Deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted tax rates applicable to
future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabili-
ties. The effect on deferred income taxes of a change in tax laws
or rates is recognized in income in the period that includes the
enactment date.
For 1992, deferred income tax expenses or credits were recorded in
accordance with Accounting Principles Board (APB) Opinion No. 11
reflecting the tax consequences of timing differences between the
recording of income and expenses for financial reporting purposes
and tax purposes at income tax rates in effect when the differences
arose.
The subsidiaries file a consolidated federal income tax return with
the parent corporation. The subsidiaries have a tax sharing
arrangement with the parent corporation which provides that the
subsidiaries' tax obligation is determined on their share of the
consolidated taxable income.
Revenue Recognition
Investment management fees are billed and collected on a quarterly
basis, in advance. In order to match revenues with their appropri-
ate expenses, unearned revenues are recorded as deferred revenue,
and included in other liabilities on the balance sheet.
See accompanying notes to consolidated financial statements.
<PAGE>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Trust Assets and Income
Property held in a fiduciary or agency capacity for customers is
not included in the balance sheet since such assets are not owned
by the Corporation. Income from trust services is recognized on a
cash basis, which is not materially different than if it were
recognized on the accrual method.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Corporation has entered
into off-balance sheet financial instruments consisting of
commitments to extend credit and standby letters of credit. Such
financial instruments are recorded in the financial statements when
they become payable to the Corporation.
Financial Instruments
In December, 1991, the Financial Accounting Standards Board issued
SFAS No. 107, "Disclosures about Fair Value of Financial Instru-
ments" (SFAS No. 107). The provisions of the statement are
effective for fiscal years ending after December 15, 1995. SFAS
No. 107 extends existing fair value disclosure practices for some
instruments by requiring all entities to disclose the fair value of
financial instruments, both assets and liabilities recognized and
not recognized in the balance sheet, for which it is practicable to
estimate fair value. The adoption of SFAS No. 107 will not have an
impact on the Corporation's financial statements.
Earnings Per Share
Earnings per share are computed based on the average number of
shares outstanding during each period including the assumed
exercise of dilutive stock options (362,004 in 1994, 1993, and
1992).
Reclassification
Interest expense on long-term debt has been reclassified from other
expense to interest expense in the accompanying consolidated
statements of income.
See accompanying notes to consolidated financial statements.
<PAGE>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Arcadia Financial Corporation has been established as a Holding
Company with two wholly-owned subsidiaries; Arcadia Bank & Trust
Company, which offers a full complement of financial services to
corporate, retail and trust customers, primarily in Kalamazoo
County, and Arcadia Investment Management Corporation, which
operates as a national registered investment advisor. On December
29, 1994, the Corporation sold its stock in Arcadia Investment
Management Corporation. See Note 14 for additional disclosures.
2. Investment Securities
<TABLE>
<CAPTION>
The amortized cost and carrying value, which is estimated market
value, of securities available-for-sale are as follows:
Gross Gross
Amortized Unrealized Unrealized Carrying
December 31, 1994 Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $7,518,405 $ - $(47,431) $7,470,974
Corporate debt securities 872,528 313 (2,922) 869,919
Other securities 226,400 - - 226,400
Totals $8,617,333 $313 $(50,353) $8,567,293
</TABLE>
<TABLE>
<CAPTION>
The carrying value and estimated market value of securities held-to-maturity
are as follows:
Gross Gross
Amortized Unrealized Unrealized Carrying
December 31, 1994 Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $3,259,697 $ - $ (57,118) $3,202,579
Obligations of U.S.
Government agencies 2,024,402 - (112,219) 1,912,183
Obligations of states and
political
subdivisions 1,122,261 990 (7,673) 1,115,578
Totals $6,406,360 $990 $(177,010) $6,230,340
</TABLE>
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Carrying
December 31, 1993 Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 7,791,602 $39,086 $ (7,251) $ 7,823,437
Obligations of U.S.
Government agencies 2,297,542 1,564 (32,078) 2,267,028
Obligations of states and
political subdivisions 971,836 5,240 (1,346) 975,730
Corporate debt securities 545,942 1,092 (682) 546,352
Other securities 210,621 - (1,621) 209,000
Totals $11,817,543 $46,982 $(42,978) $11,821,547
</TABLE>
<PAGE>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Maturities of investments in debt securities as of December 31,
1994, are as follows:
Available-for-Sale Held-to-Maturity
Estimated
Amortized Carrying Carrying Market
Cost Value Value Value
<S> <C> <C> <C> <C>
Due in one year or less $8,169,596 $8,119,243 $3,107,977 $3,071,867
Due after one year
through five years 221,337 221,650 3,039,268 2,906,520
Due after five years
through ten years - - 259,115 251,953
Totals $8,390,933 $8,340,893 $6,406,360 $6,230,340
</TABLE>
Investment securities with amortized costs of approximately
$2,750,000 and $750,000 at December 31, 1994 and 1993, respective-
ly, were pledged to secure public deposits and for other purposes
as required by law.
For the year ended December 31, 1994, proceeds from the sale of
investment securities available-for-sale amounted to $34,597,
resulting in gross gains of $3,976. During 1992, proceeds from
sales of certain corporate debt securities were $5,652,507,
resulting in a loss of $18,208. There were no sales during 1993.
3. Loans and Allowance for Loan Losses
Included in the Corporation's loan portfolio are loans made to
directors, officers, and their business affiliations in the
ordinary course of business. These loans were incurred on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time from comparable
transactions with unrelated persons and do not involve more than
the normal risk of collectibility. Loans to such related parties
aggregated $479,000 and $506,000 at December 31, 1994 and 1993,
respectively.
<PAGE>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
The following summarizes the changes in the allowance for loan
losses:
Year ended December 31, 1994 1993 1992
<S> <C> <C> <C>
Balance, beginning of year $ 819,579 $668,414 $533,353
Additions:
Provision charged to operations 210,575 126,100 154,150
Capital access reserve 51,935 29,738 24,368
Total additions 262,510 155,838 178,518
Deductions:
Loan losses 4,829 7,299 56,675
Less recoveries (3,822) (2,626) (13,218)
Net loan losses 1,007 4,673 43,457
Balance, end of year $1,081,082 $819,579 $668,414
</TABLE>
4. Premises and Equipment
<TABLE>
<CAPTION>
Premises and equipment consist of:
Year ended December 31, 1994 1993
<S> <C> <C>
Office equipment $ 323,326 $ 399,361
Furniture and fixtures 382,046 404,273
Leasehold improvements 485,438 527,903
1,190,810 1,331,537
Less accumulated depreciation 577,983 535,471
Premises and Equipment, net $ 612,827 $ 796,066
</TABLE>
5. Deposits
The aggregate amount of short-term jumbo certificates of deposit
with a minimum denomination of $100,000 was approximately
$10,124,000 and $10,492,000 at December 31, 1994 and 1993,
respectively. The interest expense relating to short-term jumbo
certificates of deposit was approximately $382,000, $318,000, and
$299,000 for the years ended December 31, 1994, 1993, and 1992,
respectively.
<PAGE>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Note Payable to Bank
The note payable to bank at December 31, 1993, was refinanced with
a new bank who issued a demand note due June 30, 2005, with annual
principal payments of $108,350. Interest is payable quarterly at
.25% above the prime rate, effectively 8.75% at December 31, 1994.
The note is secured by all of the stock of Arcadia Bank & Trust
Company.
7. Taxes on Income
<TABLE>
Provisions for federal income taxes in the statements of income are
comprised of the following components:
Year ended December 31, 1994 1993 1992
<S> <C> <C> <C>
Current $740,000 $323,000 $209,000
Deferred - reduction (74,000) (80,000) (32,000)
Total Taxes on Income $666,000 $243,000 $177,000
Deferred income taxes for 1992, as determined under APB No. 11
related primarily to the provision for loan losses of ($52,000),
accelerated depreciation of $4,000, and utilization of charitable
contributions and net operating loss carryforwards of $16,000.
</TABLE>
<TABLE>
<CAPTION>
The tax effect of temporary differences which give rise to a
significant portion of the Corporation's deferred tax assets
(liabilities) are as follows:
Year ended December 31, 1994 1993
<S> <C> <C>
Allowance for loan losses $316,000 $244,000
Accumulated depreciation (42,000) (45,000)
Net Deferred Tax Assets $274,000 $199,000
</TABLE>
The amounts shown for income tax expense on the consolidated
statements of income are less than amounts computed by applying the
statutory federal income tax rate to income before taxes. A
reconciliation of such amounts is as follows:
<TABLE>
Year ended December 31, 1994 1993 1992
<S> <C> <C> <C>
Income taxes at statutory rate $684,000 $265,000 $181,000
Tax-exempt interest income (13,000) (7,000) (12,000)
Other (5,000) (11,000) 8,000
Income Tax Expense $666,000 $243,000 $177,000
Effective income tax rate 33.0% 31.0% 33.0%
Statutory income tax rate 34.0% 34.0% 34.0%
</TABLE>
<PAGE>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1994, the Corporation had $20,600 of capital loss
carryforwards for income tax purposes which expire on December 31,
1999.
The tax benefit of $66,000 resulting from utilization of net
operating loss carryforwards is shown as an extraordinary item in
1992, in accordance with the provisions of APB No. 11.
8. Supplemental Cash Flow Information
During 1994, the Corporation sold other real estate in exchange for
a mortgage of $115,000.
During 1992, the Corporation acquired other real estate with a
value of approximately $140,000 in connection with the foreclosures
of loans.
9. Lease Commitments
The Corporation leases facilities under operating lease agreements
which expire at various dates through June 30, 1997. Certain
leases contain provisions for renewal options. The aggregate
minimum annual rental commitments are as follows:
<TABLE>
Year Amount
<S> <C>
1995 $131,000
1996 132,000
1997 54,000
Total Minimum Payments Required $317,000
</TABLE>
Rental expense charged to operations for the years ended Decem-
ber 31, 1994, 1993, and 1992, amounted to approximately $162,000,
$157,000, and $126,000, respectively. This includes amounts paid
to related parties of $95,000, $109,000, and $97,000 in 1994, 1993,
and 1992, respectively.
10. Stock Option Plan
In April, 1987, the Corporation established the Arcadia Financial
Corporation 1987 Stock Option Plan (the Plan). The Plan is
administered by a Committee appointed by the Board of Directors, of
no less than three members, none of whom may participate in the
Plan. Under the Plan, the Committee may grant stock options to key
employees of the Corporation.
<PAGE>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The exercise price of options granted under the Plan may not be
less than 100% of the fair market value of the common stock at the
date the option is granted. All options granted under this plan
expire no later than ten years from the date of grant.
<TABLE>
Changes in options outstanding are summarized as follows:
Option Price
Shares Per Share
<S> <C> <C>
December 31, 1991 30,750 $10 - $12
Granted 250 $12
December 31, 1992 31,000 $10 - $12
Granted 4,750 $12
Lapsed (1,000) $10 - $12
December 31, 1993 34,750 -
Exercised (9,000) $10 - $12
December 31, 1994 25,750 -
</TABLE>
At December 31, 1994, there were 25,750 exercisable options and 250
shares reserved for future grants.
11. Benefit Plan
Effective July 1, 1988, Arcadia Financial Corporation adopted a
profit-sharing and savings plan 401(k) covering all employees of
Arcadia Financial Corporation, Arcadia Investment Management
Corporation, and Arcadia Bank & Trust Company. Participating
employees may contribute up to the legal limits. In addition, the
companies may make a contribution for each plan year on behalf of
qualifying participants. The amount charged to operations in 1994,
1993, and 1992, was approximately $96,000, $57,000, and $45,000,
respectively.
12. Financial Instruments with Off-Balance Sheet Risk
The Corporation is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments are loan commitments to extend
credit and standby letters of credit. These instruments involve, to varying
degrees, elements of credit risk in excess of the amounts recognized in the
balance sheet. The contract amount of these instruments reflects the extent
of involvement the Corporation has in these financial instruments.
<PAGE>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Corporation's exposure to credit loss in the event of the
nonperformance by the other party to the financial instruments for
loan commitments to extend credit and standby letters of credit is
represented by the contractual amounts of these instruments. The
Corporation uses the same credit policies in making loan commit-
ments as it does for on-balance sheet loans.
<TABLE>
<CAPTION>
Financial instruments whose contract amount represent credit risk
are as follows:
December 31, 1994 1993
<S> <C> <C>
Commitments to extend credit $13,422,000 $12,148,000
Standby letters of credit $ 599,000 $ 328,000
</TABLE>
Loan commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Corpora-
tion evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by
the Corporation upon extension of credit, is based on management's
credit evaluation of the counter party. Collateral held varies but
may include accounts receivable, inventory, property, plant, and
equipment, and income-producing commercial properties.
Standby letters of credit written are conditional commitments
issued by the Corporation to guarantee the performance of a
customer to a third party. The Corporation has nine standby
letters of credit which expire at various dates through October 16,
1995.
13. Concentrations of Credit
Substantially all of the Corporation's loans, commitments, and
standby letters of credit have been granted to customers in the
Corporation's market area. Investments in obligations of states
and political subdivisions also involve governmental entities
within the Corporation's market area. The concentrations of credit
by type of loan are set forth in the balance sheet. The distribu-
tion of commitments to extend credit approximates the distribution
of loans outstanding. Standby letters of credit were granted
primarily to commercial borrowers.
<PAGE>
ARCADIA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Sale of Subsidiary
On December 29, 1994, the Corporation sold the common stock owned
in Arcadia Investment Management Corporation (AIMC) for $525,000 in
cash. The sale resulted in a gain before income taxes of approxi-
mately $475,000. On an after tax basis, the gain was approximately
$313,000, or $.86 per common share. The gain is included in other
income in the consolidated financial statements.
The results of operations for AIMC for the year ended December 31,
1994, are as follows:
<TABLE>
<S> <C>
Total Revenues $710,288
Net Income $ 45,903
</TABLE>
<PAGE>
ARCADIA FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 1995 and 1994
CONTENTS
Financial Statements:
Consolidated Balance Sheets F-22
Consolidated Statements of Income F-24
Consolidated Statements of Cash Flows F-25
Notes to Consolidated Financial Statements F-27
<PAGE>
<TABLE>
<CAPTION>
Arcadia Financial Corporation
and Subsidiaries
Consolidated Balance Sheets (Unaudited)
September 30, 1995 1994
<S> <C> <C>
Assets:
Cash and Due from Banks $4,623,447 $3,768,486
Federal Funds Sold 3,000,000 2,900,000
Total Cash and Cash Equivalents 7,623,447 6,668,486
Investment Securities
Available-for-sale 6,279,804 6,447,707
Held-to-maturity (estimated
market value of
$7,379,856 and $6,399,627) 7,407,898 6,535,763
Total Investment Securities 13,687,702 12,983,470
Loans
Commercial 65,478,224 52,474,320
Real estate mortgages 7,009,100 7,032,531
Consumer 6,002,061 5,366,143
78,489,385 64,872,994
Less allowance for loan losses 1,269,737 1,016,523
Net Loans 77,219,648 63,856,471
Premise and Equipment 649,993 687,286
Accrued Interest and Other Assets 1,143,350 1,050,121
100,324,140 85,245,834
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Arcadia Financial Corporation
and Subsidiaries
Consolidated Balance Sheets (Unaudited)
September 30, 1995 1994
<S> <C> <C>
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest bearing demand $10,277,742 $9,473,054
Interest bearing demand 20,013,408 15,433,524
Savings and money market accounts 10,946,501 9,639,643
Time 51,001,064 43,721,287
Total Deposits 92,238,715 78,267,508
Federal Funds Purchased 0 0
Accrued Interest and Other Liabilities 878,600 809,321
Note Payable to Bank 550,000 1,300,000
Total Liabilities 93,667,315 80,376,829
Stockholders' Equity:
Common stock, $1 par, 1,000,000
shares authorized; 371,004 and
362,004 shares outstanding 371,004 362,004
Additional paid-in capital 3,219,536 3,130,536
Securities valuation 2,173 (28,211)
Retained earnings 3,064,112 1,404,676
Total Stockholders' Equity 6,656,825 4,869,005
100,324,140 85,245,834
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Arcadia Financial Corporation
and Subsidiaries
Consolidated Statements of Income (Unaudited)
Nine months ended September 30, 1995 1994
<S> <C> <C>
Interest Income:
Interest and fees on loans $5,554,718 $3,844,738
Interest on investment securities:
Taxable 459,334 366,427
Tax exempt 37,883 28,713
Interest on federal funds sold 173,046 27,376
Total Interest Income 6,224,981 4,267,254
Interest Expense 3,115,989 1,814,953
Net Interest Income 3,108,992 2,452,301
Provision for Loan Losses 219,425 151,125
Net Interest Income After Provision
for Loan Losses 2,889,567 2,301,176
Other Income:
Investment management fees 0 522,033
Trust income 264,887 214,995
Service charges on deposit accounts 145,410 176,830
Other 38,762 47,015
Total Other Income 449,059 960,873
Other Expenses:
Salaries and employee benefits 971,008 1,199,100
Equipment expense 168,967 215,680
Occupancy expense 135,940 176,981
FDIC insurance 86,043 120,914
Other 428,298 482,949
Total Other Expenses 1,790,256 2,195,624
Income Before Taxes on Income 1,548,370 1,066,425
Taxes on Income 523,603 354,780
Net Income 1,024,767 711,645
Earnings Per Share of Common Stock $2.76 $1.97
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Arcadia Financial Corporation
and Subsidiaries
Statement of Cash Flows (Unaudited)
Nine months ended September 30 1995 1994
<S> <C> <C>
Operating Activities:
Interest received 6,114,980 4,199,501
Fees received 582,689 1,129,489
Interest paid (2,946,523) (1,740,725)
Income taxes paid (964,559) (365,839)
Cash paid to suppliers and employees (1,704,248) (2,116,142)
Cash Provided by Operating Activities 1,082,339 1,106,284
Investing Activities:
Investment securities available-for-sale:
Purchases (5,750,400) (5,644,354)
Proceeds from maturities 8,820,000 4,307,000
Investment securities held-to-maturity
Purchases (2,238,500) (1,055,300)
Proceeds from maturities 410,000 1,095,000
Net increase in loans (10,726,110) (7,798,143)
Capital expenditures (109,420) (34,130)
Increase in cash surrender value
of officer's life insurance (5,655) (5,655)
Cash Used in Investing Activities (9,600,085) (9,135,582)
Financing Activities:
Net increase (decrease) in demand deposit
and savings accounts 3,801,110 (3,172,040)
Net increase in certificates of deposit 5,274,200 12,727,148
Net increase (decrease) in federal
funds purchased 0 (1,250,000)
Proceeds from issuance of long-term debt 0 1,300,000
Principal payments of debt (100,000) (550,000)
Proceeds from issuance of stock 0 0
Cash Provided by Financing Activities 8,975,310 9,055,108
Net Increase in Cash and Cash Equivalents 457,564 1,025,810
Cash and Cash Equivalents, beginning
of period 7,165,883 5,642,676
Cash and Cash Equivalents, end of period 7,623,447 6,668,486
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Arcadia Financial Corporation
and Subsidiaries
Statement of Cash Flows (Unaudited)
Nine months ended September 30 1995 1994
<S> <C> <C>
Reconciliation of Net Income to Cash Provided
by Operating Activities:
Net Income 1,024,767 711,645
Depreciation, amortization, and accretion 129,870 212,617
Loss on disposal of premises and equipment 0 32,922
Provision for loan losses 219,425 151,125
Deferred income tax benefit (42,000) (60,000)
Changes in related assets and liabilities
Interest receivable (31,389) (86,583)
Interest payable 169,466 48,586
Income taxes payable (489,236) (129,506)
Prepaid expenses 10,936 49,906
Fees receivable 7,760 (17,711)
Accrued expenses and accounts payable 34,038 50,637
Deferred revenue - fees 0 (1,444)
Other assets 48,702 118,447
Other liabilities 0 25,643
Cash Provided by Operating Activities 1,082,339 1,106,284
</TABLE>
<PAGE>
Arcadia Financial Corporation
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1995 and 1994
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and Rule 10-01 of Regulation S-X. Accordingly,
footnote disclosure, which would substantially duplicate the disclosure
contained in the most recent audited financial statements, has been omitted.
The accompanying unaudited consolidated financial statements should be read
in conjunction with the Notes to Consolidated Financial Statements contained
in the December 31, 1994 Consolidated Financial Statements.
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 22, 1995, is by
and between ARCADIA FINANCIAL CORPORATION, a Michigan corporation ("AFC"),
and FIRST MICHIGAN BANK CORPORATION, a Michigan corporation ("FMBC").
RECITALS
FMBC and AFC are bank holding companies, each of which is registered as
such with the Board of Governors of the Federal Reserve System under the
Bank Holding Company Act of 1956, as amended ("BHCA"). AFC owns all the
issued and outstanding shares of Arcadia Bank & Trust Company, a Michigan
banking corporation (the "Bank"). The parties have agreed to a plan of
merger pursuant to which AFC will be merged with and into FMBC in accordance
with the Michigan Business Corporation Act, as amended ("MBCA"), and in
accordance with this Agreement and Plan of Merger ("Plan of Merger"), as a
result of which the Bank shall become a wholly-owned subsidiary of FMBC.
The transaction described in this Plan of Merger is referred to as the
"Merger."
Accordingly, in consideration of the mutual agreements, provisions and
covenants herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
Subject to the terms and conditions of this Plan of Merger, including,
without limitation, receipt of all requisite governmental and shareholder
approvals, the Merger shall be carried out in the following manner:
1.1 Approval of Plan of Merger. As soon as practicable after the
Registration Statement has been declared effective, AFC shall submit this
Plan of Merger to its shareholders for approval at a meeting properly called,
noticed, and held for that purpose.
1.2 Effective Date of Merger. Following the satisfaction or waiver of
the conditions precedent set forth in Articles VI and VII of this Plan of
Merger ("Conditions Precedent"), FMBC and AFC shall, subject to the terms
and conditions of this Plan of Merger, execute, deliver and file a
"Certificate of Merger" in the form and as required by the MBCA. The
Certificate of Merger shall be executed on such date and at such place as
may be mutually agreed by the parties or, in the absence of such agreement,
on such date as either party determines upon seven (7) days' written notice
to the other party (the "Closing"), following the satisfaction or waiver of
all of the Conditions Precedent. Scheduling or commencing the Closing shall
not, however, constitute a waiver of the Conditions Precedent of either party.
The "Effective Date of Merger" shall be the close of business on the date
specified in the Certificate of Merger, which shall be not later than seven
(7) days after the Closing.
1.3 Merger of AFC into FMBC. On the Effective Date of Merger, AFC
shall be merged with and into FMBC (each sometimes being referred to as the
"Constituent Corporations" prior to the Merger), as a result of which the
separate existence of AFC shall cease. FMBC shall be the "Surviving
Corporation" as a result of the Merger, and the effect of the Merger upon
each of the Constituent Corporations and the Surviving Corporation shall
be as provided in Chapter Seven of the MBCA and this Plan of Merger.
1.4 Additional Actions. If, at any time after the Effective Date of
Merger, the Surviving Corporation shall determine that any further assignments
or assurances or any other acts are necessary or desirable to vest, perfect
or confirm, of record or otherwise, in the Surviving Corporation its rights,
title, or interest in, to, or under any of the rights, properties, or assets
of AFC acquired or to be acquired by the Surviving Corporation as a result
of, or in connection with, the Merger, or to otherwise carry out the purposes
of this Plan of Merger, then AFC and its officers and directors shall be
deemed to have granted to the Surviving Corporation an irrevocable power
of attorney to execute and deliver all such proper deeds, assignments and
<PAGE> assurances in law and to do all acts necessary or proper to vest,
perfect, or confirm title to and possession of such rights, properties, or
assets in the Surviving Corporation and to otherwise carry out the purposes
of this Plan of Merger. The proper officers and directors of the Surviving
Corporation shall then be fully authorized in the name of AFC or otherwise
to take any and all such action as may be contemplated by this Section 1.4.
1.5 Name. The name of the Surviving Corporation shall be "First Michigan
Bank Corporation."
1.6 Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation shall be the Articles of Incorporation of FMBC as in
effect immediately prior to the Effective Date of Merger.
1.7 Bylaws. The Bylaws of the Surviving Corporation shall be the Bylaws
of FMBC as in effect immediately prior to the Effective Date of Merger.
1.8 Directors. The directors of the Surviving Corporation shall be the
persons who were directors of FMBC immediately prior to the Effective Date of
Merger.
1.9 Officers. The officers of the Surviving Corporation shall be the
persons who were officers of FMBC immediately prior to the Effective Date of
Merger.
1.10 Manner and Basis of Converting Shares. At the Effective Date of
Merger:
(a) Each share of FMBC Common Stock (as defined in Section 2.2)
which is outstanding immediately prior to the Effective Date of Merger
shall continue to be outstanding without any change.
(b) Each share of AFC Common Stock (as defined in Section 3.2)
which is outstanding immediately prior to the Effective Date of Merger
shall be converted into 1.648 shares of FMBC Common Stock, provided that
no fractional shares will be issued and the conversion ratio shall be
subject to adjustment as provided in Section 1.14.
1.11 Cessation of Shareholder Status. As of the Effective Date of Merger,
holders of certificates which represented shares of AFC Common Stock which were
outstanding immediately prior to the Effective Date of Merger (hereinafter
called "Old Certificates") shall cease to be shareholders of AFC and shall
have no rights as AFC shareholders. Such Old Certificates shall represent
solely the right to receive FMBC Common Stock as provided in this Plan of
Merger.
