<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1999
REGISTRATION STATEMENT NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INDEPENDENT BANK CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
MICHIGAN 6712 38-2032782
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer Identification
of incorporation or Classification Code Number) No.)
organization)
</TABLE>
230 WEST MAIN STREET
IONIA, MICHIGAN 48846
(616) 527-9450
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
WILLIAM R. KOHLS
230 WEST MAIN STREET
IONIA, MICHIGAN 48846
(616) 527-9450
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
MICHAEL G. WOOLDRIDGE
VARNUM, RIDDERING, SCHMIDT & HOWLETT LLP
333 BRIDGE STREET, P.O. BOX 352
GRAND RAPIDS, MICHIGAN 49501-0352
(616) 336-6000
CHRISTOPHER J. ZINSKI
SCHIFF HARDIN & WAITE
6600 SEARS TOWER
CHICAGO, ILLINOIS 60606
(312) 258-5500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $1.00 par value....... 3,679,024 $12.9375 $47,597,373 $13,232.07
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</TABLE>
(1) Represents bona fide estimate of maximum amount of Common Stock of
Registrant to be offered, based on: (i) the number of outstanding shares of
the common stock of Mutual Savings Bank, f.s.b. ("MSB") and the number of
options to purchase shares of common stock of MSB at May 24, 1999 and (ii) a
conversion ratio of 0.8 shares of Common Stock of Registrant per share of
common stock of MSB.
(2) Estimated solely for the purpose of calculating the registration fee based
on the market value on May 26, 1999, of the shares of common stock of MSB
(which includes 306,366 shares which may be issued upon exercise of stock
options prior to the merger) to be canceled in the merger, in accordance
with Rule 457(f)(1).
-------------------------
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.
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<PAGE> 2
[LOGO OF IBC APPEARS HERE] [LOGO OF MSB APPEARS HERE]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Independent Bank Corporation and Mutual Savings
Bank, f.s.b. have approved an Agreement and Plan of Reorganization and a related
Consolidation Agreement that would result in IBC acquiring MSB. The merger
offers MSB shareholders the opportunity to become shareholders of IBC, a larger
organization.
If we complete the merger, MSB shareholders will receive 0.8 of a share of
IBC common stock for each share of MSB common stock that they own, subject to
certain adjustments. These potential adjustments are described in more detail
later on in this document. IBC shareholders will continue to own their existing
shares after the merger.
We cannot complete the merger unless the shareholders of both of our
companies approve it. Each of us will hold a meeting of our shareholders to vote
on the merger. Your vote is very important. Whether or not you plan to attend
your shareholder meeting, please vote by completing and mailing the enclosed
proxy card to us. IF YOU SIGN, DATE AND MAIL YOUR PROXY CARD WITHOUT INDICATING
HOW YOU WANT TO VOTE, YOUR PROXY WILL BE COUNTED AS A VOTE IN FAVOR OF THE
MERGER. For MSB shareholders, not returning your card or not instructing your
broker how to vote any shares held for you in "street name" will have the same
effect as a vote against the merger.
The dates, times and places of the meetings are as follows:
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FOR IBC SHAREHOLDERS: FOR MSB SHAREHOLDERS:
August , 1999, 10:00 a.m., local time August , 1999, 11:00 a.m., local time
230 West Main Street 623 Washington Avenue
Ionia, Michigan 48846 Bay City, Michigan 48708
</TABLE>
This document provides you with detailed information about the meetings and
the proposed merger. We encourage you to read this entire document carefully. IN
PARTICULAR, YOU SHOULD READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE 11 FOR
A DESCRIPTION OF CERTAIN RISKS THAT YOU SHOULD CONSIDER IN EVALUATING THE
MERGER. You can also get information about IBC from publicly available documents
that IBC has filed with the Securities and Exchange Commission and about MSB
from publicly available documents that MSB has filed with the Office of Thrift
Supervision.
We strongly support this combination of our companies and join with all of
the other members of our Boards of Directors in recommending that you vote in
favor of the merger.
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Charles C. Van Loan Robert N. Shuster
President and Chief Executive Officer Chief Executive Officer
Independent Bank Corporation Mutual Savings Bank, f.s.b.
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS JOINT PROXY
STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF ANY
BANK OR NONBANK SUBSIDIARY OF ANY OF THE PARTIES, AND THEY ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED JULY , 1999 AND
IS BEING FIRST MAILED TO SHAREHOLDERS ON JULY , 1999.
<PAGE> 3
[LOGO OF IBC APPEARS HERE]
INDEPENDENT BANK CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST , 1999
Ionia, Michigan
July , 1999
TO THE SHAREHOLDERS OF
INDEPENDENT BANK CORPORATION:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of
Independent Bank Corporation will be held on August , 1999, 10:00 a.m. local
time, at 230 West Main Street, Ionia, Michigan 48846, for the following
purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Reorganization, dated March 24, 1999, between IBC and Mutual Savings
Bank, f.s.b., the related Consolidation Agreement, dated April 20, 1999,
and the resulting issuance of shares of IBC common stock in connection
with its acquisition of MSB. The terms and conditions of the transaction
are more fully described in the enclosed Joint Proxy
Statement/Prospectus.
2. To transact such other business as may properly be brought before the
special meeting or any adjournments or postponements of the special
meeting.
THE BOARD OF DIRECTORS OF IBC HAS UNANIMOUSLY APPROVED THE MERGER AND THE
PROPOSALS DESCRIBED ABOVE AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THESE
PROPOSALS AT THE SPECIAL MEETING.
Shareholders of record at the close of business on July , 1999, are
entitled to notice of the special meeting and to vote at the special meeting or
any adjournment or postponement of the special meeting.