1.12 Surrender of Old Certificates and Distribution of FMBC Common Stock.
After the Effective Date of Merger, Old Certificates shall be exchangeable by
the holders thereof for new stock certificates representing the number of
shares of FMBC Common Stock to which such holders shall be entitled in the
following manner:
(a) As soon as practicable and in any event not later than three (3)
business days after the Effective Date of Merger, FMBC shall send or cause
to be sent to each holder of record as of the Effective Date of Merger
transmittal materials for use in exchanging that holder's Old Certificates
for stock certificates representing FMBC Common Stock. The transmittal
materials will contain instructions with respect to the surrender of Old
Certificates.
(b) As soon as practicable after the Effective Date of Merger, FMBC
shall issue and deliver stock certificates representing FMBC Common Stock
in the name and to the address as appears on AFC's stock records as of
the Effective Date of Merger or in such other name or to such other
address as may be specified by the holder of record in transmittal
documents received by FMBC; provided, that with respect to each AFC
shareholder, FMBC shall have received all of the Old Certificates held
of record by that shareholder, or an affidavit of loss, bond and indemnity
agreement for such Old Certificates, together with properly <PAGE>
executed transmittal materials, and executed Forms W-9; and provided
further, that such Old Certificates, transmittal materials, indemnity
agreements, bonds and affidavits are in a form and condition reasonably
acceptable to FMBC.
(c) Whenever a dividend is declared by FMBC on FMBC Common Stock
which is payable to shareholders of record of FMBC as of a record date
which is on or after the Effective Date of Merger, the declaration shall
include dividends on all shares issuable under this Plan of Merger, but
no former shareholder of AFC will be entitled to receive a distribution
of such dividends until physical exchange of that shareholder's Old
Certificate(s) shall have been effected. Upon physical exchange of that
shareholder's Old Certificate(s), any such person shall be entitled to
receive from FMBC an amount equal to all such dividends (without interest
thereon and less the amount of taxes, if any, which may have been imposed
or paid thereon) declared and paid with respect to the shares of FMBC
Common Stock represented thereby.
(d) On or after the Effective Date of Merger there shall be no
transfers on the stock transfer books of AFC or FMBC of the shares of
AFC Common Stock which were issued and outstanding immediately prior to
the Effective Date of Merger. If, after the Effective Date of Merger,
Old Certificates are properly presented to FMBC, they shall be canceled
and exchanged for stock certificates representing shares of FMBC Common
Stock as provided in this Plan of Merger.
1.13 Cash in lieu of Fractional Shares. Each holder of AFC Common Stock
who would otherwise have been entitled to receive a fraction of a share of
FMBC Common Stock shall receive, in lieu thereof, an amount of cash, rounded
to the nearest penny, determined by multiplying such fraction by the "Closing
Price" (as defined below), without interest. The Closing Price shall mean
the last reported sales price of FMBC Common Stock in the NASDAQ market
immediately preceding the Effective Date of Merger.
1.14 Anti-Dilution Adjustments. If during the period between the date of
this Plan of Merger and the Effective Date of Merger, the outstanding shares
of FMBC Common Stock shall have been changed into a different number of
shares or a different class by reason of any stock split, recapitalization,
combination, exchange of shares or readjustment, or a stock dividend thereon,
or if a record date for any such transaction shall occur within such period,
the number of shares of FMBC Common Stock into which shares of AFC Common
Stock are to be converted shall be correspondingly adjusted. In the event
of a reclassification of outstanding shares of FMBC Common Stock or a
consolidation or merger of FMBC with or into another corporation, other
than a merger in which FMBC is the surviving corporation and which does not
result in any reclassification of FMBC Common Stock, holders of AFC would
receive, in lieu of each share of FMBC Common Stock to be issued in exchange
for AFC Common Stock, the kind and amount of shares of FMBC stock, other
securities, money, and property receivable upon such reclassification,
consolidation, or merger by holders of FMBC Common Stock with respect to
shares of FMBC Common Stock outstanding immediately prior to such
reclassification, consolidation or merger.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF FMBC
Except as otherwise set forth in the FMBC disclosure statement ("FMBC
Disclosure Statement") previously delivered to AFC, FMBC represents and
warrants to AFC that:
2.1 Organization and Good Standing. FMBC and all of its subsidiaries
(the "Subsidiaries") are each corporations duly organized, validly existing,
and in good standing under the laws of the State of Michigan, with all
requisite corporate power and authority to own, operate, and lease their
respective properties and to carry on their respective businesses as they
are not being conducted. FMBC and its Subsidiaries are each duly qualified
to do business and are each in good standing as foreign corporations in each
other jurisdiction in which the ownership, operation or leasing of their
respective properties or assets or the nature of their respective <PAGE>
businesses requires such qualification (except where the failure so to qualify
would not have a material adverse effect on the business, financial condition
or properties of FMBC or its Subsidiaries).
2.2 Capitalization. FMBC has authorized capital of 24,000,000 common
shares, par value $1.00 per share ("FMBC Common Stock"), and 1,000,000 shares
of preferred stock, without par value. As of September 30, 1995, 18,187,411
shares of FMBC Common Stock were issued and outstanding. No shares of
preferred stock are issued or outstanding. All of the issued and outstanding
shares of FMBC Common Stock are validly issued, fully paid and not subject to
assessment. There are no warrants, options, contracts or rights outstanding
for the purchase of any additional shares of FMBC except as reflected in the
notes to FMBC's consolidated financial statements for the year ended
December 31, 1994, and contemplated by this Plan of Merger, FMBC's Dividend
Reinvestment and Stock Purchase Plan, the FMBC Shareholder Rights Plan and
FMBC's various stock option and purchase plans.
2.3 Subsidiaries. FMBC is the owner of all of the outstanding capital
shares of the subsidiaries described in its Annual Report on Form 10-K for
the year ended December 31, 1994 plus FMB-Sault Bank. There are no
outstanding subscriptions, options, warrants, rights to acquire, or any
other agreements pertaining to the capital stock of the foregoing
subsidiaries of FMBC.
2.4 Authorizations. The execution, delivery and performance of this
Plan of Merger have been duly and validly authorized and adopted by FMBC and
its Board of Directors, and the Plan of Merger does not violate or conflict
with FMBC's Articles of Incorporation, Bylaws or any court order or decree
to which FMBC or any of FMBC's subsidiaries is a party or subject, or by
which FMBC or any such subsidiary is bound. No vote of the shareholders of
FMBC is required in order to authorize or approve this Plan of Merger on
behalf of FMBC. The execution and performance of this Plan of Merger do not
and will not result in any default or give rise to any right of termination,
cancellation or acceleration under any material note, bond, mortgage,
indenture or other agreement by which FMBC or any of its subsidiaries is
bound. This Plan of Merger, when executed and delivered, will be a valid,
binding and enforceable obligation of FMBC. Except for approval by the Board
of Governors of the Federal Reserve System ("Board of Governors"), no consent,
approval or authorization of any third party is required for the consummation
of the transactions contemplated by this Plan of Merger.
2.5 Financial Statements. The consolidated financial statements of FMBC
and its subsidiaries as at and for each of the five years in the period ended
December 31, 1994, as reported by FMBC's independent accountants, BDO
Seidman, and as at and for the nine months ended September 30, 1995, including
all schedules and notes relating thereto, are correct and complete in all
material respects, fairly present, in all material respects, FMBC's and its
subsidiaries' financial condition and results of operations, on a consolidated
basis, on the dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles applied consistently
throughout the periods indicated (except as otherwise noted in said financial
statements).
2.6 Brokerage Fees. FMBC has not employed any broker or finder in
connection with the transactions contemplated by this Plan of Merger and has
no express or implied agreement with any person or company relative to
commissions or finder's fees as to this transaction.
2.7 Complete Information. Neither this Plan of Merger nor any schedule,
statement, list, certificate or other information furnished or to be furnished
by FMBC in connection with this Plan of Merger contains, or will contain, any
untrue statement of a material fact or omits or will omit, to state a
material fact necessary to make the statements contained herein or therein,
in light of the circumstances in which they were made, not misleading.
2.8 Registration Statement, Etc. None of the information to be supplied
by FMBC for inclusion in: (a) the Registration Statement to be filed by FMBC
with the Securities and Exchange Commission ("SEC") in connection with the
FMBC Common Stock to be issued in accordance with the Merger, (b) the
prospectus (referred to in Section 5.1), or (c) any other documents to be
filed with the SEC, the Board of Governors or any other regulatory agency in
connection with the transactions contemplated by this Plan of Merger, will,
at the <PAGE> respective times such documents are filed and, in the case of
the Registration Statement when it becomes effective, and with respect to the
prospectus, when mailed, be false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein not misleading or, in the case of the prospectus or any
amendment thereof or supplement thereto, at the time of the Shareholder
Meeting, be false or misleading with respect to any material fact necessary
to correct any statement in any earlier communication with respect to the AFC
shareholders. All documents which FMBC is responsible for filing with any
regulatory agency in connection with the Merger will comply as to form in all
material respects with the provisions of applicable law.
2.9 SEC and Other Filings. To the best of FMBC's knowledge after
reasonable investigation, in the last five years:
(a) SEC Filings. FMBC has filed in a timely manner all required
filings with the SEC, including without limitation all Form 10-K and
10-Q Reports;
(b) Regulatory Filings. FMBC and its subsidiaries have each filed
in a timely manner all material filings with regulatory agencies for which
filings are required; and
(c) Complete and Accurate. All such filings, as amended, were
complete and accurate in all material respects as of the dates of such
filings. There were no misstatements or omissions in such filings which,
as of the making of this representation and warranty, would presently be
material to the business of FMBC and its subsidiaries taken as a whole
or to the income or financial condition of FMBC and its subsidiaries on
a consolidated basis.
2.10 FMBC Common Stock. The shares of FMBC Common Stock to be issued in
accordance with this Plan of Merger have been duly authorized and, when issued
as contemplated hereby, will be duly and validly issued and outstanding,
fully paid and nonassessable shares of FMBC Common Stock.
2.11 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the consolidated financial statements of
FMBC and its Subsidiaries for each of the five (5) years ended December 31,
1994, and as at and for the nine months ended September 30, 1995, including
all schedules and notes relating to such statements (the "FMBC Financial
Statements"), neither FMBC nor its Subsidiaries had, as of September 30, 1995,
material liabilities or obligations, secured or unsecured (whether accrued,
absolute, contingent or otherwise), of a nature and amount required to be
reflected in such consolidated Financial Statements, or the notes thereto,
in accordance with generally accepted accounting principles. FMBC does not
know that there is or will be any basis for the assertion against it or its
Subsidiaries of any liability or obligation of any nature or any amount not
fully reflected or reserved against in such FMBC Financial Statements which
would have a material adverse effect on FMBC or its Subsidiaries.
2.12 Litigation. There are no legal, quasijudicial or administrative
proceedings or investigations of any kind or nature now pending before any
court, administrative body or governmental agency specifically involving
FMBC or its Subsidiaries as a subject or party or any of their properties
or capital stock that would have a material adverse effect on FMBC or its
Subsidiaries or their assets, operations or earnings or the transaction
proposed by this Plan of Merger, and FMBC is not aware of any expressed
threat of any such proceeding or investigation. To the knowledge of FMBC,
the execution of this Plan of Merger will not cause or give reason for cause
for the initiation of any legal or administrative proceeding that may have
the effect of challenging the consummation of the transactions contemplated
herein. Neither FMBC nor any of its Subsidiaries is subject to or in default
with respect to, nor are any of their assets subject to, any outstanding
judgment, order or decree of any court or governmental agency or
instrumentality that would have a material adverse effect on FMBC or
any of its Subsidiaries.
2.13 Governmental Regulation. FMBC and its Subsidiaries hold all material
licenses, certificates, permits, franchises and rights from all appropriate
federal, state or other public authorities necessary for the conduct of their
respective businesses. FMBC and its Subsidiaries have conducted their
respective businesses <PAGE> so as to comply in all material respects with all
applicable federal, state and local statutes, regulations, ordinances and
rules, particularly, but not by way of limitation, applicable banking laws,
federal and state securities laws, and laws and regulations concerning truth-
in-lending, usury, fair credit reporting, equal credit opportunity, community
reinvestment, redlining, loan insurance and guarantee programs, privacy,
trade practices, consumer protection, occupational safety, civil rights, age
discrimination in employment, employee benefits, labor relations, fair
employment practices and fair labor standards. The policies concerning hours
worked by, and payments made to, employees of FMBC and its Subsidiaries have
not been in violation in any material respect of the Fair Labor Standards Act
or any other applicable laws dealing with such matters. FMBC and its
Subsidiaries have complied in all material respects with all filing and
reporting requirements of the Bank Holding Company Act of 1956, the Michigan
Business Corporation Act, the Michigan Banking Code of 1969 and the Federal
Deposit Insurance Corporation Act and the respective rules and regulations
promulgated under such laws.
2.14 Absence of Material Adverse Change. Since September 30, 1995, there
has not been any material adverse change in the consolidated financial
condition or business of FMBC and its Subsidiaries in a manner not generally
affecting banks in Western Michigan. Between September 30, 1995, and the
date of this Plan of Merger, no facts or circumstances (other than results
contemplated by this Plan of Merger) have been discovered from which it
reasonably appears that there is a significant risk that there will occur
a change in the consolidated financial condition or income of FMBC, which
would be materially adverse on a consolidated basis in a manner not generally
affecting banks in Western Michigan.
2.15 Duties as Fiduciary. FMBC and its Subsidiaries, in their capacity
as trustee, escrow agent, executor, administrator, custodian, guardian,
receiver or other fiduciary, have performed all of their material duties in
accordance with all legal standards applicable to such duties whether imposed
by contract, statute or common law.
2.16 Insurance. FMBC and its Subsidiaries have in effect insurance
coverage on all of their respective material assets, properties, premises,
operations and personnel in such amounts and against such risks and losses
as FMBC reasonably believes to be adequate and customary for the business
conducted by FMBC and its Subsidiaries.
2.17 Disclosure of Documents. FMBC has furnished to AFC as part of FMBC's
Disclosure Statement true copies of the following documents:
(a) Articles of Incorporation and Bylaws. The Articles of
Incorporation and Bylaws for FMBC as currently in effect.
(b) Employee Benefits Plans. Summary plan descriptions of all
Employee Benefit Plans adopted and maintained by FMBC for the benefit
of the employees of FMBC and/or its Subsidiaries. As used in this
section, the term "Employee Benefit Plan" refers to "pension" and
"welfare" benefit plans within the respective meanings of Section 3(2)
and 3(1) of the Employee Retirement Income Security Act of 1974.
2.18 "Material" Defined. Except where the context otherwise indicates,
the term "material" as applied to FMBC and its subsidiaries refers to FMBC
and its subsidiaries on a consolidated basis, considering FMBC and its
subsidiaries and their assets and businesses as a whole.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AFC
Except as otherwise set forth in the AFC disclosure statement ("AFC
Disclosure Statement") previously delivered to FMBC, AFC represents and
warrants to FMBC that:
<PAGE>
3.1 Organization and Good Standing. AFC and Arcadia Bank & Trust
Company ("Bank") are each corporations duly organized, validly existing, and
in good standing under the laws of the State of Michigan, with all requisite
corporate power and authority to own, operate, and lease their respective
properties and to carry on their respective businesses as they are now being
conducted. AFC and the Bank are each duly qualified to do business and are
each in good standing as foreign corporations in each other jurisdiction in
which the ownership, operation or leasing of their respective properties or
assets or the nature of their respective businesses requires such qualification
(except where the failure so to qualify would not have a material adverse
effect on the business, financial condition or properties of AFC or the Bank).
3.2 Capitalization. The authorized capital stock of AFC consists of
1,000,000 shares of common stock, $1.00 par value (the "AFC Common Stock"),
of which, at September 30, 1995, 371,004 shares were legally issued and
outstanding, fully paid, and not subject to assessment. There are no
outstanding subscriptions, options, warrants, or rights to acquire any
capital stock of AFC, or agreements to which AFC is a party or by which it
is bound to issue capital stock, except for outstanding options to purchase
25,750 shares of AFC Common Stock.
3.3 Subsidiaries. AFC is the owner of all of the issued and outstanding
capital stock of the Bank. The Bank is duly organized, validly existing,
and in good standing under the laws of the State of Michigan. AFC owns and
holds good and marketable title to all of the issued and outstanding capital
stock of Bank free and clear of all liens and encumbrances, except for a lien
of Independent Banker's Bank of Illinois pursuant to a stock pledge agreement
dated June 30, 1994. There are no outstanding subscriptions, options,
warrants, rights to acquire, or any other agreements pertaining to the
capital stock of the Bank. AFC and Bank do not own, except for such
interests held in the ordinary course of the business of the Bank, directly
or indirectly, any convertible debt, equity or other proprietary interest in
any corporation, joint venture, partnership, entity, association or other
business, other than the ownership of the capital stock of Bank by AFC.
3.4 Authorizations. The execution, delivery, and performance of this
Plan of Merger by AFC have been duly and validly authorized, adopted and
approved by all necessary corporate action and, when executed and delivered,
this Plan of Merger shall be legally binding on and enforceable against AFC
in accordance with its terms, subject to the approval of this Plan of Merger
by the shareholders of AFC. The execution and delivery of this Plan of
Merger do not, and the consummation of the Merger will not, violate AFC's
Articles of Incorporation or Bylaws, nor will the consummation of the Merger
result in any breach, violation or default, or result in the acceleration of
the performance of any obligations of AFC or the Bank, under any judgment,
decree, mortgage, agreement, indenture, or other instrument applicable to
AFC or Bank. No consent, approval or authorization of any third party, other
than the shareholders of AFC and the applicable regulatory authorities, is
required for the consummation of the transactions contemplated by this Plan
of Merger.
3.5 Financial Statements. The consolidated financial statements of AFC
and Bank as at and for each of the five (5) years ended December 31, 1994,
as reported by AFC's independent accountants, BDO/Seidman, and as at and for
the nine months ended September 30, 1995, including all schedules and notes
relating to such statements (the "Financial Statements"), previously delivered
to FMBC, are correct and complete in all material respects. These statements
fairly present, in all material respects, AFC's financial condition and
results of operations, on a consolidated basis, on the dates and for the
periods indicated, and have been prepared in conformity with generally
accepted accounting principles applied consistently throughout the periods
indicated (except as otherwise noted in such Financial Statements), except
for nonmaterial, normal recurring year end adjustments and the absence of
notes for the September 30, 1995 statements. The consolidated reports of
condition and income ("Call Reports") of the Bank for each of the five years
ended December 31, 1994, and for the nine months ended September 30, 1995,
including all schedules and notes relating thereto, are correct and complete
in all material respects, fairly present, in all material respects, the
Bank's financial condition and results of operations for the dates and the
periods indicated, and have been prepared in accordance with Call Report
instructions on a consistent basis.
3.6 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the Financial Statements or the Call Reports,
neither AFC nor Bank had, as of September 30, 1995, material <PAGE>
liabilities or obligations, secured or unsecured (whether accrued, absolute,
contingent or otherwise), of a nature and amount required to be reflected in
such consolidated Financial Statements, or the notes thereto, in accordance
with generally accepted accounting principles, or in the Call Reports. AFC
does not know that there is or will be any basis for the assertion against
it or Bank of any liability or obligation of any nature or any amount not
fully reflected or reserved against in such Financial Statements or the Call
Reports which would have a material adverse effect on AFC or Bank.
3.7 Loans, Loan Guarantees and Loss Reserves. The Bank has outstanding
no loans that exceed the Bank's legal lending limit and all loans outstanding
have been duly authorized and approved. To the knowledge of AFC, all material
guarantees of indebtedness owed to the Bank, including, but not limited to,
those of the Federal Housing Administration, the Small Business Administration
and other federal agencies, are valid and enforceable in accordance with their
respective terms. The Bank's allowance for loan losses reflected in its
September 30, 1995, Call Report was adequate to meet all loan losses then
reasonably anticipated based upon the facts and circumstances known to AFC
and the Bank as of that date.
3.8 Litigation. There are no legal, quasi-judicial or administrative
proceedings or investigations of any kind or nature now pending before any
court, administrative body or governmental agency specifically involving AFC
or Bank as a subject or party or any of their properties or capital stock
that would have a material adverse effect on AFC or Bank or their assets,
operations or earnings or the transaction proposed by this Plan of Merger,
and AFC is not aware of any expressed threat of any such proceeding or
investigation. To the knowledge of AFC, the execution of this Plan of Merger
will not cause or give reason for cause for the initiation of any legal or
administrative proceeding that may have the effect of challenging the
consummation of the transactions contemplated herein. Neither AFC nor Bank
is subject to or in default with respect to, nor are any of their assets
subject to, any outstanding judgment, order or decree of any court or
governmental agency or instrumentality that would have a material adverse
effect on AFC or Bank.
3.9 Conduct. Neither AFC nor Bank has, since September 30, 1995:
(a) experienced any materially adverse change in financial condition, assets,
liabilities or business other than those generally affecting banks in Western
Michigan in substantially the same manner and to substantially the same
relative extent; (b) conducted its business or entered into any material
transaction otherwise than in the ordinary course, or incurred or become
subject to any material liabilities or obligations except current liabilities
incurred in the ordinary course of business; (c) suffered any union
organizational efforts or labor trouble, or any event or condition of any
character materially and adversely affecting its business or prospects not
generally affecting banks in Western Michigan in substantially the same
manner and to substantially the same relative extent; (d) paid, other than
in the ordinary course of business, any material obligation or liability
other than those shown on the Financial Statements or incurred after the date
thereof in the ordinary course of business; (e) mortgaged, pledged or
subjected to lien, charge or other encumbrance any material assets, or sold
or transferred any such material assets, except in the ordinary course of
business; (f) made or permitted any amendment or termination of any material
contract to which either is a party, except for the expiration of contracts
at the end of their term and termination of contracts which are terminable
by either party without any fault or omission on the part of AFC or Bank;
(g) issued any of its bonds, debentures or other similar corporate capital
debt obligation or sold any such obligations issued by AFC or the Bank;
(h) declared or set aside or paid any dividend or other distribution in
respect of its capital shares or, directly or indirectly, purchased, redeemed
or otherwise acquired any such shares (except dividends and distributions
from Bank to AFC); or (i) except for pay increases and bonuses (including 1995
year end bonuses consistent with the Bank's budget) which have been consistent
with established past practice or seniority, granted any increase in the
salary or bonus payable, or to be payable, to any officer, director or holder
of 5 percent or more of AFC Common Stock, or any spouse, child, parent or
sibling of any such person, or to any employee whose annual rate of salary
and bonus at September 30, 1995, exceeded $20,000.
3.10 Brokerage Fees. Neither AFC nor the Bank has employed any broker
or finder in connection with the transactions contemplated by this Plan of
Merger, and neither has any express or implied agreement with any person or
company relative to commissions or finder's fees as to such transactions.
<PAGE>
3.11 Complete Information. Neither this Plan of Merger nor any schedule,
statement, list, certificate or other written information furnished or to be
furnished by AFC in connection with this Plan of Merger contains or will
contain any untrue statement by AFC of a material fact or omits or will omit
to state a material fact necessary to make any material statements made by
the AFC contained herein or therein, in light of the circumstances in which
they were made, not misleading.
3.12 Title to Properties. AFC and Bank own all of the property and
assets reflected in the Financial Statements, free of any material liens and
encumbrances, except as noted therein, and except for changes incurred
thereafter in the ordinary course of business, which changes are not in
the aggregate material to the business of either AFC or the Bank. AFC and
the Bank each have good and marketable title to all material properties and
assets acquired after September 30, 1995, free of all liens and encumbrances,
except as disposed of or encumbered in the ordinary course of business.
Neither AFC nor the Bank has received notice of any material violation of
any applicable zoning regulation, ordinance or other law, order, regulation
or requirement relating to their respective operations or properties.
3.13 Governmental Regulation. AFC and Bank hold all material licenses,
certificates, permits, franchises and rights from all appropriate federal,
state or other public authorities necessary for the conduct of their respective
businesses. AFC and Bank have conducted their respective businesses so as to
comply in all material respects with all applicable federal, state and local
statutes, regulations, ordinances and rules, particularly, but not by way of
limitation, applicable banking laws, federal and state securities laws, and
laws and regulations concerning truth-in-lending, usury, fair credit reporting,
equal credit opportunity, community reinvestment, redlining, loan insurance
and guarantee programs, privacy, trade practices, consumer protection,
occupational safety, civil rights, age discrimination inemployment, employee
benefits, labor relations, fair employment practices and fair labor standards.
The policies concerning hours worked by, and payments made to, employees of
AFC and Bank have not been in violation in any material respect of the Fair
Labor Standards Act or any other applicable laws dealing with such matters.
AFC and Bank have complied in all material respects with all filing and
reporting requirements of the Bank Holding Company Act of 1956, the Michigan
Business Corporation Act, the Michigan Banking Code of 1969 and the Federal
Deposit Insurance Corporation Act and the respective rules and regulations
promulgated under such laws.
3.14 Taxes. To the best of AFC's knowledge after reasonable investigation
and except as set forth in AFC's Disclosure Statement:
(a) All taxes, including, without limitation, income, property,
sales, use, franchise, capital stock, excise, value added, employees'
income withholding, social security and unemployment taxes imposed by
the United States, by any state, municipality or foreign country, or
by any subdivision or instrumentality of the United States or of any
state, municipality or foreign country, or by any other taxing authority,
which have become due or payable by AFC or the Bank, and all interest
and penalties thereon, whether disputed or not, have been paid in full
or, with respect to periods ending on or prior to September 30, 1995,
adequately provided for by reserves shown in the Financial Statements;
(b) All deposits required by law to be made by AFC or the Bank
with respect to estimated income, franchise and employees' withholding
taxes have been duly made;
(c) AFC and the Bank shall have filed all returns, declarations,
reports and statements required to be filed by them prior to the Closing
Date relating to all federal, state, local and foreign taxes with respect
to any income, properties or operations of AFC or the Bank prior to the
Closing Date, including, but not limited to, income, property, sales,
use, franchise, added value, employees' income withholding, Social
Security and unemployment taxes (collectively "Returns");
(d) As of the time of filing, the Returns were or will be complete
and correct in all material respects;
<PAGE>
(e) Neither AFC nor the Bank has filed, and neither will file, any
amended Return or file any claim for refund as to any taxable year ending
prior to the Closing Date without the prior written consent of FMBC;
(f) The charges, accruals and reserves for taxes (not including any
reserves for deferred taxes) reflected in the Financial Statements of AFC
are adequate to cover the tax liabilities accruing or payable by AFC with
respect to periods ending on or prior to September 30, 1995;
(g) AFC and the Bank will file all tax returns required and will
make provision for all taxes payable with respect to any periods that end
on or before the Effective Date of Merger;
(h) Neither AFC nor the Bank is delinquent in the payment of any
taxes and neither has requested any extension of time within which to file
any Return, which Return has not since been filed;
(i) No audit or deficiency for any taxes has been proposed, asserted
or assessed in writing nor is there any action, suit, proceeding, or claim,
pending with respect to any tax against AFC or the Bank;
(j) Neither AFC nor the Bank has granted any extension of a limitation
period applicable to any tax claim against AFC or the Bank;
(k) Neither AFC nor the Bank is and neither has been a party to any
tax sharing agreement with any corporation except for the tax sharing
agreement between AFC and the Bank;
(l) AFC has not joined in the filing of a consolidated or combined
return for federal, state, local or foreign purposes with any group of
corporations;
(m) Through the tax year ended December 31, 1991, (i) all federal
and state income tax returns of AFC have been examined by tax authorities
or (ii) the years have been closed by operation of law, and (iii) no
waivers of the statutes of limitations have been issued;
(n) No extension of time for the assessment of tax deficiencies for
any year is in effect; and
(o) There is no tax lien on any of the properties or assets of AFC
or the Bank, except liens for taxes not yet due and payable.
3.15 Employee Benefit Plans and Other Employee Matters. The AFC Disclosure
Statement includes a list of all of the "pension" and "welfare" benefit plans
(within the respective meanings of Sections 3(2) and 3(1) of the Employee
Retirement Income Security Act of 1974 ["ERISA"]), maintained by, or to which
either AFC or Bank has made payments or contributions, with respect to their
respective employees (the "Employee Benefit Plans"), together with a list
of any such plans terminated since September 1, 1974, or merged into or
consolidated with any of the current Employee Benefit Plans. The AFC
Disclosure Statement includes copies of the most recent actuarial reports
prepared for AFC and Bank as to each Employee Benefit Plan for which such
report is prepared (the "Actuarial Report"), together with copies of the
annual reports on Form 5500 for the past three years. AFC and Bank are in
compliance with all material provisions of ERISA and all other provisions of
the Code, including without limitation Section 162 and Sections 401 through
501 of the Code, insofar as such provisions apply to the Employee Benefit
Plans. No reportable event as defined by Section 4043 of ERISA has occurred
with respect to any Employee Benefit Plan subject to ERISA. No Employee
Benefit Plan has been terminated since September 1, 1974, and no such
Employee Benefit Plan has been involved in any prohibited <PAGE> transaction
or transaction subject to an excise tax under ERISA or the Code. There would
be no liability incurred by AFC or Bank under Title IV of ERISA if any Employee
Benefit Plan were terminated as of the date of this Plan of Merger. Neither
AFC nor Bank has sought or obtained from the Internal Revenue Service any
waiver of standard funding requirements under any Employee Benefit Plan
during the past five years. All payments due from AFC or Bank on account
of employee health and welfare insurance have been paid or accrued as a
liability on the books of AFC and all severance payments which are or were
due under the terms of any agreement, oral or written, have been paid or
accrued as a liability on the
books of AFC.
3.16 Environmental Liability. There are no material actions, suits,
investigations, liabilities, inquiries or other proceedings, rulings, orders
or citations involving AFC or Bank, or any of their material assets, pending
or, to the knowledge of AFC after reasonable investigation, threatened as a
result of any failure of AFC or Bank, or any corporate predecessors thereof,
to comply with any requirement of federal, state, local or foreign law, civil
or common, or regulation relating to air, water, soil, solid waste management,
hazardous or toxic substances, or the protection of health or the environment,
nor is there any factual basis for any of the foregoing. The property owned
or leased by AFC or Bank is not contaminated with any waste or hazardous
substances so as to subject AFC or Bank to a risk of material liability.
Neither AFC nor Bank is an "owner or operator" of a "facility" or "vessel"
which owns, possesses, transports, generates, or disposes of a "hazardous
substance," as those terms are defined in Section 9601 of the Comprehensive
Environmental Response Compensation and Liability Act of 1980, 42 U.S.C.A.
Section 9601 et seq, except for such ownership, possession, transportation,
generation or disposal as does not subject AFC or Bank to a risk of material
liability.
3.17 Registration Statement, Etc. None of the information to be supplied
by AFC or the Bank for inclusion in: (a) the Registration Statement to be
filed by FMBC with the SEC in connection with the FMBC Common Stock to be
issued in connection with the Merger, (b) the Proxy Statement (referenced in
Section 5.1), or (c) any other documents to be filed with the SEC, the Board
of Governors or any other regulatory agency in connection with the transactions
contemplated by this Plan of Merger, will, at the respective times such
documents are filed and, in the case of the Registration Statement when it
becomes effective, and with respect to the Proxy Statement, when mailed, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements contained therein not
misleading or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the Shareholder Meeting, be false or
misleading with respect to any material fact, or omit to state a material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of any proxy for purposes of voting at the
Shareholder Meeting. All documents which AFC is responsible for filing with
any regulatory agency in connection with the Merger will comply as to form
in all material respects with the provisions of applicable law.
3.18 Absence of Material Adverse Change. Since September 30, 1995, there
has not been any material adverse change in the consolidated financial
condition or business of AFC in a manner not generally affecting banks in
Western Michigan. Between September 30, 1995, and the date of this Plan of
Merger, no facts or circumstances (other than results contemplated by this
Plan of Merger) have been discovered from which it reasonably appears that
there is a significant risk that there will occur a change in the consolidated
financial condition or income of AFC, which would be materially adverse on a
consolidated basis in a manner not generally affecting banks in Western
Michigan.
3.19 Leases. All material leases pursuant to which either AFC or Bank
is a party are valid, effective and enforceable in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or any event which, with notice or lapse of time or both, would
constitute a default, nor, except as set forth in AFC's Disclosure Statement,
do any of such leases contain a prohibition against assignment by AFC or the
Bank or any other provision which would preclude FMBC, as the Surviving
Corporation of the Merger, from occupying and using the leased premises for
the same purposes and upon the same rental and other terms as are applicable
to the occupation and use by AFC or the Bank. To AFC's knowledge, no landlord
is in default under any such lease. A true copy of each material lease to
which AFC or Bank is a party is included in the AFC Disclosure Statement.
<PAGE>
3.20 Contracts. Except as to contracts and agreements listed or described
in the AFC Disclosure Statement, as of the date of this Plan of Merger and at
the Effective Date of Merger, neither AFC nor Bank is, or will be, a party to
(in its own name or as successor in interest to any predecessor) or bound by
any material written or oral: (a) employment, management or consulting
contract or service agreement which by its terms AFC knows or should know is
not terminable by the AFC or Bank on 30 days' notice or less without cost or
penalty; (b) collective bargaining agreement with any labor or trade union or
association or employee group; (c) bonus, pension, profit-sharing, retirement,
stock option, stock purchase, hospitalization, insurance or other similar plan
providing benefits for its employees; (d) lease, installment purchase agreement
or other contract with a value in excess of$10,000, with respect to any
property (real, personal or mixed) used or proposed to be used in the
operation of AFC or Bank; (e) contract or agreement for the purchase or
disposition of materials, supplies, equipment or services in excess of
$25,000, or for the performance of services for a period of more than sixty
(60) days; (f) instrument evidencing or relating to indebtedness for money
borrowed or money to be borrowed or creating any lien or security interest
in any real or personal property, excluding such instruments with customers
relating to ordinary and customary banking transactions; (g) contract or
agreement that by its terms requires the consent of any party thereto to the
consummation of the transactions contemplated by this Plan of Merger; (h)
agreement not to compete in any line of business or any geographic area; (i)
contract or agreement (or outstanding solicitation for bids) for capital
expenditures in excess of $10,000 for any one project or $50,000 in the
aggregate; (j) any lease, indenture, note or other contract under which AFC
or Bank is in material default; (k) any contract, except ordinary and
customary banking relationships, with any executive officer, director, or
holder of more than 5% of the outstanding stock of AFC; (l) any deferred
compensation or severance pay agreement; or (m) any other material agreement
not made in the ordinary course of business. True and correct copies of all
contracts and agreements listed or described in the AFC Disclosure Statement
are attached to the AFC Disclosure Statement except to the extent described
therein. AFC and Bank have in all material respects performed all material
obligations required to be performed by each of AFC and Bank to date and are
not in material default under, and no event has occurred that, with the lapse
of time or action by a third party, could result in a material default under
any outstanding indenture, mortgage, contract, lease or other agreement to
which AFC or Bank is a party or by which AFC or Bank or any of their
respective material assets is bound so as to subject AFC or Bank to a risk
of material liability.
3.21 Duties as Fiduciary. Bank, in its capacity as trustee, escrow agent,
executor, administrator, custodian, guardian, receiver or other fiduciary, has
performed all of its material duties in accordance with all legal standards
applicable to such duties whether imposed by contract, statute or common law.
3.22 Insurance. AFC and Bank have in effect insurance coverage on all
of their respective material assets, properties, premises, operations and
personnel in such amounts and against such risks and losses as AFC reasonably
believes to be adequate and customary for the business conducted by AFC and
Bank.
3.23 Books and Records. AFC's and Bank's respective minute books
accurately reflect all material actions taken by their respective shareholders,
directors, and committees of directors. The books, accounts and records of
the AFC and Bank have been maintained in all material respects in a regular
manner, and in compliance with all applicable laws.
3.24 Stock Transactions. Except as to transactions described in the AFC
Disclosure Statement, to the knowledge of AFC after reasonable investigation
of its stock transfer records and inquiry of its officers, no officer or
director of AFC, and no person related to any such officer or director by
blood or marriage and residing in the same household, has since December 31,
1992, purchased or sold, or caused to be purchased or sold, any shares of
AFC Common Stock of which such officer, director or related person is the
record or beneficial owner as determined according to Regulation 13d-3 under
the Securities Exchange Act of 1934. Except as to transactions described in
the AFC Disclosure Statement or the Financial Statements, AFC has not
purchased or redeemed any AFC Common Stock since December 31, 1992.
3.25 Disclosure of Deeds, Leases, Agreements, Etc. AFC has furnished to
FMBC as part of AFC's Disclosure Statement true copies of the following
documents:
<PAGE>
(a) Deeds and Titles. Deeds or other relevant title documents
relating to all real estate owned by AFC or Bank and a complete and
correct list of all items of personal property which had a net, after
depreciation, book value in excess of $25,000 as of September 30, 1995,
reflected on the books and records of AFC and Bank as being owned
(including those reflected in the balance sheet of AFC and Bank as of
September 30, 1995, except as since disposed of in the ordinary course
of business).
(b) Lease Agreements. All leases pursuant to which AFC or Bank as
lessee leases real or personal property, excepting leases as to personal
property under which the annual lease payments do not exceed $15,000 for
the current term of the lease.
(c) Agreements. (i) All contracts and agreements with respect to
any real property used or proposed to be used in the operations of AFC or
Bank which obligate AFC or Bank to make annual payments in excess of
$15,000; (ii) all material data processing agreements, service agreements,
consulting agreements, or any similar arrangements; (iii) all contracts
or agreements for the purchase or disposition of equipment, supplies, or
other personal property or the purchase of services which obligate AFC
or Bank to make annual payments in excess of $15,000.
(d) Insurance Policies. All material policies of insurance
maintained by AFC and Bank with respect to their respective assets,
properties, premises, operations and personnel, and copies of the most
recent insurance audit, review or report, if any.
(e) Articles of Incorporation and Bylaws. The Articles of
Incorporation for each of AFC and Bank, together with their respective
Bylaws, as currently in effect.
(f) Employee Benefit Plans. All Employee Benefit Plans and all
other plans for the benefit of the employees of AFC and/or the Bank
(including, without limitation, bonus, hospitalization, insurance or
other similar plans), including amendments, together with the latest
actuarial reports prepared for each Employee Benefit Plan as to which
actuarial reports have been prepared and the latest determination letter
issued by the IRS with respect to each Employee Benefit Plan which is
a qualified plan under Section 401(a) of the Code, as to which a
determination letter has been issued and with respect to each amendment
to each such plan as to which a determination letter has been issued.
3.26 Shareholders of AFC. Schedule 3.26 of AFC's Disclosure Statement
accurately identifies the names and addresses of all the shareholders of AFC
as of the date of said schedule and the number of shares of stock of AFC held
by each shareholder. From the date hereof until the Effective Date of
Merger, AFC shall notify FMBC in writing of any change regarding any
information contained in such schedule. AFC is not subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended.
3.27 "Material" Defined. Except where the context otherwise indicates
for purposes of interpreting individual representations and warranties in
this Article III, the sum of $30,000 or a contract or transaction or series
of similar transactions involving annual cash payments, values or amounts in
excess of the sum of $30,000 shall be rebuttably presumed to be material with
respect to AFC. Lesser sums or contracts or transactions involving lesser
sums may or may not be material depending on their circumstances, but will
be rebuttably presumed not to be material.
<PAGE>
ARTICLE IV
CERTAIN COVENANTS OF THE PARTIES
4.1 Investigation. Upon reasonable notice and at reasonable times, AFC
shall permit, and shall cause Bank to permit, full access to its properties,
books, and records at reasonable times, and shall cause AFC's and Bank's
officers and employees to cooperate fully, for the purpose of permitting a
complete and detailed examination of AFC and Bank by FMBC and its officers,
attorneys, accountants, and representatives. AFC shall furnish to FMBC, upon
request, any information requested respecting the property, assets, business,
and affairs of AFC and Bank, except for that information which AFC believes
it may not divulge without consent, which consent it will use all reasonable
efforts to obtain. AFC shall give FMBC advance notice of, and permit
representatives of FMBC to attend, all meetings of AFC's or of Bank's board
of directors or committees thereof, however, FMBC's representatives will be
excused from discussions relating to this transaction. FMBC acknowledges
that certain information may not be disclosed by AFC or Bank without the
prior written approval of other parties. If such information is requested
by FMBC, AFC shall use, or cause Bank to use, all reasonable efforts to
obtain such prior approval, and FMBC shall not require disclosure of such
information unless and until such prior approval has been obtained. Except
as contemplated by this Plan of Merger, FMBC agrees to treat as strictly
confidential, agrees not to make any business or competitive use of, and
agrees not to divulge to any other person (other than employees of, and
attorneys and accountants for, FMBC), any non-public financial statements,
schedules, contracts, agreements, instruments, papers, documents, or other
non-public information relating to AFC and Bank which it may come to know as
a direct result of a disclosure by AFC or of Bank, or which may come into its
possession as a result of and during the course of such investigation. If
the transactions contemplated hereby are not consummated for any reason, FMBC
agrees to promptly return to AFC all written materials furnished to FMBC by
AFC and Bank in connection with such investigation.
4.2 Conduct of Business Pending the Effective Date of Merger. From the
date of this Plan of Merger until the Effective Date of Merger, AFC agrees
that, except as consented to in writing by FMBC or otherwise provided in this
Plan of Merger, it shall and it shall cause Bank to:
(a) Conduct its business and manage its property only in the usual,
regular, and ordinary course, in substantially the same manner as
heretofore conducted, and not make any substantial change to its methods
of management or operation in respect of such business or property;
(b) Comply in all material respects with all laws, regulations,
agreements, court orders, and administrative orders applicable to the
conduct of its business;
(c) Make no change in its Articles of Incorporation or Bylaws;
(d) Maintain its books, accounts, and records in the usual and
regular manner, in accordance with generally accepted accounting principles
consistently applied, and in material compliance with all applicable laws;
(e) Except for the issuance of 25,750 shares of AFC Common Stock
pursuant to Section 6.12, make no change in the number of shares of its
capital stock issued and outstanding; grant no warrant, option, or
commitment relating to its capital stock; and issue no securities
convertible into its capital stock;
(f) Maintain its property and assets in their present state of
repair, order and condition, reasonable wear and tear excepted;
(g) Use all reasonable efforts to preserve its business organization
intact, to keep available the services of its present officers and
employees, and to preserve the goodwill of its customers and others having
business relations with it;
<PAGE>
(h) Use all reasonable efforts to maintain and keep in full force
and effect all fire and other insurance on its property and assets, all
liability and other casualty insurance, and all bonds on personnel,
presently carried by it;
(i) Except for the consideration and facilitation of an inquiry,
offer, or proposal not solicited by AFC or any of its officers, directors,
employees, shareholders, agents or affiliates which relates to the possible
sale or other disposition of AFC Common Stock by its shareholders or the
possible sale or other disposition of substantially all of the assets of
the Bank to, or merger or consolidation of AFC or Bank with, another
corporation or association, to the extent that the Board of Directors of
AFC reasonably determines in good faith that failure to consider such
proposal would constitute a breach of its fiduciary duties to the
stockholders of AFC, AFC will and shall cause Bank to refrain from
negotiating, soliciting, discussing with any third party, or entering
into any agreement concerning any merger, consolidation, sale of any
shares of AFC Common Stock or stock of the Bank, or the sale of any
material assets of the Bank not in the ordinary course of business;
(j) In a manner and at such times consistent with its past practices
and applicable industry, regulatory and accounting standards, charge off
or reserve against nonaccruing loans, classified loans and loans as to
which collection is in doubt;
(k) Make any and all such necessary provisions to maintain, as of
December 31, 1995 and as of the Effective Date of Merger, an allowance
for loan losses (without regard to the Bank's Access Program portfolio)
at the Bank not less than an amount equal to 1.45 percent of the Bank's
total loans at such dates, or such greater amount as management determines
is appropriate based on past practice, past loan experience and applicable
industry, regulatory and accounting standards;
(l) Not increase the number of directors, fill any vacancy on the
board of directors, or elect or appoint any person to an executive office;
(m) Not: (i) increase or agree to increase the compensation payable
to, or fringe benefits of, any officer, director, or employee, except as
permitted under Section 3.9(i) of this Plan of Merger; or (ii) introduce,
change, or agree to introduce or change, any pension, profit-sharing, or
employee benefit plan, fringe benefit program, or other plan or program
of any kind for the benefit of its employees unless required by law or
advisable, in the opinion of legal counsel, to maintain qualified status
for tax purposes;
(n) Not enter into any employment agreement which is not terminable
by it without cost or penalty upon 30 days' notice or less;
(o) Continue to pay director fees in a manner consistent with prior
practice and not declare or pay any dividends, nor make any other
distribution in respect of any shares of its capital stock, in liquidation
or otherwise, except for the payment of dividends by Bank to AFC in such
amounts as are necessary to satisfy AFC's current obligations as they may
be expected to become due in a manner consistent with prior practice;
(p) Not borrow money except in the ordinary course of business;
(q) Not sell, mortgage, pledge, encumber, or otherwise dispose of,
or agree to sell, mortgage, pledge, encumber, or otherwise dispose of,
any of its material property or assets except in the ordinary course of
business; and
(r) Not enter into, or commit to enter into, any agreement for trust,
consulting, professional, data processing, or other services which is not
terminable by it without penalty upon 30 days' notice or less, except as
permitted by this Plan of Merger.
<PAGE>
In the event the shareholders of AFC fail to approve the Plan of Merger
and if such failure is due in whole or in part to the existence of a proposal
for any transaction involving AFC or the Bank, which proposal competes, or is
otherwise inconsistent with, the Plan of Merger, then AFC shall promptly pay
to FMBC a fee equal to Two Hundred Fifty Thousand Dollars ($250,000) to
reimburse FMBC for its efforts and expenses in connection with the Plan of
Merger.
4.3 Affiliates. As a part of AFC's Disclosure Statement, AFC shall
deliver to FMBC a complete list of all those persons who may be considered to
be "affiliates" of AFC, for purposes of Rule 145 of the rules and regulations
promulgated under the Securities Act of 1933, as amended, ("Securities Act"),
together with the number of shares of AFC Common Stock owned of record and
beneficially by each such person. AFC shall, prior to the Effective Date of
Merger, notify each such person who is determined by FMBC to be an
"affiliate," of the restrictions imposed by applicable federal and state
securities laws upon the sale, transfer or other disposition of FMBC Common
Stock to be received by such persons as a result of the Merger, and AFC shall
use all reasonable efforts to obtain from each such person an undertaking and
agreement ("Affiliate Letter") in form and substance reasonably satisfactory
to FMBC and its counsel to the effect that the FMBC Common Stock received by
such shareholders pursuant to the Merger will not be sold, transferred or
disposed of in a manner that, in the reasonable opinion of counsel for FMBC,
would result in (a) a violation of the Securities Act, or the rules and
regulations (including Rule 145) promulgated thereunder, or (b) the inability
of FMBC to account for the transaction as a "pooling of interests." Subject
to negotiation of special arrangements with any affiliate who is also an
officer of the Bank, each Affiliate Letter will also provide that the
affiliate signing the Affiliate Letter will not compete with the Bank in
Kalamazoo County, Michigan for a period of five (5) years following the
Effective Date of Merger through any "new bank," with the term new bank to
include any bank organized between the date of this Agreement and four (4)
years following the Effective Date of Merger. FMBC shall be entitled to
place a legend reflecting the Affiliate Letter restrictions on any share
certificates to be issued to any affiliate, and may decline to register any
transfer of the shares of such affiliates except consistent with such rules
and regulations. FMBC shall promptly remove such legend from any such
certificates at the request of the holder if and when such restrictions have
lapsed.
4.4 Cooperation as to State Securities Laws. AFC shall furnish all
information requested by FMBC in order for FMBC to determine the applicability
of, and to make proper filings where applicable under, the securities laws of
the several states with respect to the shares of FMBC Common Stock to be
issued in the Merger.
4.5 Shareholder Approval. Subsequent to the execution of this Plan of
Merger, AFC will, at a meeting of its shareholders duly called by its Board
of Directors to be held as soon as practicable following the preparation
and mailing of the Proxy Statement ("Shareholder Meeting"), present this Plan
of Merger for the adoption and approval of its shareholders.
4.6 Qualified Employee Benefit Plans of AFC. Each person who is an
employee of the Bank at the Effective Date of Merger and who is an employee
of the Bank at the "FMBC Benefit Effective Dates" (defined below) will be
deemed to be a "Bank Employee" for purposes of this Section. As used in this
Section, the terms "pension" and "welfare" benefit plans have the respective
meanings of Sections 3(2) and 3(1) of ERISA. Subject to any eligibility
requirements (with full credit for years of past service to the Bank, to the
extent such service is presently given credit under the plans of the Bank
described in Section 3.15 hereof, for the purpose of satisfying any
eligibility and vesting periods) applicable to FMBC's plans (but not subject
to any pre-existing condition exclusions), Bank Employees shall be eligible
for participation and shall enter into participation in FMBC's pension and
welfare benefit plans, as in effect from time to time, on the following FMBC
Benefit Effective Dates: (1) FMBC defined benefit pension plan--first day of
the calendar year following the Effective Date of Merger; (2) subject to the
Bank Employee's election to participate, FMBC 401(k) plan--first calendar
quarter window enrollment period that follows, or begins simultaneous with,
the conversion of the Bank to the FMBC payroll system; and (3) FMBC welfare
benefit plans--no later than six (6) months following conversion of the Bank
to the FMBC payroll system. For the purpose of determining each Bank
Employee's benefit for the year in which the Effective Date of Merger occurs
under the FMBC vacation program, vacation taken by a Bank Employee in the
year in which the Effective Date of Merger occurs will be deducted from the
total <PAGE> FMBC benefit. Any employee of the Bank who was not employed by
the Bank at the Effective Date of Merger shall be eligible for participation,
as a new employee, in the FMBC pension plan under the terms thereof. The
Bank's pension and welfare benefit plans shall remain in place until Bank
Employees are eligible to participate in FMBC's pension and welfare benefit
plans.
4.7 Reports and Proxy Statement of FMBC. Upon the written request of AFC,
FMBC shall provide to AFC, at no cost to AFC, copies of such reports and proxy
statements previously filed with or furnished to the SEC and such other
information as AFC may reasonably request.