By Order Of The Board Of Directors,
William R. Kohls, Secretary
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF YOU MAIL THE PROXY CARD IN THE UNITED
STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 4
[LOGO OF MSB APPEARS HERE]
MUTUAL SAVINGS BANK, F.S.B., A STOCK COMPANY
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST , 1999
Bay City, Michigan
July , 1999
TO THE SHAREHOLDERS OF
MUTUAL SAVINGS BANK, F.S.B.:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Mutual
Savings Bank, f.s.b., A Stock Company, will be held on August , 1999, 11:00
a.m., local time, at Mutual Savings Bank, f.s.b., 623 Washington Avenue, Bay
City, Michigan 48708, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Reorganization, dated March 24, 1999, between Independent Bank
Corporation and MSB, and the related Consolidation Agreement dated April
20, 1999, under which MSB will merge into a subsidiary of IBC and MSB
shareholders will receive 0.8 of a share of IBC common stock for each
share of MSB common stock that they own, subject to certain adjustments.
The terms and conditions are more fully described in the enclosed Joint
Proxy Statement/Prospectus.
2. To transact such other business as may properly be brought before the
special meeting or any adjournments or postponements of the special
meeting.
Shareholders of record at the close of business on July , 1999, are
entitled to notice of the special meeting and to vote at the special meeting or
any adjournment or postponement of the special meeting.
By Order Of The Board Of Directors,
Gary W. Wilds, Secretary
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF YOU MAIL THE PROXY CARD IN THE UNITED
STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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SUMMARY..................................................... 1
The Companies............................................. 1
The Shareholders' Meetings................................ 1
Record Date; Vote Required................................ 1
Our Reasons for the Merger................................ 2
Our Recommendations to Shareholders....................... 2
The Merger................................................ 2
What Shareholders Will Receive in the Merger........... 2
Opinions of Financial Advisors......................... 3
Stock Options.......................................... 3
What We Need to Do to Complete the Merger.............. 3
Termination of the Agreement; Expenses................. 3
Amendment.............................................. 4
Accounting Treatment................................... 4
Regulatory Approvals................................... 4
MSB Warrant............................................ 4
Interests of Directors and Officers in the Merger That
Are Different from Your Interests..................... 4
Appraisal Rights....................................... 4
Certain Federal Income Tax Consequences................ 5
Certain Differences in the Rights of Shareholders...... 5
Selected Financial Data................................... 6
Comparative Per Share Data................................ 8
Comparative Market Prices................................. 9
WHO CAN HELP ANSWER YOUR QUESTIONS.......................... 10
RISK FACTORS................................................ 11
We May Not Achieve the Cost Savings We Expect to Result
From the Successful Integration of MSB into IBC........ 11
IBC Expects to Incur a Significant Non-Recurring Charge
Relating to its Integration Plan That Is Expected to
Have a Significant Impact on IBC's Results of
Operations in the Periods When the Charge is
Recorded............................................... 11
If the Market Price of IBC Common Stock Declines MSB
Shareholders Will Receive Lower Market Value for their
Shares in the Merger................................... 11
After the Merger with MSB, IBC Will Continue to Face
Intense Competition for Financial Services............. 11
The Results of our Operations may be Materially and
Adversely Affected by Changes in Prevailing Economic
Conditions, Including Declines in Real Estate Market
Values, Rapid Changes in Interest Rates and the
Monetary and Fiscal Policies of the Federal
Government............................................. 12
We Must Keep Up with Technological Advances in the Banking
Industry in Order to Stay Competitive.................. 12
Our Business Could be Adversely Impacted by Year 2000
Compliance Issues...................................... 12
THE SPECIAL MEETINGS........................................ 13
Date, Times and Places.................................... 13
Matters to be Considered at the Special Meetings.......... 13
Record Date; Stock Entitled to Vote; Quorum............... 13
Votes Required............................................ 13
Share Ownership of Management............................. 13
Voting of Proxies......................................... 14
</TABLE>
i
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PAGE
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THE MERGER.................................................. 16
General................................................... 16
Background of the Merger.................................. 16
Recommendation of the IBC Board and Reasons for the
Merger................................................. 17
Recommendation of the MSB Board and Reasons for the
Merger................................................. 18
Effective Time of the Transaction......................... 19
Terms of the Transaction.................................. 19
Treatment of MSB Options.................................. 20
Exchange of Certificates.................................. 20
Terms of the Warrant...................................... 21
Covenants of the Parties.................................. 22
MSB Benefit Plans......................................... 25
Conditions to the Consummation of the Merger.............. 25
Amendment................................................. 26
Termination............................................... 26
No Dissenting Shareholders' Rights........................ 27
Interests of Management................................... 27
Federal Income Tax Consequences........................... 28
Accounting Treatment...................................... 29
Regulatory Approvals...................................... 29
Resales of IBC Common Stock............................... 30
Dividend Reinvestment and Stock Purchase Plan............. 30
OPINION OF FINANCIAL ADVISORS............................... 30
Opinion of Financial Advisor of IBC....................... 30
Opinion of Financial Advisor to MSB....................... 35
EFFECT OF THE MERGER ON SHAREHOLDERS' RIGHTS................ 44
Introduction.............................................. 44
Capital Stock............................................. 44
Payment of Dividends...................................... 45