4.8 AFC Supplemental Disclosure Statement. If subsequent to the date of
this Plan of Merger and prior to the Closing, an event occurs which may
constitute a breach by AFC of any representation, warranty or covenant
made on the date of this Plan of Merger or to be made at Closing (a "Trigger
Event"), AFC shall promptly deliver to FMBC a written supplement to the AFC
Disclosure Statement (an "AFC Supplemental Disclosure Statement") which shall
contain a detailed description of any and all such matters. An AFC
Supplemental Disclosure Statement shall be delivered to FMBC by AFC within
five (5) business days after AFC learns of the Trigger Event but in no
event later than the Closing. Delivery of the AFC Supplemental Disclosure
Statement shall not constitute an admission that AFC has breached, or will
breach at Closing, this Plan of Merger. In the event that FMBC shall
determine that such Trigger Event as described in the AFC Supplemental
Disclosure Statement affords FMBC the right to terminate this Plan of Merger
under Section 8.3, 8.4 or 8.5, or will afford FMBC the right to terminate this
Plan of Merger under Section 8.3, 8.4 or 8.5 at Closing, FMBC shall give
written notice of termination of this Plan of Merger, or written notice of
an intent to terminate this Plan of Merger at Closing, within ten (10)
business days of receipt of the AFC Supplemental Disclosure Statement or any
right of FMBC to terminate this Plan of Merger arising from or relating to
the events described in the AFC Supplemental Disclosure Statement shall be
waived.
4.9 FMBC Supplemental Disclosure Statement. If subsequent to the date
of this Plan of Merger and prior to the Closing, an event occurs which may
constitute a breach by FMBC of any representation, warranty or covenant made
on the date of this Plan of Merger or to be made at Closing (a "Trigger
Event"), FMBC shall promptly deliver to AFC a written supplement to the FMBC
Disclosure Statement (an "FMBC Supplemental Disclosure Statement") which shall
contain a detailed description of any and all such matters. An FMBC
Supplemental Disclosure Statement shall be delivered to AFC by FMBC within
five (5) business days after FMBC learns of the Trigger Event but in no event
later than the Closing. Delivery of the FMBC Supplemental Disclosure
Statement shall not constitute an admission that FMBC has breached, or will
breach at Closing, this Plan of Merger. In the event that AFC shall determine
that such Trigger Event as described in the FMBC Supplemental Disclosure
Statement affords AFC the right to terminate this Plan of Merger under
Section 8.3, 8.4 or 8.5, or will afford AFC the right to terminate this Plan
of Merger under Section 8.3, 8.4 or 8.5 at Closing, AFC shall give written
notice of termination of this Plan of Merger, or written notice of an intent
to terminate this Plan of Merger at Closing, within ten (10) business days of
receipt of the FMBC Supplemental Disclosure Statement or any right of AFC to
terminate this Plan of Merger arising from or relating to the events described
in the FMBC Supplemental Disclosure Statement shall be waived.
4.10 Satisfaction of Conditions. FMBC and AFC agree to use their best
efforts to obtain satisfaction of the conditions precedent to the Closing set
forth in Article VI and Article VII insofar as they relate to FMBC and
AFC, respectively.
4.11 Directors and Officers Indemnification. The indemnification and
other obligations of AFC set forth in Article VIII ("Article VIII") of the
Articles of Incorporation of AFC, as amended, shall be binding upon and
become the obligation of FMBC after consummation of the Merger regarding
any state of facts, act, or omission occurring or existing on or prior to
the Effective Date of Merger. AFC is not aware of any state of facts, act
or omission which would give rise to any claim under Article VIII.
<PAGE>
ARTICLE V
SECURITIES REGISTRATION, GOVERNMENTAL FILINGS AND
OTHER AGREEMENTS
5.1 Registration of Securities; Preparation of Proxy Materials. FMBC
agrees to prepare and file with the SEC as soon as reasonably practicable and
to use its best efforts to cause to become effective a Registration Statement
on Form S-4 under the Securities Act (the "Registration Statement"), together
with such amendments as may reasonably be required in order for the
Registration Statement to become effective. FMBC shall make all proper
filings under the securities laws of the states and the rules of the NASD
with respect to which the FMBC Common Stock is to be issued pursuant to the
Merger. FMBC shall notify AFC of any stop orders or threatened stop orders
or other administrative action pertaining to the Registration Statement or
securities laws filings of which it has knowledge. The prospectus that forms
a part of the Registration Statement (the "Prospectus") also will constitute
the proxy statement of AFC for the solicitation of proxies by the Board of
Directors of AFC in connection with the Shareholder Meeting referenced in
Section 4.5 ("Proxy Statement"). AFC and FMBC will cooperate fully with one
another in preparation of the Prospectus and Proxy Statement that forms a
part of the Registration Statement and will supply all information necessary,
in the opinion of their respective counsel, in order to complete the
preparation of the Prospectus and Proxy Statement. AFC and FMBC will
cooperate fully with one another in preparing such amendments to the
Prospectus and proxy materials as may be required by the SEC. FMBC agrees
to promptly provide AFC with the opportunity to review and comment upon the
Registration Statement, each amendment to the Registration Statement, and each
form of the Prospectus and Proxy Statement before filing. AFC will promptly
respond to FMBC with any comments which AFC may wish to make. FMBC agrees to
provide AFC with copies of all correspondence received from the SEC with
respect to the Registration Statement and its amendments and with all
responsive correspondence to the SEC. AFC shall, at its expense, cause all
financial statements and financial information of AFC included in the
Registration Statement to be reviewed by BDO/Seidman, who shall furnish to
FMBC manually signed copies of their report and their consent to inclusion
of such report and to reference to them in the Prospectus to be filed with
the Registration Statement.
5.2 Other Filings and Appeals. FMBC shall have primary responsibility
for preparation of all applications for regulatory approval of the Merger.
AFC shall cooperate fully in the preparation of such applications and
filings. FMBC shall use its best reasonable and lawful efforts to procure
the approvals from all regulatory agencies whose approval of the Merger is
required. If there is an adverse or unfavorable action by any regulatory
authority, or should the proposed Merger be challenged or opposed by any
administrative or legal proceeding, whether by the United States Department
of Justice or otherwise, the determination of whether and to what extent
to seek appeal or review, administrative or otherwise, or other appropriate
remedy shall be made by FMBC after consultation with AFC, and FMBC shall be
fully responsible for the conduct and cost of such appeal, review or other
proceeding. FMBC agrees to provide AFC with the opportunity to review and
comment upon such documents before filing, and to promptly provide AFC with
copies of all correspondence received from these agencies and all responsive
correspondence sent to these agencies.
5.3 Tax Matters. FMBC and AFC will seek to obtain an opinion of Varnum,
Riddering, Schmidt & Howlett LLP in reasonably acceptable form and content to
FMBC and AFC, substantially to the effect that:
(a) The Merger of AFC with and into FMBC and the acquisition by
FMBC of substantially all the assets of AFC in exchange for stock of FMBC
and the assumption by FMBC of the liabilities of AFC will constitute a
reorganization within the meaning of Section 368(a)(1)(A) of the Code,
and AFC and FMBC will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(b) The basis of the assets of AFC acquired by FMBC in the Merger
will be the same as the basis of those assets in the hands of AFC
immediately prior to the Merger;
<PAGE>
(c) The holding period of the assets of AFC to be received by FMBC
will include the holding period of those assets in the hands of AFC
immediately prior to the Merger;
(d) No gain or loss will be recognized by FMBC upon receipt of the
assets of AFC by FMBC in exchange for the shares of FMBC Common Stock;
(e) No gain or loss will be recognized by AFC upon the transfer of
its assets to FMBC in exchange for shares of FMBC Common Stock and the
assumption by FMBC of the liabilities of AFC;
(f) No gain or loss will be recognized by FMBC upon receipt of the
AFC Common Stock in exchange for the FMBC Common Stock.
(g) No gain or loss will be recognized by the shareholders of AFC
upon the exchange of FMBC Common Stock in exchange for their shares of
AFC Common Stock;
(h) The basis of FMBC Common Stock to be received by shareholders
of AFC will, in each instance, be the same as the basis of the respective
shares of AFC Common Stock surrendered in exchange therefor; and
(i) The holding period of the FMBC Common Stock received by
shareholders of AFC will, in each instance, include the holding period of
the respective shares of AFC Common Stock surrendered in exchange
therefor, provided that the AFC Common Stock was, in each instance, held
as a capital asset in the hands of the shareholder of AFC on the Effective
Date of Merger.
5.4 Press Releases. AFC and FMBC shall consult with each other with
respect to the form and substance of any press release or other public
disclosure of matters related to this Plan of Merger and shall not issue
any news release or make any other public disclosures of matters related to
this Plan of Merger without the prior consent of the other party, unless such
disclosure may be required by law.
5.5 Miscellaneous Agreements and Consents. Subject to the terms and
conditions of this Plan of Merger, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper, or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Plan of Merger. FMBC and AFC will use all reasonable
efforts to obtain consents of all third parties and governmental bodies
necessary or desirable for the consummation of the Merger.
5.6 Exchange of Financial Information. FMBC shall deliver to AFC, and
AFC shall deliver to FMBC, copies of each quarterly consolidated financial
statement prepared, and of each consolidated financial report or statement
submitted to regulatory authorities, after the date of this Plan of Merger
until the Effective Date of Merger, as promptly after the preparation or
submission thereof as practicable. AFC shall also deliver to FMBC copies of
each Call Report submitted by the Bank to regulatory authorities after the
date of this Plan of Merger until the Effective Date, as promptly after the
preparation thereof as practicable. AFC shall also deliver to FMBC the Bank's
monthly unaudited balance sheet and profit and loss statements prepared for
internal use after the date of this Plan of Merger until the Effective Date
of Merger, as promptly after the preparation thereof as practicable. All such
financial statements will be prepared in accordance with generally accepted
accounting principles on a consistent basis and will present fairly the
financial position of the entity to which they relate at the dates shown
and the results of its operations for the periods covered.
<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT TO FMBC'S OBLIGATIONS
All obligations of FMBC under this Plan of Merger are subject to the
fulfillment (or waiver in writing by a duly authorized officer of FMBC),
prior to or at the Closing, of each of the following conditions:
6.1 Compliance with Representations, Warranties and Agreements.
(a) Representations and Warranties. AFC's representations and
warranties contained in the Plan of Merger (as modified by the AFC
Disclosure Statement and the AFC Supplemental Disclosure Statement, if
any) shall be deemed to have been made again at and as of the time of
the Closing. AFC's representations and warranties shall then be true in
all material respects. Any representation or warranty which becomes
untrue because of any change intended by this Plan of Merger shall not
be considered to be a breach of this Plan of Merger because of such
change.
(b) Compliance with Agreements. AFC shall have performed and
complied with all agreements, conditions, and covenants required by this
Plan of Merger to be performed or complied with by AFC prior to or at the
Closing in all material respects.
(c) Certificates. Compliance with Sections 6.1(a) and 6.1(b) shall
be evidenced by one or more certificates signed by appropriate officers
of AFC, dated as of the date of the Closing, certifying the foregoing to
the knowledge of such officers in such detail as FMBC may reasonably
request, describing any exceptions to such compliance in such certificates.
6.2 Opinion of Legal Counsel. AFC shall have delivered to FMBC the
opinion of Miller, Canfield, Paddock & Stone, P.L.C., counsel for AFC, dated
as of the date of the Closing and reasonably satisfactory to counsel for
FMBC, to the effect that:
(a) AFC is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Michigan. AFC has the
corporate power to carry on the business of banking as a bank holding
company registered as such under the BHCA;
(b) This Plan of Merger, the execution, delivery, and performance
of this Plan of Merger, and the consummation of the Merger by AFC have
been duly authorized, approved, and adopted by all requisite corporate
action of AFC's Board of Directors and its shareholders;
(c) All other actions and proceedings required by law and Sections
4.2(c),(e),(l) and 4.3 to be taken by AFC at or prior to the Closing in
connection with this Plan of Merger have been duly and validly taken in
accordance with the Articles of Incorporation and Bylaws of AFC and
applicable law;
(d) This Plan of Merger constitutes the valid and binding obligation
of AFC in accordance with its terms except as enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium, or other similar
laws affecting creditors' rights and by the exercise of judicial discretion
in accordance with general principles applicable to equitable and similar
remedies;
(e) All such approvals, consents, authorizations, or modifications
as may, to counsel's knowledge, be required to permit the performance by
AFC of its obligations under this Plan of Merger have been obtained;
<PAGE>
(f) The authorized capital stock of AFC consists of 1,000,000 shares
of common stock, $1.00 par value, of which, as of the Closing, 396,754
shares are legally issued and outstanding, fully paid, and nonassessable.
To counsel's knowledge, there are no other outstanding subscriptions,
options, warrants or rights to acquire any capital stock of AFC, or
agreements to which AFC is a party or by which it is bound to issue
capital stock;
(g) Bank is a banking corporation duly organized, validly existing,
and in good standing under the Michigan Banking Code of 1969, as amended,
and has the corporate power to carry on its business as and where it is
now being conducted;
(h) The consummation by AFC of the transactions contemplated by this
Plan of Merger will not, to counsel's knowledge, result in any material
breach or violation of, or default under, any material judgment, decree,
mortgage, agreement, indenture, or other instrument applicable to AFC or
Bank;
(i) Counsel does not know of any litigation, proceeding, or
governmental investigation pending or threatened against or relating to
AFC or Bank, or their respective properties or businesses, which challenges
the transactions contemplated by this Plan of Merger or which may result in
any liability material to AFC or Bank on a consolidated basis; and
(j) AFC owns and holds good title to all of the issued and
outstanding stock of Bank free and clear of all liens and encumbrances,
except as set forth in Section 3.3 and the AFC Disclosure Statement.
In rendering its opinion, Miller, Canfield, Paddock & Stone, P.L.C. may
rely on certificates of governmental officials and officers of AFC and the
Bank as to such factual matters as counsel may reasonably deem necessary or
desirable. References to knowledge in such opinion may be qualified to mean
actual knowledge of attorneys then associated with the firm who have recorded
time chargeable to AFC or the Bank during the two year period preceding the
date of such opinion.
6.3 Tax Opinion. FMBC shall have received a favorable opinion letter from
FMBC's counsel as to the matters described in Sections 5.3(a) through 5.3(f),
reasonably acceptable to FMBC.
6.4 Required Approvals. FMBC shall have received: (i) all such approvals,
consents, authorizations, and licenses of all regulatory and other governmental
authorities having jurisdiction as may be required to permit the performance
by AFC and FMBC of their respective obligations under this Plan of Merger and
the consummation of the transactions contemplated herein; and (ii) evidence
of the requisite approval of the shareholders of AFC of this Plan of Merger.
6.5 Order, Decree, Etc. FMBC shall not be subject to any order, decree,
or injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Merger.
6.6 Securities Laws. All actions required by the Securities Act to be
completed prior to the consummation of the Merger shall have been completed
in accordance with the provisions of the Securities Act and the regulations
of the SEC promulgated thereunder. The registration of the FMBC Common Stock
under the Securities Act shall be effective and shall not be subject to any
stop order and the FMBC Common Stock shall have been qualified under the
securities law of every state in which such qualification is required.
6.7 Adequacy of Bank's Allowance for Loan Losses. As of December 31, 1995
and as of the Closing,the Bank's allowance for loan losses (without regard to
the Bank's Capital Access Program portfolio) shall be notless than an amount
equal to 1.45 percent of the Bank's total loans at such date, or such greater
amount as management determines appropriate based on past practice, past loan
experiences and applicable industry, regulatory and accounting standards.
<PAGE>
6.8 Affiliate Undertakings. FMBC shall have received the undertakings
from AFC's affiliates as described in Section 4.3.
6.9 AFC's Budget Achieved. AFC's consolidated income statement for the
year ended December 31, 1995 shall reflect net income for the year of not less
than $1,400,000.
6.10 MESC Form 1027. AFC shall have furnished to FMBC a complete,
accurate and executed copy of MESC Form 1027, Business Transferor's Notice
of Unemployment Tax Liability and Rate.
6.11 Legal Proceedings. No proceeding shall be pending which challenges
or seeks to prevent consummation of the Merger or asserts liability against
any director or officer of either party with respect to the Merger.
6.12 Exercise of Options. All 25,750 options to purchase AFC Common Stock
that were outstanding at September 30, 1995, shall have been exercised for
cash consideration to AFC of not less than $282,999 and AFC shall have issued
and outstanding only 396,754 shares of AFC Common Stock.
6.13 Pooling of Interests Opinion. FMBC shall have received an opinion
of BDO Seidman, reasonably satisfactory to FMBC, to the effect that the
transaction will be accounted for as a "pooling of interests."
ARTICLE VII
CONDITIONS PRECEDENT TO AFC'S OBLIGATIONS
All obligations of AFC under this Plan of Merger are subject to the
fulfillment (or waiver in writing by aduly authorized officer of AFC), prior
to or at the Closing, of each of the following conditions:
7.1 Renewal of Representations and Warranties. FMBC's representations
and warranties contained in this Plan of Merger (as modified by the FMBC
Disclosure Statement and the FMBC Supplemental Disclosure Statement, if any)
shall be deemed to have been made again at and as of the time of the Closing
and, except as otherwise contemplated by this Plan of Merger, shall then be
true in all material respects. FMBC shall have performed and complied with
all agreements, conditions and covenants required by this Plan of Merger to
be performed or complied with by FMBC, prior to or at the Closing. AFC shall
have been furnished with a certificate of appropriate officers of FMBC, dated
as of the date of the Closing, certifying to the knowledge of such officers
to the fulfillment of the foregoing conditions in such detail as AFC may
reasonably request.
7.2 Opinion of Legal Counsel. FMBC shall have delivered to AFC an opinion
of Varnum, Riddering, Schmidt & Howlett LLP, counsel for FMBC, dated as of the
date of the Closing and reasonably satisfactory to counsel for AFC, to the
effect that:
(a) FMBC is a corporation duly organized, validly existing and in
good standing under the laws of the State of Michigan, and has corporate
power to carry on its business as and where it is now being conducted;
(b) The authorized capital stock of FMBC consists of 25,000,000
shares divided into two classes as follows: (i) 24,000,000 shares of FMBC
Common Stock; and (ii) 1,000,000 shares of preferred stock. To counsel's
knowledge, there are no outstanding subscriptions, options, warrants or
rights to acquire any capital stock of FMBC, or agreements to which FMBC
is a party by which it is bound to issue capital stock, except asdisclosed
in the FMBC Disclosure Statement, reflected in the notes to the
Consolidated Financial Statements of FMBC for the year ended December 31,
1995, and contemplated by this Plan of Merger, FMBC's Dividend Reinvestment
and Stock Purchase Plan, FMBC's Shareholder Rights Plan, FMBC's <PAGE>
various stock option and purchase plans and any "Permitted Other
Transactions" (as defined below);
(c) This Plan of Merger and the execution, delivery, and performance
of this Plan of Merger by FMBC and the issuance of the shares of FMBC
Common Stock pursuant to this Plan of Merger, have been duly authorized
and approved by all requisite corporate action;
(d) This Plan of Merger constitutes the valid and binding obligation
of FMBC in accordance with its terms except as enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium, or other similar
laws affecting creditors' rights and by the exercise of judicial
discretion in accordance with general principles applicable to equitable
and similar remedies;
(e) The consummation by FMBC of the transactions contemplated by
this Plan of Merger will not, to counsel's knowledge, result in any breach
or violation of, or default under, any judgment, decree, mortgage,
agreement, indenture, or other instrument applicable to FMBC or its
subsidiaries;
(f) All such approvals, consents, authorizations, or modifications
as may, to counsel's knowledge, be required to permit the performance by
FMBC of its obligations under this Plan of Merger have been obtained;
(g) Counsel does not know of any litigation, proceeding, or
governmental investigation, pending or threatened, against or relating
to FMBC or any of its subsidiaries, or their respective properties or
businesses, which challenges the transactions contemplated by this Plan
of Merger or which may result in any material liability to FMBC and its
subsidiaries on a consolidated basis except as disclosed in such opinion;
and
(h) The shares of FMBC Common Stock to be issued by FMBC as
contemplated by this Plan of Merger, and to be delivered to the
shareholders of AFC, are duly authorized and will, when issued and
delivered pursuant to this Plan of Merger, be legally issued, fully
paid, and nonassessable.
In rendering its opinion, Varnum, Riddering, Schmidt & Howlett LLP may
rely on certificates of governmental officials and officers of FMBC and its
subsidiaries as to such factual matters as counsel may reasonably deem
necessary or desirable. References to knowledge in such opinion may be
qualified to mean actual knowledge of attorneys then associated with the
firm who have rendered time chargeable to FMBC or any of its subsidiaries
during the two year period preceding the date of such opinion.
7.3 Tax Ruling. AFC shall have received a favorable opinion letter from
Varnum, Riddering, Schmidt & Howlett LLP as to the matters described in
Section 5.3(a) and Sections 5.3(g) through 5.3(i).
7.4 Required Approvals. AFC shall have received all such approvals,
consents, authorizations, and licenses of all regulatory and other governmental
authorities having jurisdiction as may be required to permit the performance
by AFC of its obligations under this Plan of Merger and consummation of the
transactions contemplated herein, and shall have received the requisite
approval of this Plan of Merger by its shareholders contemplated in
Section 4.5.
7.5 Order, Decree, Etc. AFC shall not be subject to any order, decree,
or injunction of a court or agency of competent jurisdiction which enjoins
or prohibits the consummation of the Merger.
7.6 Securities Laws. All actions required by the Securities Act to be
completed prior to the consummation of the Merger shall have been completed
in accordance with the provisions of the Securities Act andthe regulations
of the SEC promulgated thereunder. The registration of the FMBC Common Stock
under <PAGE> the Securities Act shall be effective and shall not be subject
to any stop order and the FMBC Common Stock shall have been qualified under
the securities law of every state in which such qualification is required.
7.7 Legal Proceedings. No proceeding shall be pending which challenges
or seeks to prevent consummation of the Merger or asserts liability against
any director or officer of either of the parties with respect to the Merger.
ARTICLE VIII
ABANDONMENT OF MERGER
This Plan of Merger may be terminated and the Merger abandoned at any time
prior to the Effective Date of Merger (notwithstanding the prior approval of
the AFC shareholders) as follows:
8.1 Mutual Consent. By mutual consent of the boards of directors of
FMBC and AFC.
8.2 Effective Date of Merger. By either FMBC or AFC if the abandoning
party has used its best efforts to consummate the Merger and if the Effective
Date of Merger shall not have occurred on or before June 30, 1996.
8.3 Adverse Changes. By either FMBC or AFC if there has occurred any
change in the business, asset portfolio, financial condition, fixed or
contingent liabilities or management of the other party taken as a whole for
reasons peculiar to the other party and not applicable to the banking
industry in Western Michigan in general that is materially adverse.
8.4 Misrepresentations. By either FMBC or AFC if any warranty or
representation made by the other party herein shall be discovered to be false
in any material respect, and such breach shall not have been cured within
thirty (30) days following receipt of written notice of such breach.
8.5 Breach of Covenants. By either FMBC or AFC if the other party shall
have committed any material breach of any covenant hereof which has not been
or cannot be cured without material cost or damage within thirty (30) days
following receipt of written notice to such party of such occurrence.
8.6 Change in Control of FMBC. By AFC any time prior to the Effective
Date of Merger in the event of the occurrence, subsequent to the date of this
Plan of Merger, of a change of control of FMBC which would be required to be
reported in response to Item 6(c) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended.
Termination and abandonment pursuant to 8.2, 8.3, 8.4, 8.5, or 8.6 may
be affected at any time prior to the Effective Date of Merger by written
notice by either FMBC or AFC to the other, as the case may be, authorized and
approved by resolution adopted by the board of directors of the party giving
such notice. In the event of the termination and abandonment of this Plan of
Merger, it shall become null and void and of no effect, without liability
on the part of FMBC or AFC or the respective shareholders, directors or
officers in respect hereof, except to the extent provided in Section 4.2 or
Section 9.3.
ARTICLE IX
EXPENSES
The costs and expenses (out-of-pocket and otherwise) incurred by the
parties in connection with the transactions contemplated by this Plan of
Merger shall be borne as follows:
9.1 FMBC Expenses. FMBC shall bear all fees and expenses of its counsel
and accountants, and all other costs and expenses incurred by it in the
preparation of this Plan of Merger, its examination of AFC and <PAGE> Bank,
the preparation, filing and prosecution of all applications for regulatory
approval, and any appeals therefrom, and the preparation, filing and printing
of a registration statement under the Securities Act and the preparation and
filing of any required registration statements under applicable state
securities laws.
9.2 AFC Expenses. AFC shall bear all fees and expenses of its counsel
and accountants and all other costs and expenses incurred by it in the
preparation of this Plan of Merger, its examination of FMBC, the furnishing
of information or other cooperation to FMBC in connection with the preparation
of securities filings and information and regulatory applications, and any
appeals therefrom and its participation in the preparation and distribution
of the proxy materials in connection with the Shareholder Meeting.
9.3 Obligations Upon Breach. In the event that this Plan of Merger shall
terminate prior to the Effective Date of Merger by virtue of a breach set forth
in Section 8.4 or Section 8.5 hereof and if such breach was intentional, the
party causing such breach agrees to reimburse the other party for all
reasonable expenses incurred by such party in connection with the transactions
contemplated by this Plan of Merger. Otherwise, the sole remedy for breach
shall be abandonment of this Plan of Merger, subject to FMBC's right to
charge AFC a fee as provided in Section 4.2.
ARTICLE X
AMENDMENT AND WAIVER
10.1 Amendment. AFC and FMBC, by mutual consent of their respective
boards of directors, may amend, modify or supplement this Plan of Merger, in
whole or in part, and in such manner as may be agreed upon by them in writing
at any time before the approval of this Plan of Merger by the shareholders
of AFC.
10.2 Waiver. The failure of either party at any time or times to require
performance of any provision hereof shall in no manner affect such party's
right at a later time to enforce the same provision. No waiver by either
party of any condition or of the breach of any term, covenant, representation
or warranty contained in this Plan of Merger, whether by conduct or otherwise,
in any one or more instances shall be deemed to be or construed as a
further or continuing waiver of any such condition or breach or a waiver
of any other condition or of the breach of any other term, covenant,
representation or warranty of this Plan of Merger.
ARTICLE XI
GENERAL
11.1 Notices. All notices, requests, demands, consents and other
communications hereunder shall be effective when delivered but only if in
writing and delivered personally, by facsimile transmission or by registered
or certified return receipt mail, postage prepaid, addressed as follows:
If to AFC:
Mr. Ronald J. Bieke
Arcadia Financial Corporation
7950 Moorsbridge Road
Portage, Michigan 49002
<PAGE>
with a copy to:
Eric V. Brown, Jr., Esquire
Miller, Canfield, Paddock & Stone, P.L.C.
444 West Michigan Avenue
Kalamazoo, Michigan 49007-3751
Facsimile: 616-383-5858
If to FMBC:
Larry D. Fredricks
First Michigan Bank Corporation
One Financial Plaza
10717 Adams Street
Holland, Michigan 49423
Facsimile: 616-393-8608
with a copy to:
Donald L. Johnson, Esquire Overnight Deliveries
Varnum, Riddering, Schmidt & Howlett LLP 333 Bridge St., N.W.
Bridgewater Place Grand Rapids, Michigan 49504
P.O. Box 352
Grand Rapids, Michigan 49501-0352
Facsimile: 616-336-7000
or to such other address as the parties hereto may designate in writing as
aforesaid. Delivery by facsimile shall be effective only if delivery is
confirmed by the other party.
11.2 Authority of FMBC With Respect to Other Transactions. Nothing stated
or contained in this Plan of Merger shall be construed to limit or restrict
the unilateral authority of FMBC (a) to enter into other agreements to buy,
sell or invest in other assets or (b) to buy or sell or otherwise issue
shares of FMBC's Common Stock consistent with maintaining, improving or
maximizing value to the shareholders of FMBC as determined by FMBC's board
of directors in their sole discretion (collectively "Permitted Other
Transactions").
11.3 Efforts to Conclude Transaction. Each party to this Plan of Merger
will use all reasonable efforts to perform and fulfill all conditions and
obligations on its part to be performed or fulfilled prior to consummation
of the Merger.
11.4 Governing Law. This Agreement shall be construed and interpreted
according to the laws of Michigan, except as otherwise provided herein.
11.5 Survival of Representations and Warranties. All representations,
warranties and agreements of AFC contained in this Plan of Merger shall
expire with, and be terminated and extinguished by, the consummation of the
transactions contemplated hereby on the Effective Date of Merger. This Plan
of Merger shall inure only to the benefit of the parties hereto and no other
person shall have or derive any rights from any provision of this Plan of
Merger.
11.6 Entire Agreement. This Plan of Merger, and the documents described
herein or attached or delivered pursuant hereto, set forth the entire
agreement and understanding of the parties in respect of the transactions
contemplated hereby and supersede all prior agreements, arrangements, and
understanding related to the subject matter hereof.
<PAGE>
11.7 Counterparts. This Plan of Merger may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.8 Reliance on Headings, Etc. The cover page, table of contents, article
headings and section headings contained in this Plan of Merger are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Plan of Merger.
11.9 Binding Effect and Assignment. This Plan of Merger shall be binding
upon and inure to the benefit of parties hereto and their respective successors
and assigns; provided, that this Plan of Merger may not be assigned by any
party hereto without the written consent of the other party. Nothing contained
in this Plan of Merger, express or implied, is intended to confer upon any
other person any rights or remedies of any nature under or by reason of this
Plan of Merger.
11.10 Dispute Resolution. If the parties have any dispute (other than
any dispute regarding confidential information) arising or alleged to arise
from, in connection with or resulting from this Agreement, or any agreement,
document, instrument, schedule, exhibit or certificate in connection herewith,
then such dispute shall be resolved by arbitration before a single arbitrator
in Grand Rapids, Michigan, in accordance with the Michigan Uniform Arbitration
Act, as amended, MCLA Section 600.5001 et. seq., and under the auspices and
rules of the American Arbitration Association. The parties shall endeavor
to resolve any dispute first among themselves; provided, however, if the
parties fail to resolve the dispute within fifteen (15) days, then either
party to the dispute may file a demand for arbitration. The arbitrator shall
be empowered to resolve all collateral matters relating to the arbitration,
including whether this Section and the provisions for arbitration hereunder
are properly invoked and applicable, to the end that all questions, disputes
and controversies be resolved and determined by the arbitrator. The decision
of the arbitrator shall be final and binding upon the parties, and judgment
on such decision may be entered in any court having jurisdiction.
IN WITNESS WHEREOF, the undersigned parties hereto have executed this
Plan of Merger as of the date first written above.
FIRST MICHIGAN BANK CORPORATION
By /s/ David M. Ondersma
David M. Ondersma, Chairman, and Chief Executive Officer
ARCADIA FINANCIAL CORPORATION
By /s/ Ronald J. Bieke
Ronald J. Bieke, President and Chief Executive Officer
<PAGE>
APPENDIX B
STATISTICAL INFORMATION REGARDING
ARCADIA FINANCIAL CORPORATION
<PAGE>
Distribution of Assets, Liabilities, and Shareholders' Equity; Interest Rates
and Interest Differential
<TABLE>
<CAPTION>
The following schedule presents the average daily balances, interest income
(on a fully-taxable equivalent basis) and interest expense, and the average
rates earned and paid for Arcadia Financial Corporation's major categories
of assets, liabilities, and shareholders' equity for the periods indicated
(in thousands):
Year Ended December 31
1994
Average
Interest Rate
Average Income/ Earned/
Balance Expense Paid
<S> <C> <C> <C>
Assets:
Federal funds sold $ 2,111 $ 100 4.74%
Interest bearing deposits
with banks 0 0 n/a
Securities:
Taxable 11,905 526 4.42
Tax-exempt (1) 1,045 49 4.69
Loans (2) 61,543 5,447 8.85
Total earning assets/total
interest income 76,604 6,122 7.99%
Cash due from banks 3,702
All other assets 1,723
Allowance for loan losses (936)
Total assets 81,093
Liabilities and
shareholders' equity:
Interest bearing deposits:
Savings and NOW accounts $26,481 $835 3.15%
Time 38,596 1,751 4.54
Short-term borrowings 533 25 4.69
Long-term debt 888 70 7.88
Total interest bearing
liabilities/total
interest expense 66,498 2,681 4.03%
Non-interest bearing
deposits 9,166
All other liabilities 840
Sharesholders' equity 4,589
Total liabilities and
shareholders equity 81,093
Interest spread (Average
rate earned minus average
rate paid) 3.96%
Net interest income $3,441
Net interest margin
(Net interest income/
total earning assets) 4.49%
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
<S> <C> <C> <C> <C> <C> <C>
Assets:
Federal funds sold $ 2,033 $ 60 2.95% $ 1,572 $ 51 3.24%
Interest bearing deposits
with banks 0 0 n/a 0 0 n/a
Securities:
Taxable 10,345 432 4.18 6,704 366 5.46
Tax-exempt (1) 834 40 4.80 699 39 5.58
Loans (2) 49,334 3,972 8.05 42,268 3,543 8.38
Total earning assets/total
interest income 62,546 4,504 7.20% 51,243 3,999 7.80%
Cash and due from banks 3,307 2,716
All other assets 1,575 1,357
Allowance for loan losses (746) (598)
Total assets $66,682 $54,718
Liabilities and
shareholders' equity:
Interest bearing deposits:
Savings and NOW accounts $26,633 $ 701 2.63% $24,072 $823 3.42%
Time 27,790 1,219 4.39 20,993 1,051 5.01
Short-term borrowings 146 5 3.42 182 7 3.85
Long-term debt 596 40 6.71 683 47 6.88
Total interest bearing
liabilities/total
interest expense 55,165 1,965 3.56% 45,930 1,928 4.20%
Non-interest bearing
deposits 7,003 4,914
All other liabilities 595 365
Shareholders' equity 3,919 3,509
Total liabilities and
shareholders' equity $66,682 $54,718
Interest spread (Average
rate earned
minus average
rate paid) 3.64% 3.60%
Net interest income $2,539 $ 2,071
Net interest margin
(Net interest
income/ total
earning assets) 4.06% 4.04%
(1) Tax-exempt interest on securities has been converted to a fully-taxable
equivalent basis as follows for the periods indicated:
(in thousands):
1994 1993 1992
Fully-taxable equivalent adjustment.........$10 $ 6 $ 5
Marginal federal income tax rate ........... 34% 34% 34%
(2) Non-accruing loans are not significant during the 3-year period and, for
the purposes of the computations above, are included in the average daily
loan balances.
</TABLE>
<PAGE>
Effect of the Changes in Rate and Volume
<TABLE>
<CAPTION>
The effect on Arcadia Financial Corporation's interest income (on a
fully-taxable equivalent basis) and interest expense due to the changes in
volume and average rates for the periods indicated are shown below (in
thousands):
Year Ended December 31, 1994 Year Ended December 31, 1993
Compared to Compared to
Year Ended December 31, 1993 Year Ended December 31, 1992
Amount of Increase/
Amount of Increase/ (Decrease) Due to
(Decrease) Due to Total Change in Total
Change in Amount of Amount of
Average Increase/ Average Increase/
Volume Rate (Decrease) Volume Rate (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold ..........$ 2 $ 38 $ 40 $ 14 $ (5) $ 9
Interest bearing deposits
with banks ............. 0 0 0 0 0 0
Securities:
Taxable ................ 68 26 94 166 (100) 66
Tax-exempt (1) ......... 10 (1) 9 7 (6) 1
Loans (2) ................... 1,053 422 1,475 573 (144) 429
Total interest income...$1,133 $ 485 $1,618 $ 760 $(255) $ 505
Interest expense:
Interest bearing deposits:
Savings and NOW account.$ (4) $ 138 $ 134 $ 81 $(203) $(122)
Time ................... 489 43 532 310 (142) 168
Short-term borrowings ....... 17 3 20 (1) (1) (2)
Long-term debt .............. 22 8 30 (6) (1) (7)
Total interest expense.. $ 524 $ 192 $ 716 $ 384 $(347) $ 37
Net interest income.......... $ 609 $ 293 $ 902 $ 376 $ 92 $ 468
For purposes of this table, changes in interest due to volume and average rate
were determined as follows:
Volume Variance - change in volume multiplied by previous average rate.
Rate Variance - change in average rate multiplied by previous volume.
Rate/Volume Variance - change in volume multiplied by change in average
rate. The rate/volume variances have been allocated to volume and
average rate in proportion to the relationship of the absolute dollar
amounts of the change in each.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Security Portfolio
December 31,
1994 1993
<S> <C> <C>
Security portfolio (in thousands):
U.S. Treasury, U.S. Government agencies
and corporations .......................... $ 12,756 $ 10,090
States and political subdivisions ........... 1,122 972
Other securities .......................... 1,096 756
Total ...................................... $ 14,974 $ 11,818
Excluding those holdings in the investment security portfolio of U.S. Treasury
and U.S. Government agency and corporation securities and various projects
notes fully-guaranteed by the U.S. Government, there were no investments in
securities of any one issuer which exceeded 10% of shareholders' equity at
December 31, 1994.
</TABLE>
<TABLE>
<CAPTION>
The following schedule sets forth the schedule of maturities and weighted
average interest rates of securities as of December 31, 1994 (in thousands):
U.S. Treasury, U.S. States and
Government Agencies Political Other
and Corporations Subdivisions Securities Total
Amount Rate Amount Rate (1) Amount Rate Amount
<S> <C> <C> <C> <C> <C> <C> <C>
Under 1 year $8,968 5.76% $608 6.53% $ 648 6.85% $10,224
1 to 5 years 2,524 4.33 514 6.43 222 5.82 3,260
5 to 10 years 1,264 6.58 0 -- 0 -- 1,264
Over 10 years 0 -- 0 -- 226 7.00 226
Total $12,756 5.56% $1,122 6.48% $ 1,096 6.67% $14,974
(1) The yields on tax-exempt obligations have been computed on a
fully-taxable equivalent basis using a marginal federal tax rate
of 34%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan Portfolio
December 31,
1994 1993
<S> <C> <C>
Components of loan portfolio (in thousands):
Commercial, financial, and agricultural. . $ 28,402 $ 34,231
Real estate - construction . . . . . 2,503 807
Real estate - mortgage . . . . . . . 35,282 21,113
Consumer . . . . . . . . . . . . . . 1,570 938
Total. . . . . . . . . . . . . $ 67,757 $ 57,089
</TABLE>
As of December 31, 1994, there was no concentration of loans to any group of
borrowers engaged in similar activities that would be impacted by economic
or other conditions.
<TABLE>
December 31, 1994
Under 1 1 to 5 Over 5
Year Years Years Total
<S> <C> <C> <C> <C>
Maturity of selected loans (in thousands):
Commercial, financial, and agricultural $16,591 $10,069 $1,742 $28,402
Real estate - construction . . . . 2,503 0 0 2,503
Total . . . . . . . . . . . . $19,094 $10,069 $1,742 $30,905
Rate sensitivity of above loans due after one year: (in thousands):
Fixed interest rates . . . . . . . . . . $ 1,564 $ 58 $ 1,622
Variable interest rates. . . . . . . . . 8,505 1,684 10,189
Total . . . . . . . . . . . . . . . $10,069 $1,742 $11,811
</TABLE>
Nonperforming assets consist of nonperforming loans and other real estate
owned. Nonperforming loans include loans on which interest is not being
accrued, accruing loans contractually past due ninety days or more as to
interest or principal payments, and other loans whose terms have been
renegotiated to provide a reduction or deferral of interest or principal
because of a deterioration in the financial position of the borrower. Other
real estate includes assets acquired through loan foreclosure or repossession.
<TABLE>
December 31,
1994 1993
<S> <C> <C>
Nonperforming assets (in thousands):
Non-accrual . . . . . . . . . . . . $ 0 $ 124
Ninety days past due. . . . . . . . 102 37
Renegotiated. . . . . . . . . . . . 62 0
Total nonperforming loans. . 164 161
Other real estate . . . . . . . . . 0 136
Total nonperforming assets $ 164 $ 297
As a percent of total loans. 0.24% 0.52%
</TABLE>
Loans are placed on non-accrual status when, in the opinion of management, the
collectibility of principal and interest is considered doubtful or when the
payment of interest and principal is 90 days past due, unless the loans are
both well secured and in the process of collection. Additional interest that
would have been earned in 1994 had the loans classified as non-accrual and
renegotiated remained at original terms is immaterial.
As of December 31, 1994, there are no loans which are not included in the
above nonperforming loan total for which management had serious doubt as to
the ability of the borrowers to comply with the present repayment terms.
<PAGE>
Summary of Loan Loss Experience
A provision is credited annually to an allowance for loan losses which is
maintained at a level considered by management to be adequate to absorb
possible future loan losses inherent in the current portfolio. During each
year, management determines the level of provision necessary for an adequate
allowance. Factors considered in assessing the adequacy of the allowance for
loan losses include changes in type and volume of the loan portfolio, past
loan loss experience, existing and anticipated economic conditions, and other
factors which may deserve current recognition in estimating possible future
loan losses.
<TABLE>
December 31,
1994 1993
<S> <C> <C>
Loan loss experience (in thousands):
Loans:
Average daily balance of loans
outstanding for the period $ 61,543 $ 49,334
Amount of loans outstanding at
end of period $ 67,757 $ 57,089
Allowance for loan losses:
Balance at beginning of period $ 819 $ 668
Loans charged-off:
Commercial, financial, and
agricultural 5 4
Real estate - construction 0 0
Real estate - mortgage 0 0
Consumer 0 4
Total charge-offs 5 8
Recoveries on loans previously charged-off:
Commercial, financial, and agricultural 3 1
Real estate - construction 0 0
Real estate - mortgage 0 0
Consumer 1 2
Total recoveries 4 3
Net loans charged-off 1 5
Additions to allowance charged to
operations 211 126
Additions to Capital Access program
reserves 52 30
Balance at end of period $ 1,081 $ 819
Ratios:
Net loans charged-off to average loans
outstanding for the period 0.00% 0.01%
Allowance for loan losses to loans
outstanding at end of period 1.60 1.43
</TABLE>
<PAGE>
The following schedule sets forth management's allocation of the allowance
for loan losses by loan type and the resulting ratio of the allowance
allocated to the related outstanding loans. This allowance allocation is
necessarily judgmental and is based upon current economic conditions (in
general and with respect to certain customers or industries), past loss
experience, the volume of each loan category and its respective past due
history and other factors. Since these factors are subject to change, the
following allocation is not necessarily indicative of the breakdown of future
loan losses. The amounts indicated for each loan type include amounts
allocated for specific loans as well as a general allocation.
<TABLE>
Average for the year
1994 1993
Allocation Ratio Allocation Ratio
<S> <C> <C> <C> <C>
Allowance for loan losses (in thousands)
Commercial, financial and agricultural $ 516 1.82% $ 567 1.66%
Real estate - construction 25 1.00 8 0.99
Real estate - mortgage 523 1.48 226 1.07
Consumer 17 1.08 18 1.92
Total $ 1,081 1.60% $ 819 1.43%
</TABLE>
<TABLE>
Deposits
Average for the year
1994 1993
Balance Rate Balance Rate
<S> <C> <C> <C> <C>
Deposits (in thousands):
Non-interest bearing demand $ 9,166 --% $ 7,003 --%
Savings and NOW accounts 26,481 3.15 26,633 2.63
Time 38,596 4.54 27,790 4.39
Total deposits $ 74,243 $ 61,426
</TABLE>
The maturity distribution of time deposits of $100,000 or more as of
December 31, 1994 is as follows (in thousands):
Under 3 3 to 6 6 Months Over 1
Months Months to 1 Year Year Total
$ 3,658 $ 3,449 $ 1,921 $ 1,450 $ 10,478
Return on Equity and Assets
<TABLE>
<CAPTION>
The following table sets forth, for the periods indicated, return on assets,
return on equity, dividend payout and average equity to average asset ratios:
Year Ended December 31,
1994 1993
<S> <C> <C>
Return on assets 1.66% 0.80%
Return on equity 29.35 13.65
Dividend payout ratio 0.00 0.00
Average equity to average assets 5.66 5.88
</TABLE>
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . .i
INFORMATION INCORPORATED BY REFERENCE . . . . . . . . . . . . . . . . . .i
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
The Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . .2
Recommendation of AFC Board of Directors. . . . . . . . . . . . . . .3
Conditions to the Merger. . . . . . . . . . . . . . . . . . . . . . .3
Certain Differences in Shareholders' Rights and Other
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . . .3
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . .3
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . .4
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . .5
Comparative Per Share Data. . . . . . . . . . . . . . . . . . . . . .6
Market Value of Securities. . . . . . . . . . . . . . . . . . . . . .8
MEETING INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Voting by Proxy; Revocability of Proxy. . . . . . . . . . . . . . . .9
Vote Required for Approval. . . . . . . . . . . . . . . . . . . . . .9
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . .9
Rights of Dissenting Shareholders . . . . . . . . . . . . . . . . . .9
Shareholder Proposals . . . . . . . . . . . . . . . . . . . . . . . .9
PROPOSED MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Background of the Merger . . . . . . . . . . . . . . . . . . . 10
The Agreement and Plan of Merger. . . . . . . . . . . . . . . . . . 10
Determination of Exchange Ratio . . . . . . . . . . . . . . . . . . 11
Reasons for Approval of the Merger. . . . . . . . . . . . . . . . . 11
Conditions to the Merger. . . . . . . . . . . . . . . . . . . . . . 12
Abandonment of Merger . . . . . . . . . . . . . . . . . . . . . . . 12
Certain Differences in Shareholders' Rights and
Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . 14
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . 14
DESCRIPTION OF FMBC CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . 15
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Anti-Takeover Provisions. . . . . . . . . . . . . . . . . . . . . . 16
ARCADIA FINANCIAL CORPORATION. . . . . . . . . . . . . . . . . . . . . . 17
Business of Arcadia Financial Corporation . . . . . . . . . . . . . 17
Market Area and Competition . . . . . . . . . . . . . . . . . . . . 17
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 19
Market for AFC Common Stock and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . . 27
AFC Shareholders. . . 28
Interests of Certain Persons. . . . . . . . . . . . . . . . . . . . 30
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SOURCES OF INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 31
PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS . . . .32
ARCADIA FINANCIAL CORPORATION CONSOLIDATED
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . .F-1
APPENDIX A - Agreement and Plan of Merger
APPENDIX B - Statistical Information Regarding Arcadia
Financial Corporation
No person has been authorized to give any information or to
make any representation other than as contained herein in connection with
the offer contained in this Prospectus/Proxy Statement, and if given or
made, such information or representation must not be relied upon. This
Prospectus/Proxy Statement does not constitute an offer to sell or a
solicitation of an offer to buy any securities in any jurisdiction to any
person to whom it would be unlawful to make such an offer or solicitation.
Neither the delivery of this Prospectus/Proxy Statement nor any
distribution of First Michigan Bank Corporation Common Stock made
pursuant hereto shall, under any circumstances, create an implication that
the information herein is correct as of any time subsequent to the dates as
of which such information is given herein.
PROSPECTUS/PROXY STATEMENT
Special Meeting of Shareholders of
ARCADIA FINANCIAL CORPORATION
In Connection with an Offering of
653,850 Shares, Common Stock, $1.00 par value,
of
FIRST MICHIGAN BANK CORPORATION
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Under Article VI of the Articles of Incorporation of FMBC, directors and
officers of FMBC are required to be indemnified as of right to the fullest
extent permitted under the Michigan Business Corporation Act ("MBCA") in
connection with any actual or threatened civil, criminal, administrative or
investigative action, suit or proceeding (whether brought by or in the name
of FMBC, a subsidiary or otherwise) in which a director or officer is a
witness or which is brought against any director or officer in his or her
capacity as a director, officer, employee, agent or fiduciary of FMBC or of
any corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which the director or officer was serving at the request of
FMBC. Persons who are not directors or officers of FMBC may be similarly
indemnified in respect of such service to the extent authorized by the Board
of Directors of FMBC. Under the MBCA, directors, officers, employees or
agents are entitled to indemnification against expenses (including attorney
fees) whenever they successfully defend legal proceedings brought against
them by reason of the fact that they hold such a position with the corporation.
In addition, with respect to actions not brought by or in the right of the
corporation, indemnification is permitted under the MBCA for expenses
(including attorney fees), judgments, fines, penalties and reasonable
settlements, if it is determined that the person seeking indemnification
acted in good faith and in a manner he or she reasonably believed to be in
and not opposed to the best interests of the corporation or its shareholders
and, with respect to criminal proceedings, he or she had no reasonable cause
to believe that his or her conduct was unlawful. With respect to actions
brought by or in the right of the corporation, indemnification is permitted
under the MBCA for expenses (including attorney fees) and reasonable
settlements, if it is determined that the person seeking indemnification
acted in good faith and in a manner he or she reasonably believed to be in
and not opposed to the best interests of the corporation or its shareholders;
provided, indemnification is not permitted if the person has been found liable
to the corporation unless the court in which the action or suit was brought
has determined that indemnification is fair and reasonable in view of all
the circumstances of the case.
The Articles of Incorporation of FMBC also provide that the right of
indemnification granted under the Articles of Incorporation is not exclusive,
as a result of which FMBC may adopt individual indemnification agreements
broader or different than that provided under the MBCA or its Articles of
Incorporation. FMBC's Articles of Incorporation, as amended, limit the
personal liability of the members of its Board of Directors for monetary
damages with respect to claims by FMBC or its shareholders resulting from
certain negligent acts or omissions.
Item 21. Exhibits and Financial Statement Schedules.
Reference is made to the Exhibit Index which appears as the last page of
this Registration Statement.
Item 22. Undertakings.
The undersigned registrant hereby undertakes:
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
<PAGE>
(b) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report to
security holders of registrant, that is incorporated by reference in the
prospectus and furnished pursuant to and meeting the requirements of Rule
l4a-3 or Rule l4c-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Article S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report of registrant that is specifically incorporated by reference
in the prospectus to provide such interim financial information.
(c) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(d) That every prospectus (i) that is filed pursuant to the immediately
preceding paragraph, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415 will be filed as a part of an amendment to the
Registration Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment 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.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 20,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication of
such issue.
(f) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(g) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement
when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Holland, State of
Michigan, on the 8th day of January, 1996.
FIRST MICHIGAN BANK CORPORATION
By /s/David M. Ondersma
David M. Ondersma, Chairman and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David M. Ondersma and Larry D. Fredricks or
any one of them his or her true and lawful attorneys-in-fact and agents with
full power of substitution for him or her and in his or her name, place and
stead in any and all capacities to execute in the name of each such person
who is then an officer or director of the Registrant 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 required or necessary to be done in
and about the premises as fully as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents
or any of them, or their substitute or substitutes, may lawfully do or cause
to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on January 8, 1996, by the
following persons in the capacities indicated.