Fiscal Year; Annual Meeting of Shareholders............... 46
Special Meetings of Shareholders.......................... 46
Cumulative Voting......................................... 46
Vacancies on the Board of Directors....................... 46
Number and Term of Directors.............................. 47
Removal of Directors...................................... 47
Approval of Mergers, Consolidations, Sale of Substantially
All Assets and
Certain Business Combinations............................. 47
Advance Notice Requirements for Nominations of Directors
and Presentation of
New Business at Meetings of Shareholders.................. 48
Amendment of Federal Stock Charter, Articles of
Incorporation and Bylaws............................... 48
Certain Anti-Takeover Provisions of the Articles of
Incorporation and Bylaws............................... 49
BUSINESS OF THE PARTIES TO THE MERGER....................... 51
Independent Bank Corporation.............................. 51
General................................................ 51
Dividends and Price Range of IBC Common Stock.......... 51
Other Information...................................... 52
Mutual Savings Bank, f.s.b................................ 52
General................................................ 52
Dividends and Price Range of MSB Common Stock.......... 53
</TABLE>
ii
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PAGE
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REGULATION AND SUPERVISION.................................. 53
General................................................... 53
IBC....................................................... 54
Capital Requirements...................................... 55
Dividends................................................. 55
The Subsidiary Banks of IBC............................... 56
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS................ 60
WHERE YOU CAN FIND MORE INFORMATION......................... 61
EXPERTS..................................................... 62
LEGAL MATTERS............................................... 63
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE............. 63
INDEX TO UNAUDITED PRO FORMA FINANCIAL INFORMATION.......... F-1
APPENDIX A -- Agreement and Plan of Reorganization and
Consolidation Agreement
APPENDIX B -- Warrant Agreement
APPENDIX C -- Opinion of IBC Financial Advisor
APPENDIX D -- Opinion of MSB Financial Advisor
</TABLE>
THIS DOCUMENT INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT IBC THAT IS NOT INCLUDED OR DELIVERED WITH THIS DOCUMENT. IBC WILL PROVIDE
YOU WITH COPIES OF THIS INFORMATION, WITHOUT CHARGE, UPON WRITTEN OR ORAL
REQUEST TO:
INDEPENDENT BANK CORPORATION
230 WEST MAIN STREET
IONIA, MICHIGAN 48846
ATTENTION: SECRETARY
TELEPHONE NUMBER: 616-527-9450
THIS DOCUMENT INCORPORATES AND IS ACCOMPANIED BY MSB'S ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998, AND MSB'S QUARTERLY REPORT ON
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999, EACH IN THE FORM FILED
BY MSB WITH THE OFFICE OF THRIFT SUPERVISION.
IN ORDER TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF OUR
SPECIAL MEETINGS, YOU SHOULD MAKE YOUR REQUEST NO LATER THAN , 1999.
iii
<PAGE> 8
SUMMARY
This summary highlights selected information from the Joint Proxy
Statement/Prospectus. It does not contain all of the information that is
important to you. To fully understand the merger you should carefully read the
entire Joint Proxy Statement/Prospectus and the other referenced documents. See
"Where You Can Find More Information" on page .
THE COMPANIES (PAGE )
INDEPENDENT BANK CORPORATION
230 West Main Street
Ionia, Michigan 48846
(616) 527-9450
Independent Bank Corporation is a bank holding company registered under
federal law and incorporated in Michigan. We own all of the outstanding stock of
four Michigan banks. Those banks serve the financial needs of individuals,
organizations and businesses located in rural and suburban communities across
the Lower Peninsula of Michigan and provide a wide range of financial services.
Aside from the stock of our banks, we have no other substantial assets. Our
business consists of the provision of certain management and operational
services to our banks, the collection of fees and dividends from our banks and
the payment of dividends to our shareholders. At March 31, 1999, our total
assets were $1.1 billion; our total deposits were $817 million; and our total
shareholders' equity was $72 million.
MUTUAL SAVINGS BANK, F.S.B.
623 Washington Avenue
Bay City, Michigan 48708
(517) 892-3511
Mutual Savings Bank, f.s.b., A Stock Company, is a federally chartered
stock savings bank. We operate through a main office and 21 branch offices
located in 12 counties in central and southern Michigan. The main office is
located in the central business district of Bay City, Michigan. We also operate
two wholly owned subsidiaries, MSB Service Corporation and MSB Investment and
Insurance Services, Inc. Our principal business is attracting retail deposits
and investing those deposits, together with other borrowings and funds generated
from operations, in one-to-four family residential mortgage loans, consumer
loans, commercial real estate and business loans, mortgage-backed securities,
U.S. Government and Federal agency securities and other marketable securities.
At March 31, 1999, our total assets were $657 million; our total deposits were
$424 million; and our total shareholders' equity was $33 million.
THE SHAREHOLDERS' MEETINGS (PAGE )
IBC Shareholders. The IBC special meeting will be held on ,
August , 1999 at 10:00 a.m., local time, at Independent Bank Corporation, 230
West Main Street, Ionia, Michigan 48846. At the IBC special meeting, you will be
asked:
1. to approve the acquisition of MSB and the issuance of IBC common stock
to MSB shareholders in connection with the acquisition; and
2. to act on any other items that may be submitted to a vote at the special
meeting.
MSB Shareholders. The MSB special meeting will be held on ,
August , 1999 at 11:00 a.m., local time, at Mutual Savings Bank, f.s.b., 623
Washington Avenue, Bay City, Michigan 48708. At the MSB special meeting, you
will be asked:
1. to approve the acquisition of our company by IBC; and
2. to act on any other items that may be submitted to a vote at the special
meeting.
RECORD DATE; VOTE REQUIRED
(PAGES AND )
IBC Shareholders. You can vote at the meeting of IBC shareholders if you
owned IBC common stock at the close of business on July , 1999. You can cast
one vote for each share of IBC common stock that you owned at that time. In
order to approve the acquisition of MSB and the issuance of IBC common stock to
MSB's shareholders, the holders of a majority of the shares of IBC common stock
cast at the meeting must vote in its favor. You can vote your shares by
attending the IBC meeting and voting in person, or you can mark the enclosed
proxy card with your vote, sign it and mail it in the enclosed return envelope.