/s/ David M. Ondersma /s/ Larry D. Fredricks
David M. Ondersma, Director, Larry D. Fredricks, Executive Vice
Chairman, and President and Chief Financial
Chief Executive Officer Officer (Principal Financial
(Principal Executive Officer) and Accounting Officer)
/s/ Donald W. Maine
Roger A. Andersen, Director Donald W. Maine, Director
/s/ Merle J. Prins
Merle J. Prins, Director James H. Bloem, Director
/s/ Robert J. Kapenga
Meriam B. Leeke, Director Robert J. Kapenga, Director
/s/ Jack H. Miller /s/ David M. Cassard
Jack H. Miller, Director David M. Cassard, Director
/s/ John W. Spoelhof
John W. Spoelhof, Director Doyle A. Hayes, Director
/s/ Stephen A. Stream
Stephen A. Stream, Director
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We do hereby consent to the incorporation by reference in the Prospectus/
Proxy Statement constituting a part of this Registration Statement (Form S-4)
of First Michigan Bank Corporation of our report dated January 12, 1995
relating to the consolidated financial statements of First Michigan Bank
Corporation and its subsidiaries appearing in the Corporation's 1994 Annual
Report to Stockholders and, by incorporation by reference, in the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1994.
We also consent to the reference to us under the caption "Experts" in the
Prospectus/Proxy Statement.
BDO SEIDMAN, LLP
/s/ BDO SEIDMAN, LLP
Grand Rapids, Michigan
January 8, 1996
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We do hereby consent to the use in this Registration Statement (Form S-4)
of First Michigan Bank Corporation and related Prospectus/Proxy Statement of
our report dated January 18, 1995 on the consolidated balance sheets of
Arcadia Financial Corporation and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1994, contained therein.
We also consent to the reference to us under the caption "Experts" in the
Prospectus/Proxy Statement.
BDO SEIDMAN, LLP
/s/ BDO SEIDMAN, LLP
Grand Rapids, Michigan
January , 1996
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as a part of the Registration Statement:
Page
2 Agreement and Plan of Merger between First Michigan Bank
Corporation, and Arcadia Financial Corporation dated
December 22, 1995, as set forth in full in Appendix A
to the Prospectus/Proxy Statement which is part of this
Registration Statement.
5 Opinion of Varnum, Riddering, Schmidt & Howlett LLP.
8 Opinion of Varnum, Riddering, Schmidt & Howlett LLP
regarding tax matters applicable to the Merger.
10 Form of Management Continuity Agreement entered into
between Registrant and certain executive officers of
the Registrant.
11 Computation of Earnings Per Share.
21 Subsidiaries of Registrant
23(a) Consent of BDO Seidman, LLP included on page S-4 hereof.
23(b) Consent of BDO Seidman, LLP included on page S-5 hereof.
23(c) Consents of Varnum, Riddering, Schmidt & Howlett LLP -
included in Exhibit 5 and Exhibit 8.
24 Power of Attorney - included as a part of the signature page.
99(a) Letter to Shareholders of Arcadia Financial Corporation.
99(b) Form of proxy for Arcadia Financial Corporation.
The following exhibits, indexed according to the applicable assigned
number, were previously filed by the Registrant and are incorporated by
reference in this Form S-4 Registration Statement:
Exhibit
Number Original Filing Form and Date
3 (a) Section 7 of Article VIII of Exhibit 3 of Form S-4 Registra-
the Articles of Incorporation of tion Statement File No. 33-87996.
Registrant as added to Article VIII
by amendment approved by a vote of
shareholders on April 13, 1994.
(b) Article III of the Articles of Exhibit (3) of Form 10-K for the
Incorporation of the Registrant year ended December 31, 1991.
as amended, approved by a vote of
shareholders on April 16, 1991.
(c) Article VI of the Articles of Exhibit 3(a) of Form 10-K for the
Incorporation of the Registrant year ended December 31, 1988.
as amended, approved by a vote of
the shareholders on April 12, 1988.
<PAGE>
(d) Articles of Incorporation of Exhibit 3(a) of Form 10-K for the
the Registrant except for amend- year ended December 31, 1987.
ments to the Articles of
Incorporation referenced above.
(e) Bylaws of the Registrant Exhibit 3(b) of Form 10-K for the
year ended December 31, 1987.
4 Instruments defining the rights of security holders, including
indentures:
(a) Automatic Dividend Reinvestment Exhibit 4(a) of Form S-3, dated
and Stock Purchase Plan February 13, 1985, File #2-95898.
of the Registrant.
(b) Shareholder Protection Rights Exhibit 1 of Form 8-A Registering
Agreement, dated as of Junior Preferred Stock Purchase
October 11,1990 Rights - Effective November 8,
1990.
10 Material Contracts:
(a) First Michigan Bank Corporation Exhibit 10(d) of Form 10-K for
Employee Benefit Trust, the year ended December 31, 1980.
dated August 14, 1980.
(b) First Michigan Bank Corporation Exhibit 10(e) of Form 10-K for
Bonus Plan, effective the year ended December 31, 1980.
January 1, 1981.
(c) Senior Management Bonus Plan of Exhibit 10(f) of Form 10-K for
First Michigan Bank, Zeeland, the year ended December 31, 1980.
effective January 1, 1980 as
revised December 16, 1980.
(d) First Michigan Bank Corporation Exhibit 10 of Form 10-K for the
1981 Stock Option Plan as year ended December 31, 1981.
amended and restated March 19, 1982.
(e) First Michigan Bank Corporation Appendix A of the definitive
1987 Stock Option Plan, Proxy Statement, dated on
approved by the Registrant's Board March 20, 1987.
of Directors March 12, 1987,
approved by the shareholders and
effective April 14, 1987.
(f) Deferred Compensation, Deferred Appendix A of the Definitive
Stock and Current Stock Purchase Proxy Statement dated
Plan for Non-Employee Directors. dated March 9, 1995.
13 Annual Report to security holders, Form 10-Q or quarterly report to
security holders.
(a) Annual Report of Registrant
on Form 10-K for the year
ended December 31, 1994.
(b) Quarterly Report of Registrant on
Form 10-Q for the quarter
ended March 31, 1995.
(c) Quarterly Report of Registrant on
Form 10-Q for the quarter
ended June 30, 1995.
<PAGE>
(d) Quarterly Report of Registrant on
Form 10-Q for the quarter
ended September 30, 1995.
<PAGE>
EXHIBIT 5
OPINION OF VARNUM, RIDDERING, SCHMIDT & HOWLETT LLP
<PAGE>
January 9, 1996
First Michigan Bank Corporation
One Financial Plaza
10717 Adams Street
Holland, Michigan 49423
Gentlemen:
With respect to the Registration Statement on Form S-4 (the "Registration
Statement") to be filed by First Michigan Bank Corporation, a Michigan
corporation (the "Company") with the Securities and Exchange Commission for
the purpose of registering under the Securities Act of 1933, as amended,
653,850 shares of common stock, par value $1.00 per share, to be issued in
exchange for shares of the common stock, par value $1.00 per share, of
Arcadia Financial Corporation, a Michigan corporation ("AFC") under the
terms and conditions and upon the consummation of the Agreement and Plan
of Merger (the "Merger"), and as described in the Prospectus/Proxy Statement
included in the Registration Statement, we have examined such documents and
questions of law as we consider necessary or appropriate for the purpose of
giving this opinion.
On the basis of such examination, we advise you that, in our opinion,
the shares of common stock of the Company, in an amount up to 653,850 shares,
covered by the Registration Statement, to be delivered to the shareholders
of AFC at the time the Merger is consummated will be, when delivered to such
shareholders pursuant to the Agreement and Plan of Merger (Appendix A to the
Prospectus/Proxy Statement), duly and legally authorized, issued and
outstanding, and will be fully paid and nonassessable, subject, in certain
cases, to limitations on the right to transfer such shares as provided in the
undertakings referenced in Section 4.3 of the Agreement and Plan of Merger.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and the reference to our firm under the caption "Legal
Matters" in the Prospectus/Proxy Statement forming a part of the Registration
Statement. In giving this consent, we do not thereby admit that we are
within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission relating thereto.
Very truly yours,
VARNUM, RIDDERING, SCHMIDT & HOWLETT
/s/VARNUM, RIDDERING, SCHMIDT & HOWLETTLLP
<PAGE>
EXHIBIT 8
OPINION OF VARNUM, RIDDERING, SCHMIDT & HOWLETT LLP
REGARDING TAX MATTERS APPLICABLE TO THE MERGER
<PAGE>
January 9, 1996
Board of Directors
Arcadia Financial Corporation
251 East Michigan Avenue
Kalamazoo, MI 49007-6414
Board of Directors
First Michigan Bank Corporation
One Financial Plaza
10717 Adams Street
Holland, MI 49423
Re: Tax Opinion Concerning Reorganization/I.R.C. Section 368(a)(1)(A)
Gentlemen:
This letter sets forth our opinion as to certain federal income tax
consequences of a statutory merger, described below, wherein Arcadia Financial
Corporation ("AFC") would be merged with and into First Michigan Bank
Corporation ("FMBC") in exchange for stock of FMBC. Our opinion as to these
tax consequences is based on the facts, representations, assumptions and
conditions stated below.
Background
A. FMBC
FMBC is a bank holding company registered under the Bank Holding Company
Act of 1956, as amended ("BHCA"), having authorized capital consisting of
1,000,000 shares of preferred stock, without par value, of which no shares
have been issued, and 24,000,000 shares of common stock, par value $1.00 per
share, of which 18,187,411 shares were issued and outstanding as of
September 30, 1995. (All subsequent references to FMBC's shares or stock
refer only to its common stock, as no preferred shares have been issued).
FMBC has more than 8,000 shareholders of record, and its stock is traded in
the national over-the-counter market. FMBC owns all or substantially all of
the outstanding stock of the subsidiaries described in its Annual Report on
Form 10-K for the year ended December 31, 1994, plus Superior Financial
Corporation. FMBC does not currently own, directly or indirectly, nor has
it directly or indirectly owned in the preceding five years, any of the stock
of AFC.
<PAGE>
B. AFC
AFC is a bank holding company registered under the BHCA, having authorized
capital consisting of 1,000,000 shares of common stock, $1.00 par value per
share, of which 371,004 shares are issued and outstanding. No other class of
AFC stock is authorized or outstanding. AFC's common stock is held of record
by 164 shareholders. AFC does not own, directly or indirectly, nor has it so
owned in the preceding five years, any of the stock of FMBC. AFC owns all
the issued and outstanding shares of Arcadia Bank & Trust Company ("Bank"),
a Michigan banking corporation.
Transactions and Assumptions
1. AFC and FMBC have entered into an Agreement and Plan of Merger,
dated December 22, 1995 (the "Definitive Agreement"), providing for the merger
of AFC with and into FMBC.
2. FMBC, the surviving corporation in the merger, will acquire all of
the assets and assume all of the liabilities of AFC. After the merger, all
of the issued and outstanding stock of the Bank will be owned by FMBC.
3. On the effective date of the merger, each share of the capital
stock of AFC shall, ipso facto and without any action on the part of the
holder thereof, become and be converted into the right to receive FMBC common
stock as provided in the Definitive Agreement.
4. In connection with the conversion of AFC common stock into FMBC
common stock, no certificate evidencing fractional shares of FMBC common
stock will be issued, and no right to vote or receive any dividends or other
rights of a shareholder will attach to any fraction of a share of FMBC common
stock resulting from the conversion. In lieu thereof, AFC shareholders who
otherwise are entitled to receive a fraction of a share of FMBC common stock
will be paid cash, rounded to the nearest penny, based upon the per share
conversion value specified in the Definitive Agreement.
5. No dissenters' rights will be exercisable with respect to the
transaction.
<PAGE>
Representations
In addition to the above, the following representations have been made:
(a) The fair market value of FMBC stock to be received by each AFC
shareholder in the transaction will, in each instance, be approximately
equal to the fair market value of AFC stock surrendered in exchange
therefor.
(b) There is no plan or intention by the shareholders of AFC who
own more than one percent of AFC's stock, and the management of FMBC and
AFC know of no plan or intention on the part of the remaining AFC
shareholders, to sell, exchange or otherwise dispose of FMBC stock to
be received in the transaction that will reduce the AFC's shareholders'
holdings of FMBC stock to a number of shares having, in the aggregate,
a value at the time of the transaction of less than 50 percent of the
total value of the formerly outstanding stock of AFC as of the same date.
For purposes of this representation, shares of AFC stock exchanged for
cash in lieu of fractional shares of FMBC stock will be treated as
outstanding AFC stock on the date of the transaction. Moreover, shares
of AFC stock and shares of FMBC stock held by AFC shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the
transaction will be considered in making this representation.
(c) FMBC will acquire at least 90 percent of the fair market value
of the net assets and at least 70 percent of the fair market value of
the gross assets held by AFC immediately prior to the transaction. For
purposes of this representation, amounts paid by AFC to shareholders who
receive cash, AFC assets used to pay its reorganization expenses, and
all redemptions and distributions (except for regular, normal dividends)
made by AFC immediately before the transaction will be included as
assets held by AFC immediately prior to the transaction.
(d) Following the transaction, the Bank will not issue additional
shares of its stock that would result in FMBC losing control of the Bank
within the meaning of section 368(c)(1) of the Code.
(e) FMBC has no plan or intention to redeem or otherwise reacquire
any of its stock issued in the transaction.
(f) FMBC has no plan or intention to liquidate the Bank, to sell or
otherwise dispose of the stock of the Bank, to merge the Bank with and
into another corporation, or to cause the Bank to sell or otherwise
dispose of any of the assets of <PAGE> AFC acquired in the transaction,
except for dispositions made in the ordinary course of its business.
(g) The liabilities, if any, of AFC assumed by FMB and the
liabilities to which the transferred assets of AFC are subject were
incurred by AFC in the ordinary course of its business and are associated
with the assets to be transferred.
(h) Following the transaction, FMBC will continue the historic
business of AFC or use a significant portion of AFC's business assets
in a business.
(i) FMBC and AFC and shareholders of AFC will pay their respective
expenses, if any, incurred in connection with the transaction.
(j) There is and will be no intercorporate indebtedness between FMBC
and AFC that was or will be issued, acquired or settled at a discount.
(k) No two parties to the transaction are, or at the time of the
transaction will be, investment companies as defined in
section 368(a)(2)(F)(iii) and (iv) of the Code.
(l) AFC is not under the jurisdiction of a court in a Title 11, or
similar, case within the meaning of section 368(a)(3)(A) of the Code.
(m) The fair market value of the assets of AFC to be transferred to
FMBC exceeds, and on the day of the proposed transaction will exceed, the
sum of all AFC liabilities to be assumed by FMBC, plus the amount of
liabilities, if any, to which the assets to be transferred are subject.
(n) No Bank stock will be issued to any party other than FMBC in
connection with the transaction.
(o) None of the compensation received by any shareholder-employees of
AFC will be separate consideration for, or allocable to, any of their
shares of AFC stock, and the compensation paid to them will be for
services actually rendered and will be commensurate with amounts paid
to third parties bargaining at arms-length for similar services. None
of FMBC's shares received by any shareholder-employee of AFC will be
separate consideration for, or allocable to, any employment agreement
compensation owed to such shareholder-employee.
<PAGE>
(p) FMBC does not own, directly or indirectly, nor has it owned,
directly or indirectly, in the past five years, any AFC stock.
(q) The merger of AFC with and into FMBC, and the exchange of FMBC
stock for AFC stock are to be effected for the purposes stated below.
(r) The payment of cash in lieu of fractional shares of FMBC stock is
solely for the purpose of avoiding the expense and inconvenience to FMBC
of issuing fractional shares and does not represent separately bargained-
for consideration. The total cash consideration that will be paid in
the transaction to AFC shareholders instead of issuing fractional
shares of FMBC stock will not exceed one-tenth of one percent of the
total consideration that will be issued in the transaction to AFC
shareholders in exchange for their shares of AFC stock. The fractional
share interests of each AFC shareholder will be aggregated, and no AFC
shareholder will receive cash in an amount equal to or greater than the
value of one full share of FMBC stock.
(s) No dividends will be paid by AFC before the consummation of the
transaction, other than periodic dividends, consistent in amount and in
effect with prior dividend distributions.
(t) In the transaction, shares of AFC stock representing control
of AFC, as defined in section 368(c)(1) of the Code, will be exchanged
solely for voting stock of FMBC. For purposes of this representation,
shares of AFC stock exchanged for cash with FMBC will be treated as
outstanding AFC stock on the date of the transaction.
(u) AFC has, and on the date of the proposed transaction will have,
no outstanding warrants, options, convertible securities, or any other
type of right pursuant to which any person could acquire any stock in
AFC that would affect FMBC's acquisition or retention of control of AFC
as defined in section 368(c)(1) of the Code.
Business Purpose
It has been represented that the boards of directors of AFC and FMBC
believe that the merger will strengthen FMBC and the Bank, and their
subsidiaries and affiliates, in enabling them to expand and meet the
competition of other banks. The proposed transaction is expected to
improve the marketing and branching activities of FMBC and its <PAGE>
subsidiaries and affiliates, and to provide the Bank access to a broader
range of capital sources and greater possibilities for growth in both
banking and nonbanking activities.
Opinion
Based on our understanding of the facts, and on the representations and
assumptions stated herein, it is our opinion that the following tax
consequences will arise with respect to the transaction:
1. The merger of FMBC and AFC and the acquisition by FMBC of
substantially all of the assets of AFC in exchange for the stock of FMBC
and the assumption by FMBC of the liabilities of AFC will qualify as a
reorganization within the meaning of section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended, and FMBC and AFC will each
be a "party to a reorganization" within the meaning of section 368(b).
2. The basis of the assets of AFC acquired by FMBC will be, in
each case, the same as the basis of such assets in the hands of AFC
immediately before the transaction. I.R.C. Section 362(b).
3. The holding period of AFC's assets in the hands of FMBC will,
in each case, include the holding period during which such assets were
held by AFC immediately before the merger. I.R.C. Section 1223(2).
4. No gain or loss will be recognized by FMBC upon the receipt by
FMBC of substantially all of the assets of AFC in exchange for FMBC
shares. I.R.C. Section 1032.
5. No gain or loss will be recognized by AFC upon the transfer of
substantially all of its assets to FMBC in exchange for FMBC shares.
I.R.C. Section 357(a), 361(a).
6. The basis of FMBC common stock to be received by each of the
AFC shareholders will be the same in each instance as the basis of AFC
common stock surrendered in exchange therefor. I.R.C. Section 358(a)(1).
7. The holding period of FMBC shares received by AFC shareholders
will in each instance include the holding period for AFC shares surrendered
in exchange therefor, provided that AFC shares surrendered were held as
capital assets in each <PAGE> instance in the hands of AFC shareholders
on the date of the consummation of the merger. I.R.C. Section 1223(1).
8. No gain or loss will be recognized by the AFC shareholders
upon the receipt of FMBC stock in exchange for their AFC shares. I.R.C.
Section 354(a)(1).
9. No gain or loss will be recognized by FMBC upon receipt of the
AFC stock in exchange for FMBC stock. I.R.C. Section 1032(a).
Our opinion is based upon the facts as they have been represented to us or
determined by us as of this date. If any of the facts, representations, or
assumptions on which this opinion is based is determined to be untrue or
incorrect from the inception, our opinion may be adversely affected. While
we have no reason to believe that the facts, representations and assumptions
stated herein are untrue or inaccurate, we express no opinion as to the
accuracy of the facts, representations, and assumptions stated herein.
Our opinion is based upon existing law and currently applicable Treasury
regulations and also on administrative and judicial interpretations of the
law and regulations. Administrative positions of the Internal Revenue
Service contained in revenue rulings and revenue procedures and judicial
decisions are subject to change either prospectively or retroactively.
Our opinion is limited to the specific issues addressed above and is not
intended to address any other issues. We consent to the filing of this
opinion as an exhibit to the Registration Statement on Form S-4 filed by
First Michigan Bank Corporation with the Securities and Exchange Commission
for the purpose of registering securities under the Securities Act of 1933,
as amended.
Respectfully submitted,
VARNUM, RIDDERING, SCHMIDT & HOWLETTLLP
/s/VARNUM, RIDDERING, SCHMIDT & HOWLETTLLP
<PAGE>
EXHIBIT 10
FORM OF MANAGEMENT CONTINUITY AGREEMENT ENTERED INTO
BETWEEN REGISTRANT AND CERTAIN EXECUTIVE OFFICERS OF THE REGISTRANT
<PAGE>
FORM A
MANAGEMENT CONTINUITY AGREEMENT
THIS IS AN AGREEMENT between FIRST MICHIGAN BANK CORPORATION (the
"Corporation"), whose principal offices are located at One Financial Plaza,
10717 Adams Street, Holland, MI 49423, and
(the "Executive"), who resides at ,
dated .
RECITALS
The Executive is a key executive officer of the Corporation whose
continued dedication, availability, advice and counsel to the Corporation is
deemed important to the Board of Directors of the Corporation ("Board"), the
Corporation and its shareholders. The services of the Executive, his
experience and knowledge of the affairs of the Corporation and his reputation
and contacts in the industry are extremely valuable to the Corporation. The
Corporation wishes to attract and retain such well-qualified executives, and
it is in the best interests of the Corporation and of the Executive to secure
the continued services of the Executive notwithstanding any change in control
of the Corporation. The Corporation considers the establishment and
maintenance of a sound and vital management to be part of its overall
corporate strategy and to be essential to protecting and enhancing the best
interests of this Corporation and its shareholders. Accordingly, the Board
has approved this Agreement with the Executive and authorized its execution
and delivery on behalf of the Corporation.
AGREEMENT
1. Term of Agreement. This Agreement will begin on the date entered
above (the "Commencement Date") and will continue in effect through the third
anniversary of the Commencement Date. However, on the third anniversary of
the Commencement Date, andon each third anniversary date thereafter, the term
of this Agreement will be extended automatically for three (3) additional
years unless, not later than six (6) months prior to such anniversary date,
the Corporation gives written notice to the Executive that it has elected not
to extend this Agreement. In addition, if a Change of Control occurs during
the term of this Agreement, this Agreement will continue in effect for at
least thirty-six (36) months beyond the end of the month in which any Change
of Control occurs.
2. Definitions. The following defined terms shall have the meanings
set forth below, for purposes of this Agreement:
(a) Change of Control. "Change of Control" means an occurrence of
a nature that would be required to be reported in response to Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Without limiting the
inclusiveness of the definition in the preceding sentence, a Change of
Control of the Corporation shall be deemed to have occurred if:
<PAGE>
(i) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Corporation representing twenty-five percent (25%) or more of
the combined voting power of the Corporation's then outstand-
ing securities; or
(ii) At any time a majority of the Board of Directors
of the Corporation is comprised of other than Continuing
Directors (for purposes of this paragraph, the term Continuing
Director means a director who was either (A) first elected or
appointed as a Director prior to the date of this Agreement; or
(B) subsequently elected or appointed as a director if such
director was nominated or appointed by at least a majority of
the then Continuing Directors); or
(iii) Any of the following occur:
(A) Any merger or consolidation of the
Corporation, other than a merger or consolidation in
which the voting securities of the Corporation immedi-
ately prior to the merger or consolidation continue to
represent (either by remaining outstanding or being
converted into securities of the surviving entity) fifty-one
percent (51%) or more of the combined voting power of
the Corporation or surviving entity immediately after the
merger or consolidation with another entity;
(B) Any sale, exchange, lease, mortgage,
pledge, transfer, or other disposition (in a single trans-
action or a series of related transactions) of all or
substantially all of the assets of the Corporation which
shall include, without limitation, the sale of assets or
earning power aggregating more than fifty percent (50%)
of the assets or earning power of the Corporation on a
consolidated basis;
(C) Any liquidation or dissolution of the
Corporation;
(D) Any reorganization, reverse stock split, or
recapitalization of the Corporation which would result in
a Change of Control; or
<PAGE>
(E) Any transaction or series of related
transactions having, directly or indirectly, the same effect
as any of the foregoing; or any agreement, contract, or
other arrangement providing for any of the foregoing.
(b) Disability. "Disability" means that, as a result of Executive's
incapacity due to physical or mental illness, the Executive shall have
been found to be eligible for the receipt of benefits under the
Corporation's long term disability plan.
(c) Cause. "Cause" means (i) the willful commission by the
Executive of a criminal or other act that causes or will probably cause
substantial economic damage to the Corporation or a Subsidiary or
substantial injury to the business reputation of the Corporation or a
Subsidiary; (ii) the commission by the Executive of an act of fraud in
the performance of such Executive's duties on behalf of the Corporation
or a Subsidiary; (iii) the continuing willful failure of the Executive
to perform the duties of such Executive to the Corporation or a Subsidiary
(other than any such failure resulting from the Executive's incapacity due
to physical or mental illness) after written notice thereof (specifying
the particulars thereof in reasonable detail) and a reasonable opportunity
to be heard and cure such failure are given to the Executive by the
Nominating and Salary Committee of the Board; or (iv) the order of a
federal or state bank regulatory agency or a court of competent
jurisdiction requiring the termination of the Executive's employment.
For purposes of this subparagraph, no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done, or omitted to
be done, by the Executive not in good faith and without reasonable belief
that the action or omission was in the best interest of the Corporation
or a Subsidiary.
(d) Good Reason. For purposes of this Agreement, "Good Reason"
means the occurrence of any one or more of the following without the
Executive's express written consent:
(i) The assignment to Executive of duties which are
materially different from or inconsistent with the duties,
responsibilities, and status of Executive's position at any time
during the six (6) month period prior to the Change of Control
of the Corporation, or which result in a significant reduction in
Executive's authority and responsibility as a senior executive of
the Corporation;
(ii) A reduction by the Corporation in Executive's
base salary or salary grade as of the day prior to the Change of
Control, or the failure to grant salary increases and bonus
payments on a basis comparable to those granted to other
executives of the Corporation, or reduction of Executive's most
<PAGE> recent incentive bonus potential prior to the Change of
Control under the Corporation's Management Bonus Plan, or any
successor plan;
(iii) The Corporation requiring Executive to be based
at a location in excess of forty (40) miles from the location
where Executive is currently based, or in the event of any
relocation of the Executive with the Executive's express written
consent, the failure of the Corporation or a Subsidiary to pay
(or reimburse the Executive for) all reasonable moving
expenses by the Executive relating to a change of principal
residence in connection with such relocation and to indemnify
the Executive against any loss realized in the sale of the
Executive's principal residence in connection with any such
change of residence, all to the effect that the Executive shall
incur no loss on an after tax basis;
(iv) The failure of the Corporation to obtain a
satisfactory agreement from any successor to the Corporation
to assume and agree to perform this Agreement, as contem-
plated in Paragraph 6 hereof;
(v) Any termination by the Corporation of Executive's
employment that is not effected pursuant to a Notice of
Termination;
(vi) Any termination of Executive's employment,
reduction in Executive's compensation or benefits, or adverse
change in Executive's location or duties, if such termination,
reduction or adverse change (aa) occurs within six (6) months
before a Change of Control, (bb) is in contemplation of such
Change in Control, and (cc) is taken to avoid the effect of this
Agreement should such action occur after such Change in
Control;
(vii) The failure of the Corporation to provide the
Executive with substantially the same fringe benefits (including,
without limitation, Benefit Restoration Plan, health care,
insurance, stock options and paid vacations) that were provided
to him immediately prior to the Change in Control, or with a
package of fringe benefits that, though one or more of such
benefits may vary from those in effect immediately prior to such
Change in Control, is substantially comparable in all material
respects to such fringe benefits taken as a whole.
<PAGE>
The existence of Good Reason shall not be affected by Executive's
incapacity due to physical or mental illness. Executive's continued
employment shall not constitute a waiver of Executive's rights with
respect to any circumstance constituting Good Reason under this Agreement.
(e) Notice of Termination. "Notice of Termination" means a written
notice indicating the specific termination provision in this Agreement
relied upon and setting forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the employment
under the provision so indicated. The Executive shall not be entitled to
give a Notice of Termination that the Executive is terminating employment
for Good Reason more than six (6) months following the occurrence of the
event alleged to constitute Good Reason, except with respect to an event
which occurred before the Change of Control, in which case the Notice of
Termination must be given within six (6) months following the Change of
Control.
Any termination by the Corporation for Cause or due to Executive's
Disability, or by Executive for Good Reason shall be communicated by Notice
of Termination to the other party.
(f) Retirement. "Retirement" means having reached normal
retirement age as defined in the Corporation's noncontributory pension
plan or taking early retirement in accordance with the terms of the
Corporation's noncontributory pension plan.
(g) Subsidiary. "Subsidiary" means a corporation with at least
eighty percent (80%) of its outstanding capital stock owned by the
Corporation.
3. Eligibility for Severance Benefits. Subject to Paragraph 5, the
Executive shall receive the Severance Benefits described in Paragraph 4 if
the Executive's employment isterminated during the term of this Agreement,
and
(a) The termination occurs within thirty-six (36) months after a
Change of Control, unless the termination is (i) because of Executive's
death or Disability, (ii) by the Corporation for Cause, or (iii) by the
Executive other than for Good Reason; or
(b) The Corporation terminates the employment within six (6)
months before a Change of Control, in contemplation of such Change of
Control, and to avoid the effect of this Agreement should such action occur
after such Change of Control.
4. Severance Benefits. Subject to Paragraph 5, the Executive shall
receive the following Severance Benefits (in addition to accrued compensation
and vested benefits) if eligible under Paragraph 3:
<PAGE>
(a) A lump sum cash amount equal to Executive's annual base
salary at the highest annual rate in effect during the twelve (12) month
period immediately prior to the Change of Control or, if greater, at the
rate in effect at the time Notice of Termination is given (or on the date
the employment is terminated if no Notice of Termination is required),
multiplied by 3;
(b) One hundred percent (100%) of Executive's incentive bonus
potential under the Corporation's Management Bonus Plan in effect at the
time Notice of Termination is given (or on the date the employment is
terminated if no Notice of Termination is required) or, if greater, the
average bonus paid to Executive over the preceding three (3) year period,
multiplied by 3;
(c) For a three (3) year period after the date the employment is
terminated, the Corporation will arrange to provide to Executive at the
Corporation's expense, with:
(i) Health care coverage equal to that in effect for
Executive prior to the termination (or, if more favorable to
Executive, that furnished generally to salaried employees of the
Corporation), including, but not limited to, hospital, surgical,
medical, dental, prescription and dependent coverages. Upon
the expiration of the health care benefits required to be
provided pursuant to this subparagraph 4(c), the Executive shall
be entitled to the continuation of such benefits under the
provisions of the Consolidated Omnibus Budget Reconciliation
Act. Health care benefits otherwise receivable by Executive
pursuant to this subparagraph 4(c) shall be reduced to the
extent comparable benefits are actually received by Executive
from a subsequent employer during the three (3) year period
following the date the employment is terminated and any such
benefits actually received by Executive shall be reported to the
Corporation;
(ii) Life and accidental death and dismemberment
insurance coverage (including supplemental coverage purchase
opportunity and double indemnity for accidental death) equal
(including policy terms) to that in effect at the time Notice of
Termination is given (or on the date the employment is
terminated if no Notice of Termination is required) or, if more
favorable to Executive, equal to that in effect at the date the
Change of Control occurs; and
(iii) Disability insurance coverage (including policy
terms) equal to that in effect at the time Notice of Termination
is given (or on the date employment is terminated if no Notice
<PAGE> of Termination is required) or, if more favorable to
Executive, equal to that in effect immediately prior to the Change
of Control; provided, however, that no income replacement
benefits will be payable under such disability policy with regard
to the three (3) year period following a termination of
employment provided that the payments payable under
subparagraphs 4(a) and (b) above have been made;
(d) The Executive will be entitled to receive retirement benefits as
provided herein, so that the total retirement benefits the Executive
receives from the Corporation will approximate the total retirement
benefits the Executive would have received under all retirement plans
(which shall not include severance plans) and other employment contracts
of the Corporation in which the Executive participates were the Executive
fully vested under such retirement plans and entitled to all benefits
payable under such other employment contracts and had the Executive
continued in the employ of the Corporation for thirty-six (36) months
following the date of his termination or until his retirement, if earlier
(provided that such additional period shall be inclusive of and shall not
be in addition to any period of service credited under any severance plan
of the Corporation). The benefits specified in this subparagraph will
include all ancillary benefits, such as early retirement and survivor
rights and benefits available at retirement. The amount payable to
the Executive or his beneficiaries under this subparagraph shall equal
the excess of (1) the benefits that would be paid to the Executive or his
beneficiaries, under all retirement plans and other employment contracts
of the Corporation in which the Executive participates if (A) the
Executive were fully vested under such plans and entitled to all benefits
payable under such other employment contracts, (B) the thirty-six (36)
month period (or the period until his Retirement, if less) following the
date of his termination were added to his credited service under such
plans and contracts, (C) the terms of such plans were those most
favorable to the Executive which were in effect at any time during the
period commencing prior to the Change of Control and ending on the date
of Notice of Termination (or on the date employment is terminated if no
Notice of Termination is required), and (D) the Executive's highest
average annual compensation as defined under such retirement plans
and other employment contracts were calculated as if the Executive had been
employed by the Corporation for a thirty-six (36) month period (or the
period until his Retirement, if earlier) following the date of his
termination and had the Executive's compensation during such period been
equal to the Executive's compensation used to calculate his benefit under
subparagraphs 4(a) and 4(b); over (2) the benefits that are payable to
the Executive or his beneficiaries under all retirement plans and other
employment contracts of the Corporation in which the Executive
participates. These Special Retirement Benefits are to be provided on
an unfunded basis, are not intended to meet the qualification requirements
of Section 401 of the Internal Revenue Code and shall be payable solely
from the general assets of the Corporation.
<PAGE>
These Special Retirement Benefits shall be payable at the time and in the
manner provided in the applicable retirement plans and other employment
contracts to which they relate;
(e) The Corporation shall pay all fees for outplacement services for
the Executive up to a maximum equal to fifteen percent (15%) of the
Executive's base salary used to calculate his benefit under subparagraph
4(a) plus provide a travel expense account of up to $5000 to reimburse
job search travel;
(f) In computing and determining Severance Benefits under
subparagraphs 4(a), (b), (c), (d) and (e) above, a decrease in Executive's
salary, incentive bonus potential, or insurance benefits shall be
disregarded if such decrease occurs within six (6) months before a
Change of Control, is in contemplation of such Change of Control, and
is taken to avoid the effect of this Agreement should such action be
taken after such Change of Control; in such event, the salary, incentive
bonus potential, and/or insurance benefits used to determine Severance
Benefits shall be that in effect immediately before the decrease that
is disregarded pursuant to this subparagraph 4(f);
(g) Executive shall not be required to mitigate the amount of any
payment provided for in this Paragraph 4 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this
Paragraph 4 be reduced by any compensation earned by Executive as the
result of employment by another employer after the date the employment is
terminated, or otherwise, with the exception of a reduction in health
insurance coverage as provided in subparagraph 4(c)(i).
The payments provided in subparagraphs 4(a) and (b) above shall be
made not later than thirty (30) business days following the date the
employment terminates.
5. Tax Gross-Up. If any payments or other benefit paid or provided
under Paragraph 4 or the acceleration of stock option vesting or the payment
or distribution of consideration in satisfaction of any share appreciation
rights are subject to excise tax pursuant to Section 4999 of the Internal
Revenue Code of 1986, as amended, the Corporation shall pay to the Executive
such additional compensation as is necessary (after taking into account all
Federal, state and local income taxes payable by the Executive as a result of
the receipt of such compensation) to place the Executive in the same after-tax
position he would have been in had no such excise tax (or any interest or
penalties thereon) been paid or incurred. The Corporation shall pay such
additional compensation at the time when the Corporation withholds such
excise tax from any payments to the Executive. The calculation of the tax
gross-up shall be approved by the Corporation's independent certified
public accounting firm engaged by the Corporation immediately prior to the
Change in Control.
<PAGE>
6. Successors; Binding Agreements. This Agreement shall inure to the
benefit of and be enforceable by Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. Executive's rights and benefits under this Agreement
may not be assigned, except that if Executive dies while any amount would
still be payable to Executive hereunder if Executive had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement, to the beneficiaries designated
by the Executive to receive benefits under this Agreement in a writing on
file with the Corporation at the time of the Executive's death or, if there
is no such beneficiary, to Executive's estate. The Corporation will require
any successor (whether direct or indirect, by purchase, merger, consolidation,
or otherwise) to all or substantially all of the business and/or assets of
the Corporation (or of any division or Subsidiary thereof employing Executive)
to expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Corporation would be required to perform it
if no such succession had taken place. Failure of the Corporation to obtain
such assumption and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle Executive to compensation
from the Corporation in the same amount and on the same terms to which
Executive would be entitled hereunder if Executive terminated the employment
for Good Reason following a Change of Control.
7. Withholding of Taxes. The Corporation may withhold from any amounts
payable under this Agreement all federal, state, city, or other taxes as
required by law.
8. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addressees set forth on the first page of this Agreement, or at
such other addresses as the parties may designate in writing.
9. Miscellaneous. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing and signed by Executive and such officer as may be specifically
designated by the Board of Directors of the Corporation. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of Michigan.
10. Employment Rights. This Agreement shall not confer upon Executive any
right to continue in the employ of the Corporation or its subsidiaries and shall
not in any way affect the right of the Corporation or its subsidiaries to
dismiss or otherwise terminate Executive's employment at any time with or
without cause.
11. No Vested Interest. Neither Executive nor Executive's beneficiary
shall have any right, title, or interest in any benefit under this Agreement
prior to the occurrence of the right to the payment thereof, or in any
property of the Corporation or its subsidiaries or affiliates.
<PAGE>
12. Prior Agreements. This Agreement contains the understanding between
the parties hereto with respect to Severance Benefits in connection with a
Change of Control of the Corporation and supersedes any such prior agreement
between the Corporation (or any predecessor of the Corporation) and Executive.
If there is any discrepancy or conflict between this Agreement and any plan,
policy, or program of the Corporation regarding any term or condition of
Severance Benefits in connection with a Change of Control of the Corporation,
the language of this Agreement shall govern.
13. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
14. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
15. Arbitration. The sole and exclusive method for resolving any dispute
arising out of this Agreement shall be arbitration in accordance with this
paragraph. Except as provided otherwise in this paragraph, arbitration
pursuant to this paragraph shall be governed by the Commercial Arbitration
Rules of the American Arbitration Association. A party wishing to obtain
arbitration of an issue shall deliver written notice to the other party,
including a description of the issue to be arbitrated. Within fifteen (15)
days after either party demands arbitration, the Corporation and the
Executive shall each appoint an arbitrator. Within fifteen (15) additional
days, these two arbitrators shall appoint the third arbitrator by mutual
agreement; if they fail to agree within said fifteen (15) day period, then
the third arbitrator shall be selected promptly pursuant to the rules of the
American Arbitration Association for Commercial Arbitration. The arbitration
panel shall hold a hearing in Ottawa County, Michigan, within ninety (90)
days after the appointment of the third arbitrator. The fees and expenses
of the arbitrator, and any American Arbitration Association fees, shall be
paid by the Corporation. Both the Corporation and the Executive may be
represented by counsel and may present testimony and other evidence at the
hearing. Within ninety (90) days after commencement of the hearing, the
arbitration panel will issue a written decision; the majority vote of two of
the three arbitrators shall control. The majority decision of the arbitrators
shall be final and binding on the parties, and shall be enforceable in
accordance with law. Judgment may be entered on the arbitrators' award in any
court having jurisdiction. The Executive shall be entitled to seek specific
performances of his rights under this Agreement during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
The Corporation will reimburse Executive for all reasonable attorney fees
incurred by Executive as the result of any arbitration with regard to any
issue under this Agreement (or any judicial proceeding to compel or to
enforce such arbitration); (i) which is initiated by Executive if the
Corporation is found in such proceeding to have violated this Agreement
substantially as alleged by Executive; or (ii) which is initiated by the
Corporation, unless Executive is found in such proceeding to have violated
this Agreement substantially as alleged by the Corporation.
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the day
and year written above.
CORPORATION:
FIRST MICHIGAN BANK CORPORATION
By
Its: Chairman of the Nominating and
Salary Committee
EXECUTIVE:
<PAGE>
FORM B
MANAGEMENT CONTINUITY AGREEMENT
THIS IS AN AGREEMENT between FIRST MICHIGAN BANK CORPORATION
(the "Corporation"), whose principal offices are located at One Financial
Plaza, 10717 Adams Street, Holland, MI 49423, and
(the "Executive"), who resides at ,
dated .
RECITALS
The Executive is a key executive officer of the Corporation whose continued
dedication, availability, advice and counsel to the Corporation is deemed
important to the Board of Directors of the Corporation ("Board"), the
Corporation and its shareholders. The services of the Executive, his
experience and knowledge of the affairs of the Corporation and his reputation
and contacts in the industry are extremely valuable to the Corporation. The
Corporation wishes to attract and retain such well-qualified executives, and
it is in the best interests of the Corporation and of the Executive to secure
the continued services of the Executive notwithstanding any change in control
of the Corporation. The Corporation considers the establishment and
maintenance of a sound and vital management to be part of its overall
corporate strategy and to be essential to protecting and enhancing the best
interests of this Corporation and its shareholders. Accordingly, the Board
has approved this Agreement with the Executive and authorized its execution
and delivery on behalf of the Corporation.
AGREEMENT
1. Term of Agreement. This Agreement will begin on the date entered
above (the "Commencement Date") and will continue in effect through the third
anniversary of the Commencement Date. However, on the third anniversary of
the Commencement Date, and on each third anniversary date thereafter, the
term of this Agreement will be extended automatically for three (3) additional
years unless, not later than six (6) months prior to such anniversary date,
the Corporation gives written notice to the Executive that it has elected not
to extend this Agreement. In addition, if a Change of Control occurs during
the term of this Agreement, this Agreement will continue in effect for at
least thirty-six (36) months beyond the end of the month in which any Change
of Control occurs.
2. Definitions. The following defined terms shall have the meanings
set forth below, for purposes of this Agreement:
(a) Change of Control. "Change of Control" means an occurrence
of a nature that would be required to be reported in response to Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Without limiting the
inclusiveness of the definition in the preceding sentence, a Change of
Control of the Corporation shall be deemed to have occurred if:
<PAGE>
(i) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Corporation representing twenty-five percent (25%) or more of
the combined voting power of the Corporation's then outstand-
ing securities; or
(ii) At any time a majority of the Board of Directors
of the Corporation is comprised of other than Continuing
Directors (for purposes of this paragraph, the term Continuing
Director means a director who was either (A) first elected or
appointed as a Director prior to the date of this Agreement; or
(B) subsequently elected or appointed as a director if such
director was nominated or appointed by at least a majority of
the then Continuing Directors); or
(iii) Any of the following occur:
(A) Any merger or consolidation of the
Corporation, other than a merger or consolidation in
which the voting securities of the Corporation immedi-
ately prior to the merger or consolidation continue to
represent (either by remaining outstanding or being
converted into securities of the surviving entity) fifty-one
percent (51%) or more of the combined voting power of
the Corporation or surviving entity immediately after the
merger or consolidation with another entity;
(B) Any sale, exchange, lease, mortgage,
pledge, transfer, or other disposition (in a single trans-
action or a series of related transactions) of all or
substantially all of the assets of the Corporation which
shall include, without limitation, the sale of assets or
earning power aggregating more than fifty percent (50%)
of the assets or earning power of the Corporation on a
consolidated basis;
(C) Any liquidation or dissolution of the
Corporation;
(D) Any reorganization, reverse stock split, or
recapitalization of the Corporation which would result in
a Change of Control; or
<PAGE>
(E) Any transaction or series of related
transactions having, directly or indirectly, the same effect
as any of the foregoing; or any agreement, contract, or
other arrangement providing for any of the foregoing.
(b) Disability. "Disability" means that, as a result of Executive's
incapacity due to physical or mental illness, the Executive shall have
been found to be eligible for the receipt of benefits under the
Corporation's long term disability plan.
(c) Cause. "Cause" means (i) the willful commission by the
Executive of a criminal or other act that causes or will probably cause
substantial economic damage to the Corporation or a Subsidiary or
substantial injury to the business reputation of the Corporation or a
Subsidiary; (ii) the commission by the Executive of an act of fraud in
the performance of such Executive's duties on behalf of the Corporation
or a Subsidiary; (iii) the continuing willful failure of the Executive
to perform the duties of such Executive to the Corporation or a
Subsidiary (other than any such failure resulting from the Executive's
incapacity due to physical or mental illness) after written notice
thereof (specifying the particulars thereof in reasonable detail) and a
reasonable opportunity to be heard and cure such failure are given to
the Executive by the Nominating and Salary Committee of the Board; or
(iv) the order of a federal or state bank regulatory agency or a court of
competent jurisdiction requiring the termination of the Executive's
employment. For purposes of this subparagraph, no act, or failure to act,
on the Executive's part shall be deemed "willful" unless done, or omitted
to be done, by the Executive not in good faith and without reasonable
belief that the action or omission was in the best interest of the
Corporation or a Subsidiary.
(d) Good Reason. For purposes of this Agreement, "Good Reason"
means the occurrence of any one or more of the following without the
Executive's express written consent:
(i) The assignment to Executive of duties which are
materially different from or inconsistent with the duties,
responsibilities, and status of Executive's position at any time
during the six (6) month period prior to the Change of Control
of the Corporation, or which result in a significant reduction in
Executive's authority and responsibility as a senior executive of
the Corporation;
(ii) A reduction by the Corporation in Executive's
base salary or salary grade as of the day prior to the Change of
Control, or the failure to grant salary increases and bonus
payments on a basis comparable to those granted to other
executives of the Corporation, or reduction of Executive's most
<PAGE> recent incentive bonus potential prior to the Change of
Control under the Corporation's Management Bonus Plan, or any
successor plan;
(iii) The Corporation requiring Executive to be based
at a location in excess of forty (40) miles from the location
where Executive is currently based, or in the event of any
relocation of the Executive with the Executive's express written
consent, the failure of the Corporation or a Subsidiary to pay
(or reimburse the Executive for) all reasonable moving
expenses by the Executive relating to a change of principal
residence in connection with such relocation and to indemnify
the Executive against any loss realized in the sale of the
Executive's principal residence in connection with any such
change of residence, all to the effect that the Executive shall
incur no loss on an after tax basis;
(iv) The failure of the Corporation to obtain a
satisfactory agreement from any successor to the Corporation
to assume and agree to perform this Agreement, as contem-
plated in Paragraph 6 hereof;
(v) Any termination by the Corporation of Executive's
employment that is not effected pursuant to a Notice of
Termination;
(vi) Any termination of Executive's employment,
reduction in Executive's compensation or benefits, or adverse
change in Executive's location or duties, if such termination,
reduction or adverse change (aa) occurs within six (6) months
before a Change of Control, (bb) is in contemplation of such
Change in Control, and (cc) is taken to avoid the effect of this
Agreement should such action occur after such Change in
Control;
(vii) The failure of the Corporation to provide the
Executive with substantially the same fringe benefits (including,
without limitation, Benefit Restoration Plan, health care,
insurance, stock options and paid vacations) that were provided
to him immediately prior to the Change in Control, or with a
package of fringe benefits that, though one or more of such
benefits may vary from those in effect immediately prior to such
Change in Control, is substantially comparable in all material
respects to such fringe benefits taken as a whole.
<PAGE>
The existence of Good Reason shall not be affected by Executive's
incapacity due to physical or mental illness. Executive's continued
employment shall not constitute a waiver of Executive's rights with
respect to any circumstance constituting Good Reason under this Agreement.
(e) Notice of Termination. "Notice of Termination" means a written
notice indicating the specific termination provision in this Agreement
relied upon and setting forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the employment
under the provision so indicated. The Executive shall not be entitled to
give a Notice of Termination that the Executive is terminating employment
for Good Reason more than six (6) months following the occurrence of the
event alleged to constitute Good Reason, except with respect to an event
which occurred before the Change of Control, in which case the Notice of
Termination must be given within six (6) months following the Change of
Control.
Any termination by the Corporation for Cause or due to Executive's
Disability, or by Executive for Good Reason shall be communicated by
Notice of Termination to the other party.
(f) Retirement. "Retirement" means having reached normal
retirement age as defined in the Corporation's noncontributory pension
plan or taking early retirement in accordance with the terms of the
Corporation's noncontributory pension plan.
(g) Subsidiary. "Subsidiary" means a corporation with at least
eighty percent (80%) of its outstanding capital stock owned by the
Corporation.
3. Eligibility for Severance Benefits. Subject to Paragraph 5, the
Executive shall receive the Severance Benefits described in Paragraph 4 if
the Executive's employment is terminated during the term of this Agreement, and
(a) The termination occurs within thirty-six (36) months after a
Change of Control, unless the termination is (i) because of Executive's
death or Disability, (ii) by the Corporation for Cause, or (iii) by the
Executive other than for Good Reason; or
(b) The Corporation terminates the employment within six (6)
months before a Change of Control, in contemplation of such Change of
Control, and to avoid the effect of this Agreement should such action
occur after such Change of Control.
4. Severance Benefits. Subject to Paragraph 5, the Executive shall
receive the following Severance Benefits (in addition to accrued compensation
and vested benefits) if eligible under Paragraph 3:
<PAGE>
(a) A lump sum cash amount equal to Executive's annual base
salary at the highest annual rate in effect during the twelve (12) month
period immediately prior to the Change of Control or, if greater, at the
rate in effect at the time Notice of Termination is given (or on the
date the employment is terminated if no Notice of Termination is
required), multiplied by 2;
(b) One hundred percent (100%) of Executive's incentive bonus
potential under the Corporation's Management Bonus Plan in effect at the
time Notice of Termination is given (or on the date the employment is
terminated if no Notice of Termination is required) or, if greater, the
average bonus paid to Executive over the preceding three (3) year period,
multiplied by 2;
(c) For a two (2) year period after the date the employment is
terminated, the Corporation will arrange to provide to Executive at the
Corporation's expense, with:
(i) Health care coverage equal to that in effect for
Executive prior to the termination (or, if more favorable to
Executive, that furnished generally to salaried employees of the
Corporation), including, but not limited to, hospital, surgical,
medical, dental, prescription and dependent coverages. Upon
the expiration of the health care benefits required to be
provided pursuant to this subparagraph 4(c), the Executive shall
be entitled to the continuation of such benefits under the
provisions of the Consolidated Omnibus Budget Reconciliation
Act. Health care benefits otherwise receivable by Executive
pursuant to this subparagraph 4(c) shall be reduced to the
extent comparable benefits are actually received by Executive
from a subsequent employer during the two (2) year period
following the date the employment is terminated and any such
benefits actually received by Executive shall be reported to the
Corporation;
(ii) Life and accidental death and dismemberment
insurance coverage (including supplemental coverage purchase
opportunity and double indemnity for accidental death) equal
(including policy terms) to that in effect at the time Notice of
Termination is given (or on the date the employment is
terminated if no Notice of Termination is required) or, if more
favorable to Executive, equal to that in effect at the date the
Change of Control occurs; and
(iii) Disability insurance coverage (including policy
terms) equal to that in effect at the time Notice of Termination
is given (or on the date employment is terminated if no Notice <PAGE>
of Termination is required) or, if more favorable to Executive,
equal to that in effect immediately prior to the Change of
Control; provided, however, that no income replacement
benefits will be payable under such disability policy with regard
to the two (2) year period following a termination of
employment provided that the payments payable under
subparagraphs 4(a) and (b) above have been made;
(d) The Executive will be entitled to receive retirement benefits as
provided herein, so that the total retirement benefits the Executive
receives from the Corporation will approximate the total retirement
benefits the Executive would have received under all retirement plans
(which shall not include severance plans) and other employment contracts
of the Corporation in which the Executive participates were the Executive
fully vested under such retirement plans and entitled to all benefits
payable under such other employment contracts and had the Executive
continued in the employ of the Corporation for twenty-four (24) months
following the date of his termination or until his retirement, if earlier
(provided that such additional period shall be inclusive of and shall not
be in addition to any period of service credited under any severance plan
of the Corporation). The benefits specified in this subparagraph will
include all ancillary benefits, such as early retirement and survivor
rights and benefits available at retirement. The amount payable to
the Executive or his beneficiaries under this subparagraph shall equal
the excess of (1) the benefits that would be paid to the Executive or his
beneficiaries, under all retirement plans and other employment contracts
of the Corporation in which the Executive participates if (A) the
Executive were fully vested under such plans and entitled to all benefits
payable under such other employment contracts, (B) the twenty-four (24)
month period (or the period until his Retirement, if less) following the
date of his termination were added to his credited service under such
plans and contracts, (C) the terms of such plans were those most favorable
to the Executive which were in effect at any time during the period
commencing prior to the Change of Control and ending on the date of
Notice of Termination (or on the date employment is terminated if no
Notice of Termination is required), and (D) the Executive's highest
average annual compensation as defined under such retirement plans and
other employment contracts were calculated as if the Executive had been
employed by the Corporation for a twenty-four (24) month period (or the
period until his Retirement, if earlier) following the date of his
termination and had the Executive's compensation during such period been
equal to the Executive's compensation used to calculate his benefit
under subparagraphs 4(a) and 4(b); over (2) the benefits that are payable
to the Executive or his beneficiaries under all retirement plans and
other employment contracts of the Corporation in which the Executive
participates. These Special Retirement Benefits are to be provided on
an unfunded basis, are not intended to meet the qualification requirements
of Section 401 of the Internal Revenue Code and shall be payable solely
from the general assets of the Corporation.