You can revoke your proxy as late as the date of the special meeting by
1
<PAGE> 9
submitting a written revocation, sending in a new proxy or by attending the
meeting and voting in person.
MSB Shareholders. You can vote at the MSB special meeting if you owned MSB
common stock at the close of business on July , 1999. You can cast one vote
for each share of MSB common stock you owned at that time. In order to approve
the merger, the holders of at least two-thirds of the outstanding shares of MSB
common stock must vote in its favor. You can vote your shares by attending the
MSB special meeting and voting in person, or by marking the enclosed proxy card
with your vote, signing it and mailing it in the enclosed return envelope. You
can revoke your proxy as late as the date of the special meeting by submitting a
written revocation, sending in a new proxy or by attending the special meeting
and voting in person.
OUR REASONS FOR THE MERGER (PAGES AND )
Our companies are proposing to merge because we believe that by combining
them we can create a stronger and more diversified company that will provide
significant benefits to our shareholders and customers alike, including:
- the merger would increase IBC's per share book value and is expected to
increase its per share earnings beginning with the year 2000;
- the combination of MSB with IBC would allow IBC to expand the geographic
scope of its service to customers;
- the merger would provide more investor liquidity to IBC's and MSB's
shareholders; and
- the merger would provide opportunities for improved operating
efficiencies.
To review our reasons for the merger in greater detail, as well as how we
came to agree on the merger, please see pages through .
You should recognize, however, that we may not achieve these objectives
because of the risks and uncertainties discussed in the section "Risk Factors"
on pages through and the section "Forward-Looking Statements May Prove
Inaccurate" on pages through .
OUR RECOMMENDATIONS TO SHAREHOLDERS
(PAGES AND )
IBC Shareholders. The Board of Directors of IBC believes that the merger is
fair to you and in your best interests and unanimously recommends that you vote
"FOR" the proposal to approve the merger and issuance of shares of IBC common
stock in connection with the merger.
MSB Shareholders. The Board of Directors of MSB believes that the merger is
fair to you and in your best interests and unanimously recommends that you vote
"FOR" the proposal to approve the merger.
THE MERGER (PAGE )
We've attached the Agreement and Plan of Reorganization, together with the
Consolidation Agreement, to this document as Appendix A. Please read these
agreements. They are the legal documents that govern the merger.
WHAT SHAREHOLDERS WILL RECEIVE IN THE MERGER (PAGE )
MSB Shareholders. If we complete the merger, you will receive 0.8 of a
share of IBC common stock for each share of MSB common stock, subject to certain
adjustments.
IBC will not issue any fractional shares in the merger. Instead, you will
receive cash for any fractional share of IBC common stock owed to you. The
amount of cash you will receive will be calculated based on an average of IBC's
common stock closing price on the five trading days preceding the merger. For
example, if you own 13 shares of MSB common stock and the average closing price
of IBC common stock is $18.00, you will be entitled to receive 10 shares of IBC
common stock and $7.20 (.4 x $18.00).
Following the merger, you will be entitled to exchange your shares of MSB
common stock for shares of IBC common stock by sending your MSB common stock
share certificates, and a form that we will send to you, to State Street Bank &
Trust, which will then exchange them for shares of IBC common stock. For more
information on how this exchange procedure works, see "Exchange of Certificates"
on page of this document. For example, if you owned ten shares of MSB common
stock, after the merger you will send in the letter of transmittal and your old
MSB certificates and in
2
<PAGE> 10
exchange you will receive eight shares of IBC common stock.
Based on the conversion ratio in the merger, which is 0.8 of a share of IBC
common stock for each share of MSB common stock, the market value of the
consideration that MSB shareholders will receive in the merger for each share of
MSB common stock would be $ based on IBC's closing stock price on
1999. Of course, the market price of IBC will fluctuate before the
merger, while the conversion ratio is fixed, subject to certain adjustments. IBC
common stock trades on the Nasdaq Stock Market under the symbol "IBCP." You may
obtain current stock price quotations for IBC common stock from your stock
broker, in major newspapers such as The Wall Street Journal and on the Internet.
IBC Shareholders. You will not receive any shares in the merger. If you
currently own shares of IBC common stock, you will continue to hold those shares
after the merger, without any changes.
OPINIONS OF FINANCIAL ADVISORS (PAGES AND )
In deciding to approve the merger, our Boards considered opinions from our
respective financial advisors as to the fairness from a financial point of view
of the conversion ratio of 0.8. IBC received an opinion from Stifel, Nicolaus &
Company Incorporated, and MSB received an opinion from McConnell, Budd & Downes,
Inc. These opinions are attached as Appendices C and D to this Joint Proxy
Statement/Prospectus.
STOCK OPTIONS (PAGE )
MSB Stock Options. Upon completion of the merger, each option to acquire
MSB common stock that is outstanding and unexercised immediately before
completing the merger will become an option to purchase IBC common stock. The
number of shares of IBC common stock subject to the new stock options, as well
as the exercise price of those stock options, will be adjusted to account for
the conversion ratio in the merger. If there are any inconsistencies between the
existing MSB stock options and IBC's option plans, the terms of the MSB options
will remain in place.
IBC Stock Options. Upon completion of the merger, each option to acquire
IBC common stock granted under IBC's stock option plans that is outstanding and
unexercised immediately before completing the merger will remain unchanged. The
options will continue to be governed by the terms of IBC's stock option plans.
WHAT WE NEED TO DO TO COMPLETE THE MERGER (PAGE )
The completion of the merger depends on a number of conditions being met.
In addition to our compliance with the Agreement, these include:
1. Approval of the transaction by both the IBC shareholders and the MSB
shareholders.
2. Approval of the merger by certain federal and state regulatory
authorities.