<PAGE>
These Special Retirement Benefits shall be payable at the time and in the
manner provided in the applicable retirement plans and other employment
contracts to which they relate;
(e) The Corporation shall pay all fees for outplacement services for
the Executive up to a maximum equal to fifteen percent (15%) of the
Executive's base salary used to calculate his benefit under subparagraph
4(a) plus provide a travel expense account of up to $5000 to reimburse
job search travel;
(f) In computing and determining Severance Benefits under
subparagraphs 4(a), (b), (c), (d) and (e) above, a decrease in Executive's
salary, incentive bonus potential, or insurance benefits shall be
disregarded if such decrease occurs within six (6) months before a Change
of Control, is in contemplation of such Change of Control, and is taken
to avoid the effect of this Agreement should such action be taken after
such Change of Control; in such event, the salary, incentive bonus
potential, and/or insurance benefits used to determine Severance Benefits
shall be that in effect immediately before the decrease that is
disregarded pursuant to this subparagraph 4(f);
(g) Executive shall not be required to mitigate the amount of any
payment provided for in this Paragraph 4 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this
Paragraph 4 be reduced by any compensation earned by Executive as the
result of employment by another employer after the date the employment is
terminated, or otherwise, with the exception of a reduction in health
insurance coverage as provided in subparagraph 4(c)(i).
The payments provided in subparagraphs 4(a) and (b) above shall be
made not later than thirty (30) business days following the date the
employment terminates.
5. Tax Gross-Up. If any payments or other benefit paid or provided under
Paragraph 4 or the acceleration of stock option vesting or the payment or
distribution of consideration in satisfaction of any share appreciation rights
are subject to excise tax pursuant to Section 4999 of the Internal Revenue
Code of 1986, as amended, the Corporation shall pay to the Executive such
additional compensation as is necessary (after taking into account all
Federal, state and local income taxes payable by the Executive as a result of
the receipt of such compensation) to place the Executive in the same after-tax
position he would have been in had no such excise tax (or any interest or
penalties thereon) been paid or incurred. The Corporation shall pay such
additional compensation at the time when the Corporation withholds such
excise tax from any payments to the Executive. The calculation of the tax
gross-up shall be approved by the Corporation's independent certified
public accounting firm engaged by the Corporation immediately prior to the
Change in Control.
<PAGE>
6. Successors; Binding Agreements. This Agreement shall inure to the
benefit of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. Executive's rights and benefits under this Agreement may not be
assigned, except that if Executive dies while any amount would still be payable
to Executive hereunder if Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms
of this Agreement, to the beneficiaries designated by the Executive to receive
benefits under this Agreement in a writing on file with the Corporation at the
time of the Executive's death or, if there is no such beneficiary, to
Executive's estate. The Corporation will require any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all
or substantially all of the business and/or assets of the Corporation (or of
any division or Subsidiary thereof employing Executive) to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that the Corporation would be required to perform it if no such succession
had taken place. Failure of the Corporation to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle Executive to compensation from the
Corporation in the same amount and on the same terms to which Executive would
be entitled hereunder if Executive terminated the employment for Good Reason
following a Change of Control.
7. Withholding of Taxes. The Corporation may withhold from any amounts
payable under this Agreement all federal, state, city, or other taxes as
required by law.
8. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addressees set forth on the first page of this Agreement, or at
such other addresses as the parties may designate in writing.
9. Miscellaneous. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is
agreed to in writing and signed by Executive and such officer as may be
specifically designated by the Board of Directors of the Corporation. The
validity, interpretation, construction, and performance of this Agreement
shall be governed by the laws of the State of Michigan.
10. Employment Rights. This Agreement shall not confer upon Executive
any right to continue in the employ of the Corporation or its subsidiaries and
shall not in any way affect the right of the Corporation or its subsidiaries
to dismiss or otherwise terminate Executive's employment at any time with or
without cause.
11. No Vested Interest. Neither Executive nor Executive's beneficiary
shall have any right, title, or interest in any benefit under this Agreement
prior to the occurrence of the right to the payment thereof, or in any
property of the Corporation or its subsidiaries or affiliates.
<PAGE>
12. Prior Agreements. This Agreement contains the understanding between
the parties hereto with respect to Severance Benefits in connection with a
Change of Control of the Corporation and supersedes any such prior agreement
between the Corporation (or any predecessor of the Corporation) and Executive.
If there is any discrepancy or conflict between this Agreement and any plan,
policy, or program of the Corporation regarding any term or condition of
Severance Benefits in connection with a Change of Control of the Corporation,
the language of this Agreement shall govern.
13. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
14. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
15. Arbitration. The sole and exclusive method for resolving any dispute
arising out of this Agreement shall be arbitration in accordance with this
paragraph. Except as provided otherwise in this paragraph, arbitration
pursuant to this paragraph shall be governed by the Commercial Arbitration
Rules of the American Arbitration Association. A party wishing to obtain
arbitration of an issue shall deliver written notice to the other party,
including a description of the issue to be arbitrated. Within fifteen (15)
days after either party demands arbitration, the Corporation and the Executive
shall each appoint an arbitrator. Within fifteen (15) additional days, these
two arbitrators shall appoint the third arbitrator by mutual agreement; if
they fail to agree within said fifteen (15) day period, then the third
arbitrator shall be selected promptly pursuant to the rules of the American
Arbitration Association for Commercial Arbitration. The arbitration panel
shall hold a hearing in Ottawa County, Michigan, within ninety (90) days after
the appointment of the third arbitrator. The fees and expenses of the
arbitrator, and any American Arbitration Association fees, shall be paid by
the Corporation. Both the Corporation and the Executive may be represented
by counsel and may present testimony and other evidence at the hearing.
Within ninety (90) days after commencement of the hearing, the arbitration
panel will issue a written decision; the majority vote of two of the three
arbitrators shall control. The majority decision of the arbitrators shall
be final and binding on the parties, and shall be enforceable in accordance
with law. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The Executive shall be entitled to seek specific
performances of his rights under this Agreement during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
The Corporation will reimburse Executive for all reasonable attorney fees
incurred by Executive as the result of any arbitration with regard to any
issue under this Agreement (or any judicial proceeding to compel or to
enforce such arbitration); (i) which is initiated by Executive if the
Corporation is found in such proceeding to have violated this Agreement
substantially as alleged by Executive; or (ii) which is initiated by the
Corporation, unless Executive is found in such proceeding to have violated
this Agreement substantially as alleged by the Corporation.
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the day
and year written above.
CORPORATION:
FIRST MICHIGAN BANK CORPORATION
By
Its: Chairman of the Nominating and
Salary Committee
EXECUTIVE:
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<PAGE>
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE:
The following table presents certain information in respect to the computation
of earnings per share data on a primary and fully diluted basis. The
information should be read in conjunction with the historical consolidated
financial statements of FMBC and notes thereto incorporated by reference in
this Prospectus/Proxy Statement.
FIRST MICHIGAN BANK CORPORATION
(in thousands, except per share data)
Nine Months
--------------Ended---------------
9/30/95 9/30/94
<S> <C> <C>
PRIMARY
AVERAGE SHARES (a)
Average number of
common stock shares
outstanding 18,166.5 18,229.5
Net Effect--Exercise of
stock options
outstanding (using
treasury stock method
and aveverage stock
market price) 235.6 228.7
Total Average Shares 18,402.1 18,458.2
EARNINGS
Income from Continuing
Operations $ 26,042 $ 23,961
Extradordinary income 0 0
NET INCOME $ 26,042 $ 23,961
EARNINGS PER SHARE
Income from Continuing
Operations $ 1.42 $ 1.30
Net Income 1.42 1.30
FULLY-DILUTED
AVERAGE SHARES (a)
Average number of common
stock shares outstanding 18,166.5 18,229.5
Net Effect--Exercise of
stock options
outstanding (using
treasury stock method
and higher of either
ending of average
stock market price) 235.6 228.7
Total Average Shares 18,402.1 18,458.2
EARNINGS
Income from Continuing
Operations $ 26,042 $ 23,961
Extraordinary income 0 0
NET INCOME $ 26,042 $ 23,961
EARNINGS PER SHARE
Income from continuing
Operations $ 1.42 $ 1.30
Net Income 1.42 1.30
</TABLE>
<TABLE>
FIRST MICHIGAN BANK CORPORATION
(in thousands, except per share data)
----------Year Ended December 31,---------------
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
PRIMARY
AVERAGE SHARES (a)
Average number of common
stock shares outstanding 18,208.1 18,297.6 18,345.1 17,751.2 16,911.0
Net Effect--Exercise of stock
options outstanding (using
treasury stock method and
average stock market price). 225.6 204.5 162.1 113.0 61.0
Total Average Shares 18,433.7 18,502.1 18,507.2 17,864.2 16,972.0
EARNINGS
Income from Continuing
Operations $32,380 $29,477 $25,676 $21,395 $18,973
Extraordinary income 0 0 0 0 0
NET INCOME $32,380 $29,477 $25,676 $21,395 $18,973
EARNINGS PER SHARE
Income from Continuing
Operations $ 1.76 $ 1.59 $ 1.39 $ 1.20 $ 1.12
Net income $ 1.76 $ 1.59 $ 1.39 $ 1.20 $ 1.12
FULLY-DILUTED
AVERAGE SHARES (a)
Average number of common
stock shares
outstanding 18,208.1 18,297.6 18,345.1 17,751.2 16,911.0
Net Effect--Exercise of stock
options outstanding (using
treasury stock method and
higher of either ending of
average stock market
price). 225.6 204.5 162.1 113.0 61.0
Total Average Shares 18,433.7 18,502.1 18,507.2 17,864.2 16,972.0
EARNINGS
Income from Continuing
Operations $ 32,380 $ 29,477 $ 25,676 $ 21,395 $ 18,973
Extraordinary income 0 0 0 0 0
NET INCOME $ 32,380 $ 29,477 $ 25,676 $ 21,395 $ 18,973
EARNINGS PER SHARE
Income from Continuing
Operations $ 1.76 $ 1.59 $ 1.39 $ 1.20 $ 1.12
Net income $ 1.76 $ 1.59 $ 1.39 $ 1.20 $ 1.12
(a) The number of shares used in the computations has been adjusted to give
retroactive effect to the stock dividends and splits paid by FMBC in
each year and to reflect the acquisitions of FMB-Old State Bank on
June 20, 1994 and Superior Financial Corporation on March 10, 1995 as
poolings-of-interest.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE (continued)
The following table presents certain information in respect to the computation
of earnings per share data on a primary basis. This information should be
read in conjunction with the historical financial statements of AFC and notes
thereto included elsewhere in this Prospectus/Proxy Statement.
ARCADIA FINANCIAL CORPORATION
(in thousand, except per share data)
Nine Months
-----------Ended--------------
9/30/95 9/30/94
<S> <C> <C>
AVERAGE SHARES
Average number of common
stock shares outstanding 371.004 362.004
Total Average Shares 371.004 362.004
EARNINGS
Income from Continuing
Operations $1,025.0 $ 711.6
Extraordinary income 0 0
NET INCOME $1,025.0 $ 711.6
EARNINGS PER SHARE
Income from Continuing
Operations $ 2.76 $ 1.97
Net Income $ 2.76 $ 1.97
</TABLE>
<TABLE>
(in thousands, except per share data)
-----------Year Ended December 31,----------
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
AVERAGE SHARES
Average number of common
stock shares outstanding 362.029 362.004 362.004 362.004 362.004
Total Average Shares 362.029 362.004 362.004 362.004 362.004
EARNINGS
Income from Continuing
Operations $1,347.0 $ 535.0 $ 355.0 $ 194.0 $ 95.0
Extraordinary income 0 0 66.0 88.0 31.0
NET INCOME $1,347.0 $ 535.0 $ 421.0 $ 282.0 $ 126.0
EARNINGS PER SHARE
Income from Continuing
Operations $ 3.72 $ 1.48 $ 0.98 $ 0.54 $ 0.26
Net income $ 3.72 $ 1.48 $ 1.16 $ 0.78 $ 0.35
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE (continued)
The following table presents certain unaudited pro forma combined information
in respect to the computation of the earnings per share data on a primary and
fully diluted basis. This information should be read in conjunction with the
historical and pro forma financial statements and notes thereto included
elsewhere or incorporated by reference in this Prospectus/Proxy Statement.
The pro forma information gives effect to the Merger as if the Merger had
occurred at the beginning of the period presented, and has been prepared on
the assumption that the Merger will be accounted for using the pooling of
interests method of accounting.
PRO FORMA COMBINED
(in thousands, except per share data)
Nine Months
--------Ended-----------
9/30/95 9/30/94
<S> <C> <C>
PRIMARY
AVERAGE SHARES
Average number of common
stock shares outstanding 18,820.4 18,826.1
Net Effect--Exercise of
stock options outstanding
(using treasury stock
method and average stock
market price) 235.6 228.7
Total Average Shares 19,056.0 19,054.8
EARNINGS
Income from Continuing
Operations $27,067 $24,673
Extraordinary income 0 0
NET INCOME $27,067 $24,673
EARNINGS PER SHARE
Income from Continuing
Operations $ 1.42 $ 1.29
Net income 1.42 1.29
FULLY-DILUTED
AVERAGE SHARES
Average number of common
stock shares outstanding 18,820.4 18,826.1
Net Effect--Exercise of
stock options oustanding
(using treasury stock
method and higher of
either ending or
average stock market
price) 235.6 228.7
Total Average Shares 19,056.0 19,054.8
EARNINGS
Income from Continuing
Operations $ 27,067 $ 24,673
Extraordinary income 0 0
NET INCOME $ 27,067 $ 24,673
EARNINGS PER SHARE
Income from Continuing
Operations $ 1.42 $ 1.29
Net income 1.42 1.29
</TABLE>
<TABLE>
PRO FORMA COMBINED
(in thousands, except per share data)
------------------Year Ended December 31,--------------------
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
PRIMARY
AVERAGE SHARES
Average number of
common stock
shares outstanding 18,804.7 18,894.2 18,941.7 18,347.8 17,507.6
Net Effect--Exercise
of stock options
outstanding (using
treasury stock method
and average stock market
price) 225.6 204.5 162.1 113.0 61.0
Total Average Shares 19,030.3 19,098.7 19,103.8 18,460.8 17,568.6
EARNINGS
Income from Continuing
Operations $ 33,727 $ 30,012 $ 26,031 $ 21,589 $ 19,068
Extraordinary income 0 0 66 88 31
NET INCOME $ 33,727 $ 30,012 $ 26,097 $ 21,677 $ 19,099
EARNINGS PER SHARE
Income from Continuing
Operations $ 1.77 $ 1.57 $ 1.36 $ 1.17 $ 1.09
Net income $ 1.77 $ 1.57 $ 1.37 $ 1.17 $ 1.09
FULLY-DILUTED
AVERAGE SHARES
Average number of common
stock shares
outstanding 18,804.7 18,894.2 18,941.7 18,347.8 17,807.6
Net Effect--Exercise
of stock options outstanding
(using treasury stock
method and higher of
either ending or
average stock market
price) 225.6 204.5 162.1 113.0 61.0
Total Average Shares 19,030.3 19,098.7 19,103.8 18,460.8 17,568.6
EARNINGS
Income from Continuing
Operations $ 33,727 $ 30,012 $ 26,031 $ 21,589 $ 19,068
Extraordinary income 0 0 66 88 31
NET INCOME $ 33,727 $ 30,012 $ 26,097 $ 21,677 $ 19,099
EARNINGS PER SHARE
Income from Continuing
Operations $ 1.77 $ 1.57 $ 1.36 $ 1.17 $ 1.09
Net income $ 1.77 $ 1.57 $ 1.37 $ 1.17 $ 1.09
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE (continued)
The following table presents certain unaudited pro forma combined information
in respect to the computation of the earnings per share data on a primary and
fully diluted basis. This information should be read in conjunction with the
historical and pro forma financial statements and notes thereto included
elsewhere or incorporated by reference in this Prospectus/Proxy Statement.
The pro forma information gives effect to the Merger as if the Merger had
occurred at the beginning of the period presented, and has been prepared on
the assumption that the Merger will be accounted for using the pooling of
interests method of accounting.
EQUIVALENT PRO FORMA COMBINED
(in thousands, except per share data)
Nine Months
---------Ended---------
9/30/95 9/30/94
<S> <C> <C>
PRIMARY
INCOME FROM CONTINUING OPERATIONS
Pro Forma Combined $ 1.42 $ 1.29
Exchange Ratio x 1.648 1.648
Equivalent Pro Forma Combined $ 2.34 2.13
NET INCOME
Pro Forma Combined 1.42 1.29
Exchange Ratio x 1.648 1.648
Equivalent Pro Forma Combined 2.34 2.34
FULLY-DILUTED
INCOME FROM CONTINUING OPERATIONS
Pro Forma Combined 1.42 1.29
Exchange Ratio x 1.648 x 1.648
Equivalent Pro Forma Combined 2.34 2.13
NET INCOME
Pro Forma Combined 1.42 1.29
Exchange Ratio x 1.648 x 1.648
Equivalent Pro forma Combined 2.34 2.13
</TABLE>
<TABLE>
EQUIVALENT PRO FORM COMBINED
(in thousands, except per share data)
--------Year Ended December 31,--------------
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
PRIMARY
INCOME FROM CONTINUING
OPERATIONS
Pro Forma Combined $ 1.77 $ 1.57 $ 1.36 $ 1.17 $ 1.09
Exchange Ratio x 1.648 1.648 1.648 1.648 1.648
Equivalent Pro Forma
Combined $ 2.92 $ 2.59 $ 2.24 $ 1.93 $ 1.80
NET INCOME
Pro Forma Combined $ 1.77 $ 1.57 $ 1.37 $ 1.17 $ 1.09
Exchange Ratio x 1.648 1.648 1.648 1.648 1.648
Equivalent Pro Forma
Combined $ 2.92 $ 2.59 $ 2.26 $ 1.93 $ 1.80
FULLY-DILUTED
INCOME FROM CONTINUING
OPERATIONS
Pro Forma Combined $ 1.77 $ 1.57 $ 1.36 $ 1.17 $ 1.09
Exchange Ratio x 1.648 1.648 1.648 1.648 1.648
Equivalent Pro Forma
Combined $ 2.92 $ 2.59 $ 2.24 $ 1.93 $ 1.80
NET INCOME
Pro Forma Combined $ 1.77 $ 1.57 $ 1.37 $ 1.17 $ 1.09
Exchange Ratio x 1.648 1.648 1.648 1.648 1.648
Equivalent Pro Forma
Combined $ 2.92 $ 2.59 $ 2.26 $ 1.93 $ 1.80
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
<PAGE>
SUBSIDIARIES OF FIRST MICHIGAN BANK CORPORATION
FMB-First Michigan Bank
Zeeland, Michigan
100% Owned
FMB-First Michigan Bank-Grand Rapids
Grand Rapids, Michigan
100% Owned
FMB-Community Bank
Dowagiac, Michigan
100% Owned
FMB-Lumberman's Bank
Muskegon, Michigan
100% Owned
FMB-Oceana Bank
Hart, Michigan
100% Owned
FMB-State Savings Bank
Lowell, Michigan
100% Owned
FMB-Reed City Bank
Reed City, Michigan
100% Owned
FMB-Commercial Bank
Greenville, Michigan
100% Owned
FMB-Security Bank
Manistee, Michigan
100% Owned
FMB-Maynard Allen Bank
Portland, Michigan
100% Owned
FMB-Northwestern Bank
East Jordan, Michigan
100% Owned
FMB-Old State Bank
Fremont, Michigan
100% Owned
Superior Financial Corporation
Sault Ste. Marie, Michigan
100% Owned
FMB-Trust
Holland, Michigan
100% Owned
First Michigan Life Insurance Company
Holland, Michigan
100% Owned
FMB Investment Services, Inc.
Holland, Michigan
100% Owned
<PAGE>
EXHIBIT 99(a)
LETTER TO SHAREHOLDERS OF
ARCADIA FINANCIAL CORPORATION
<PAGE>
[Arcadia Financial Corporation Letterhead]
, 1996
Dear Shareholder:
You are invited to attend a special meeting of shareholders of Arcadia
Financial Corporation, to be held on March 6, 1996 at the Kalamazoo Country
Club, 1609 Whites Road, Kalamazoo, Michigan, beginning at 4:30 p.m., local
time. The purpose of the meeting is to consider, and take action upon, a
proposal to approve the Agreement and Plan of Merger between Arcadia Financial
Corporation and First Michigan Bank Corporation, whereby Arcadia Financial
Corporation will be merged into First Michigan Bank Corporation and Arcadia Bank
& Trust Company will become a wholly-owned subsidiary of First Michigan Bank
Corporation.
A Prospectus/Proxy Statement is enclosed, which provides additional
information about the proposal. Under the terms of the proposal, each share
of Arcadia Financial Corporation would be exchanged for 1.648 shares of First
Michigan Bank Corporation, with any fractional shares paid in cash. Please
review the enclosed Prospectus/Proxy Statement for additional information
regarding the proposal, as well as information regarding First Michigan Bank
Corporation.
Assuming the proposal is approved, this will be the last official meeting
of the Arcadia Financial shareholders. A reception will be held immediately
following the meeting, and I have asked senior management of First Michigan
Bank Corporation to join us so that you might have a chance to meet and talk
with them. After doing so, I'm sure you will join your Board and management
in their enthusiasm for the future of our bank as part of FMB.
Whether or not you are attending the meeting, please mark, sign, and
return the enclosed proxy promptly in the accompanying postage-prepaid envelope,
to help assure that we will have the necessary quorum for the conduct of
business. Please also include the attendance slip that is enclosed.
If you have any questions, comments, or concerns, please don't hesitate
to contact any member of the Board of Directors or myself.
Very truly yours,
Ronald J. Bieke
President
<PAGE>
EXHIBIT 99(b)
FORM OF PROXY FOR
ARCADIA FINANCIAL CORPORATION
<PAGE>
PROXY
ARCADIA FINANCIAL CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
, 1996
The undersigned acknowledges receipt of notice of a Special Meeting of
Shareholders of Arcadia Financial Corporation to be held on , 1996,
and a Prospectus/Proxy Statement dated ,1996, and hereby appoints
Ronald J. Bieke and Lawrence B. Fitch, or either of them, attorneys and
proxies of the undersigned, each with full power of substitution, to vote all
shares of the undersigned in Arcadia Financial Corporation at the Special
Meeting of its Shareholders to be held on , 1996, and at any
adjournment thereof.
1. FOR AGAINST ABSTAIN Approval of the Agreement and Plan of
[ ] [ ] [ ] Merger dated December 22, 1995, between
Arcadia Financial Corporation and First
Michigan Bank Corporation contained
and described in the Prospectus/Proxy
Statement dated , 1996. (Your
Board of Directors recommends a vote
"FOR" this proposal.)
2. As said proxies in their discretion may determine upon all other matters
that properly may be presented at the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR APPROVAL OF THE
AGREEMENT AND PLAN OF MERGER. THIS PROXY WILL BE VOTED IN ACCORDANCE
WITH THE JUDGMENT OF THE PROXIES WITH RESPECT TO ANY OTHER MATTERS
WHICH MAY COME BEFORE THE MEETING.
Please sign exactly as your name(s) appear(s) below. Joint owners should
each sign this Proxy personally. Executors, administrators, trustees and
persons signing for corporations or partnerships should so indicate.
Dated: , 1996
THIS PROXY IS SOLICITED BY THE BOARD
OF DIRECTORS OF ARCADIA FINANCIAL CORPORATION