3. Receipt by each of us of an opinion that, for United States federal
income tax purposes, IBC, MSB, and MSB shareholders will not recognize
any gain or loss as a result of the merger, except in connection with
the payment of cash instead of fractional shares.
4. Receipt of a letter from our independent accountants that the merger
will qualify for "pooling of interests" accounting treatment.
5. Approval by The Nasdaq Stock Market of the listing of the additional
shares of IBC's common stock to be issued in the merger.
6. The absence of any injunction or legal restraint blocking the merger or
government proceedings trying to block the merger.
TERMINATION OF THE AGREEMENT; EXPENSES (PAGE )
We can agree at any time to terminate the Agreement without completing the
merger, even if the shareholders of both our companies have approved it. Also,
either of us can decide, without the consent of the other, to terminate the
Agreement if:
1. Any government agency denies an approval that we need to complete the
merger, and that denial has become final and nonappealable, or if any
governmental entity issues a final, non-appealable order blocking the
merger.
2. The merger has not been completed by November 30, 1999, and the party
seeking termination has used its best efforts to complete the merger.
3. The IBC or the MSB shareholders do not approve the merger.
3
<PAGE> 11
4. The other party breaches the Agreement and does not correct the breach
promptly.
MSB can also terminate the Agreement if:
1. MSB receives an unsolicited proposal to acquire in a tender offer,
merger, or otherwise, more than 20% of MSB's common stock or more than
15% of its assets or deposits, and the Board of Directors of MSB
determines in good faith that it is legally required to accept that
offer.
2. The average price of IBC's stock falls below $15.5125 during the 15 day
period following the receipt of all regulatory approvals of the merger
and that decrease in IBC's stock price is 15% greater than the
percentage decrease in the Nasdaq Bank Stock Index and IBC elects not to
adjust the conversion ratio.
IBC can terminate the agreement if the Board of Directors of MSB withdraws
its recommendation of the merger.
Regardless of whether the merger is completed, we will each pay our own
fees and expenses, except that IBC will pay the costs and expenses that we've
incurred in connection with seeking regulatory approvals and in printing and
mailing this document and the registration fee that we have paid to the
Securities and Exchange Commission, as well as similar fees paid to the Office
of Thrift Supervision.
AMENDMENT (PAGE )
We can agree to amend the Agreement; however, we may not do so after our
shareholders approve the merger unless both of our Boards of Directors determine
that such an amendment would not adversely impact our shareholders.
ACCOUNTING TREATMENT (PAGE )
We expect the merger to qualify as a "pooling of interests." This means
that, for accounting and financial reporting purposes, we will treat our
companies as if they had always been one company.
REGULATORY APPROVALS (PAGE )
Certain state and other regulatory authorities will need to approve or be
notified of the merger before we can complete it. We have filed all of the
required applications or notices with these regulatory authorities.
As of the date of this document, we haven't yet received the required
approvals. While we don't know of any reason why we would not be able to obtain
the necessary approvals in a timely manner, we can't be certain when or if we
will get them.
MSB WARRANT (PAGE )
IBC and MSB entered into a warrant purchase agreement and warrant which
provides IBC the right to purchase shares of MSB's common stock. A copy of this
agreement is attached as Appendix B. We entered into this agreement in order to
increase the likelihood that MSB would complete the merger. The warrant
agreement and warrant could discourage other companies from trying or proposing
to combine with MSB before we complete the merger.
The warrant gives IBC the right to purchase up to 853,792 shares of MSB
common stock at a price of $9.8125 per share. IBC may not exercise its warrant
unless certain events occur. These events are business combination or
acquisition transactions relating to MSB and certain related activities (other
than the merger we are proposing in this document) such as a merger or the sale
of a substantial amount of MSB's assets or stock. We don't know of any event
that has occurred as of the date of this document that would permit IBC to
exercise the warrant.
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER THAT ARE DIFFERENT FROM YOUR
INTERESTS (PAGE )
Some of MSB's directors and officers have interests in the merger that are
different from, or in addition to, their interests as directors and officers or
shareholders of MSB. These interests include agreements that some officers have
with MSB which provide the officers with severance benefits if their employment
with IBC is terminated after the merger.
The members of our Boards of Directors knew about these additional
interests, and considered them, when they approved the merger.
APPRAISAL RIGHTS (PAGE )
IBC Shareholders. Michigan law does not provide you with dissenters'
appraisal rights in the merger.
4
<PAGE> 12
MSB Shareholders. Federal law does not provide you with dissenters'
appraisal rights in the merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (PAGE )
The exchange of shares by MSB shareholders will be tax-free to MSB
shareholders for federal income tax purposes, except for taxes on cash received
for a fractional share. The merger will have no tax consequences for IBC
shareholders.
IBC Shareholders. The merger will not cause you to recognize any gain or
loss for purposes of the United States federal income tax.
MSB Shareholders. For United States federal income tax purposes, the
conversion of your shares of MSB common stock for shares of IBC common stock
generally will not cause you to recognize any gain or loss. You will, however,
have to recognize gain in connection with any cash received instead of
fractional shares.
We have each received the opinion of Varnum, Riddering, Schmidt & Howlett
LLP as to the federal income tax treatment of our companies and our
shareholders. This opinion won't bind the Internal Revenue Service, which could
take a different view.
TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES TO EACH MSB
SHAREHOLDER WILL DEPEND ON THE FACTS OF THAT SHAREHOLDER'S SITUATION. EACH MSB
SHAREHOLDER IS URGED TO CONSULT HIS OR HER TAX ADVISOR FOR A FULL UNDERSTANDING
OF THE TAX CONSEQUENCES OF THE MERGER TO THAT SHAREHOLDER.
CERTAIN DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS (PAGE )
The rights of IBC shareholders are currently governed by the Business
Corporation Act of the State of Michigan, the Restated Articles of Incorporation
of IBC and the Amended and Restated Bylaws of IBC. The rights of MSB
shareholders are currently governed by federal law, the Amended Charter of MSB,
and the Amended Bylaws of MSB. Upon our completing the merger, MSB shareholders
will become shareholders of IBC, and your rights will be governed by the law and
documents which govern IBC.
5
<PAGE> 13
SELECTED FINANCIAL DATA
The following tables show summarized historical financial data for each of
us and also show similar information reflecting the merger (which we refer to as
pro forma information). In presenting the comparative pro forma information for
certain time periods, we assumed that we had been merged throughout those
periods. We also assumed that we will treat our companies as if they had always
been combined for accounting and financial reporting purposes (a method known as
pooling of interests accounting).
We expect that we will incur nonrecurring charges as a result of combining
our companies. We also anticipate that the merger will provide the combined
company with financial benefits that include reduced operating expenses and the
opportunity to earn more revenue. The pro forma information, while helpful in
illustrating the financial characteristics of the consolidated company under one
set of assumptions, is not necessarily indicative of the results of future
operations or the results that would have been achieved had we been combined in
the periods presented.
The information about IBC in the following tables is based on historical
financial information that IBC has presented in its prior Securities and
Exchange Commission filings which have been incorporated into this document by
reference. See "Where You Can Find More Information" on page . The information
about MSB is based on historical financial information that MSB has presented in
its Annual Report on Form 10-K for the year ended December 31, 1998, and its
Quarterly Report on Form 10-Q for the period ended March 31, 1999, which
accompany this document. All of the summary financial information we provide in
the following tables should be read in connection with that more detailed
financial information. The historical information presented below was derived
from IBC's and MSB's audited historical financial statements as of December 31,
1998, 1997, 1996, 1995 and 1994, and for each of the five years in the period
ended December 31, 1998, which were each audited by KPMG LLP, independent
certified public accountants.
INDEPENDENT BANK CORPORATION AND MUTUAL SAVINGS BANK, F.S.B.
SELECTED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- ------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
IBC (HISTORICAL)
Net interest income............ $ 12,869 $ 11,760 $ 49,233 $ 42,639 $ 34,672 $ 28,082 $ 25,235
Provision for loan losses...... 525 633 3,043 1,750 1,233 636 473
Net income..................... 2,765 2,433 10,221 8,924 7,852 6,810 6,031
Total assets (period end)...... 1,054,540 993,135 1,085,258 983,817 888,597 590,147 516,211
Shareholders' equity (period
end)......................... 71,874 62,114 69,705 59,516 51,836 47,025 40,311
Net income per share(5)
Basic........................ $ 0.37 $ 0.33 $ 1.39 $ 1.24 $ 1.11 $ 0.96 $ 0.85
Diluted...................... 0.37 0.33 1.38 1.22 1.10 0.96 0.84
Dividends declared per
share(5)..................... $ 0.14 $ 0.12 $ 0.50 $ 0.45 $ 0.41 $ 0.36 $ 0.29
MSB (HISTORICAL)
Net interest income............ $ 3,307 $ 2,915 $ 12,008 $ 11,254 $ 10,694 $ 11,108 $ 16,200
Provision for loan losses...... 141 110 585 225 180 169 50
Net income (loss).............. 778 543 2,658 (9,155) (112) (1,886) (1,610)
Total assets (period end)...... 569,078 656,624 564,434 644,740 664,675 720,335 863,793
Shareholders' equity (period
end)......................... 36,686 33,310 36,136 32,787 40,495 39,651 39,031
Net income (loss) per share
Basic........................ $ 0.18 $ 0.13 $ 0.63 $ (2.17) $ (0.03) $ (0.45) $ (0.39)
Diluted...................... 0.18 0.13 0.61 (2.17) (0.03) (0.45) (0.39)
Dividends declared per share..... $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
- -------------------------
Footnotes on following page.
6
<PAGE> 14
INDEPENDENT BANK CORPORATION AND MUTUAL SAVINGS BANK, F.S.B.
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------------- ------------------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PRO FORMA IBC AND MSB COMBINED
Net interest income(1)......... $ 16,177 $ 14,675 $ 61,241 $ 53,893 $ 45,366
Provision for loan losses...... 666 743 3,628 1,975 1,413
Net income(1)(2)............... 3,270 2,786 11,949 1,469 7,779
Total assets(3) (period end)... 1,635,230 1,662,517 1,661,573 1,641,489 1,564,917
Shareholders' equity(3)(4)
(period end)................ 115,972 103,982 113,522 101,035 99,776
Net income per share(1)(2)(5)
Basic....................... $ 0.30 $ 0.26 $ 1.11 $ 0.14 $ 0.74
Diluted..................... 0.30 0.26 1.10 0.14 0.74
Dividends declared per
share(5):
IBC......................... $ 0.14 $ 0.12 $ 0.50 $ 0.45 $ .41
</TABLE>
- -------------------------
(1) Excludes the effect of anticipated nonrecurring charges or the estimated
benefit of revenue enhancements and expense savings associated with the
consolidation of operations of IBC and MSB.
(2) It is expected that the tax benefits associated with MSB's deferred tax
assets will more likely than not be realized and therefore no valuation
allowance is considered necessary. As a result, federal income tax expense
or benefit has been adjusted to reflect the estimated tax expense or benefit
that would have been recognized by MSB if no valuation allowance had been
recognized during the periods presented.
(3) Reflects adjustment to include estimated nonrecurring charges as well as net
deferred tax assets.
(4) IBC and MSB have maintained capital positions in excess of minimum capital
requirements. Capital ratios as of December 31, 1998, were as follows:
<TABLE>
<CAPTION>
PRO FORMA
IBC MSB COMBINED MINIMUM
--- --- --------- -------
<S> <C> <C> <C> <C>
Capital ratios
Tier 1 capital to risk-weighted assets............. 8.72% 12.55% 9.62% 4.0%
Total capital to risk-weighted assets.............. 9.97% 13.17% 10.70% 8.0%
Tier 1 capital to assets........................... 6.23% 6.39% 6.12% 4.0%
</TABLE>
Approximately $9 million of deferred tax benefits included in pro forma
combined shareholders' equity has been excluded for regulatory capital
purposes.
(5) Per share data has been adjusted for three-for-two stock splits in 1998 and
1997 and 5% stock dividends in 1998, 1997, 1996 and 1995.
7
<PAGE> 15
COMPARATIVE PER SHARE DATA
The following table shows information about our income per share, dividends
per share and book value per share, and similar pro forma information reflecting
the merger. The pro forma information reflects the pooling of interests method
of accounting.
The information listed as "pro forma equivalent" was obtained by
multiplying the pro forma amounts by the conversion ratio of 0.8. We present
this information to reflect the fact that MSB shareholders will receive less
than one share of IBC's common stock for each share of MSB common stock
converted in the merger.
We expect that we will incur nonrecurring charges as a result of combining
our companies. We also anticipate that the merger will provide the combined
company with financial benefits that include reduced operating expenses and the
opportunity to earn more revenue. The pro forma information, while helpful in
illustrating the financial characteristics of the consolidated company under one
set of assumptions, is not necessarily indicative of the results of future
operations or the results which would have been achieved had we been combined in
the periods presented.
The information in the following table is based on the historical financial
information that IBC presented in its prior Securities and Exchange Commission
filings. We have incorporated this material into this document by reference. See
"Where You Can Find More Information" on page . The information about MSB is
based on historical financial information that MSB has presented in its Annual
Report on Form 10-K for the year ended December 31, 1998, and its Quarterly
Report on Form 10-Q for the period ended March 31, 1999, which accompany this
document. All of the summary financial information we provide in the following
tables should be read in connection with that more detailed financial
information. The historical information presented below was derived from IBC's
and MSB's audited historical financial statements as of December 31, 1998, 1997,
1996, 1995 and 1994, and for each of the five years in the period ended December
31, 1998, which were each audited by KPMG LLP, independent certified public
accountants.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
IBC (HISTORICAL)
Net income-diluted(1)............... $ 0.37 $ 0.33 $ 1.38 $ 1.22 $ 1.10 $ 0.96 $ 0.84
Dividends declared.................. 0.14 0.12 0.50 0.45 0.41 0.36 0.29
Book value (period end)(1).......... 9.68 8.53 9.44 8.24 7.30 6.67 5.69
Average shares outstanding
Basic............................ 7,411 7,264 7,342 7,204 7,092 7,061 7,136
Diluted.......................... 7,473 7,358 7,426 7,287 7,154 7,099 7,177
Shares outstanding (at period
end)............................. 7,427 7,284 7,383 7,224 7,100 7,045 7,081
MSB (HISTORICAL)
Net income-(loss) diluted........... $ 0.18 $ 0.13 $ 0.61 $(2.17) $(0.03) $(0.45) $(0.39)
Dividends declared.................. -- -- -- -- -- -- --
Book value (period end)............. 8.55 7.76 8.42 7.66 9.47 9.28 9.18
Average shares outstanding
Basic............................ 4,248 4,230 4,239 4,211 4,192 4,163 4,139
Diluted.......................... 4,337 4,335 4,326 4,211 4,192 4,163 4,139
Shares outstanding (at period
end)............................. 4,290 4,290 4,290 4,282 4,274 4,271 4,252
</TABLE>
- -------------------------
Footnotes on following page.
8
<PAGE> 16
INDEPENDENT BANK CORPORATION AND MUTUAL SAVINGS BANK, F.S.B.
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------ -----------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PRO FORMA IBC AND MSB COMBINED(1)
Net income diluted(2)(3)(4).................. $ 0.30 $ 0.26 $ 1.10 $ 0.14 $ 0.74
Dividends declared: IBC...................... 0.14 0.12 0.50 0.45 0.41
Book value per share (period end)(2)(5)...... 10.68 9.70 10.44 9.49 9.49
Average shares outstanding
Basic..................................... 10,810 10,648 10,733 10,573 10,446
Diluted................................... 10,943 10,826 10,887 10,656 10,508
Shares outstanding (period end).............. 10,859 10,716 10,815 10,650 10,519
PRO FORMA MSB SHARE EQUIVALENT(2)
Net income-diluted(2)........................ $ 0.24 $ 0.21 $ 0.88 $ 0.11 $ 0.59
Dividends declared........................... 0.11 0.10 0.40 0.36 0.33
Book value (period end)(2)................... 8.54 7.76 8.35 7.59 7.59
</TABLE>
- -------------------------
(1) Amounts have been adjusted for three-for-two stock splits in 1998 and 1997
and 5% stock dividends in 1998, 1997, 1996 and 1995.
(2) Net income per share is calculated by dividing net income for the period by
the average number of shares outstanding for the period, including common
stock equivalents. Book value per share is calculated by dividing total
shareholders' equity at the end of the period by the number of shares
outstanding at the end of the period.
(3) Excludes the effect of anticipated nonrecurring charges or the estimated
benefit of revenue enhancements and expense savings associated with the
consolidation of operations of IBC and MSB.
(4) It is expected that the tax benefits associated with MSB's deferred tax
assets will more likely than not be realized and therefore no valuation
allowance is considered necessary. As a result, federal income tax expense
or benefit has been adjusted to reflect the estimated tax expense or benefit
that would have been recognized by MSB if no valuation allowance had been
recognized during the periods presented.
(5) Reflects adjustment to include estimated nonrecurring charges as well as net
deferred tax assets.
(6) The pro forma MSB share equivalent is calculated by multiplying the pro
forma share amounts by the conversion ratio so that the per share amounts
are equated to the respective values for one share of MSB.
COMPARATIVE MARKET PRICES
The following table presents trading information for IBC common stock and
MSB common stock on March 23, 1999, and , 1999. March 23, 1999, was
the last full trading day before our announcement of the signing of the
Agreement. was the last practicable trading day for which information
was available before the date of this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
IBC COMMON STOCK MSB COMMON STOCK
--------------------------- ------------------------
HIGH LOW LAST HIGH LOW LAST
---- --- ---- ---- --- ----
<S> <C> <C> <C> <C> <C> <C>
March 23, 1999........................... $18.688 $18.250 $18.250 $9.750 $9.563 $9.563
, 1999............................
</TABLE>
The market prices of shares of IBC common stock and MSB common stock
fluctuate. As a result, you should obtain current market quotations. The market
value of 0.8 of a share of IBC common stock would be $14.60 based on the closing
price of IBC common stock on March 23, 1999, and $ based on the closing
price of IBC common stock on , 1999.
9
<PAGE> 17
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have additional questions about the merger, you should contact:
INDEPENDENT BANK CORPORATION SHAREHOLDERS
Independent Bank Corporation
230 West Main Street
Ionia, Michigan 48846
Attention: Corporate Secretary
Phone Number 1-616-527-9450
MUTUAL SAVINGS BANK, F.S.B.
Mutual Savings Bank, f.s.b.
623 Washington Avenue
Bay City, Michigan 48708
Attention: Corporate Secretary
Phone Number: 1-517-892-3511
If you would like additional copies of this Joint Proxy Statement/Prospectus,
or if you have questions about the merger, you should contact:
Corporate Investor Communications, Inc.
111 Commerce Road
Carlstadt, New Jersey 07072
Phone Number: 1-201-896-1900
10
<PAGE> 18
RISK FACTORS
In addition to the other information included or incorporated by reference
in this document, you should carefully consider the following factors in
evaluating the proposals to be voted upon. This Joint Proxy Statement/Prospectus
also contains certain forward-looking statements that involve risks and
uncertainties. See "Forward Looking Statements May Prove Inaccurate."
WE MAY NOT ACHIEVE THE COST SAVINGS WE EXPECT TO RESULT FROM THE SUCCESSFUL
INTEGRATION OF MSB INTO IBC.
We cannot assure that IBC and MSB will fully realize expected cost savings
and revenue improvements as a result of the merger, that IBC will be successful
in integrating MSB into IBC, or that MSB will not experience deposit attrition
beyond the levels anticipated by the parties, customer loss or revenue loss as a
result of the merger. The occurrence of one or more of these events could have
an adverse effect on the financial condition and results of operations of IBC.
IBC EXPECTS TO INCUR A SIGNIFICANT CHARGE RELATING TO ITS INTEGRATION PLAN
THAT IS EXPECTED TO HAVE A SIGNIFICANT IMPACT ON IBC'S RESULTS OF OPERATIONS IN
THE PERIODS WHEN THE CHARGE IS RECORDED.
As a result of the proposed merger, MSB will become IBC's fifth bank
subsidiary. Integrating MSB's operations with those of IBC and its other banks
will result in additional, nonrecurring costs to IBC, which will result in a
charge to IBC's earnings. IBC is currently working on these integration plans.
As of the date of this Joint Proxy Statement/Prospectus, IBC has estimated that
these charges will be approximately $5,000,000; however, the actual amount of
the charge, the nature of the charge or when it would be incurred will not be
known with certainty until the transaction is completed. The charge is expected
to be significant and will impact IBC's results of operations in the periods in
which the charge is recorded.
IF THE MARKET PRICE OF IBC COMMON STOCK DECLINES MSB SHAREHOLDERS WILL
RECEIVE LOWER MARKET VALUE FOR THEIR SHARES IN THE MERGER.
Except for possible adjustments to the conversion ratio of 0.8 shares of
IBC common stock for each share of MSB common stock, the number of shares of IBC
common stock to be received by the shareholders of MSB will be fixed.
Accordingly, the market value of these shares is dependent upon the market price
of IBC common stock when the merger becomes effective. In general, if the price
of IBC common stock declines, the market value of the IBC common stock to be
received by the shareholders of MSB in the merger will decline. The price of IBC
common stock may vary from its price at the date of this joint proxy
statement/prospectus because of a number of factors, including general stock
market, financial institutions' industry and economic conditions, changes in the
business, operations or prospects of IBC, as well as market assessments as to
the anticipated benefits to be derived from the proposed merger. The Board of
Directors of MSB does, however, have the right to terminate the Agreement as a
result of a significant decline in the stock price of IBC, provided IBC has
elected not to adjust the conversion ratio.
AFTER THE MERGER WITH MSB, IBC WILL CONTINUE TO FACE INTENSE COMPETITION
FOR FINANCIAL SERVICES.
IBC and MSB each face strong competition for deposits, loans and other
financial services from numerous Michigan and out-of-state banks, thrifts,
credit unions and other financial institutions as well as other entities which
provide financial services. Some of the financial institutions and financial
services organizations with which we compete are not subject to the same degree
of regulation as we are. Many of these financial institutions aggressively
compete for business in our market area. Most of our competitors have been in
business for many years, are larger, have substantially higher lending limits
than we do and may offer additional services. While we believe that the proposed
merger will enhance our competitive position, it will not diminish the intensity
of the competition in our marketplace.
THE RESULTS OF OUR OPERATIONS MAY BE MATERIALLY AND ADVERSELY AFFECTED BY
CHANGES IN PREVAILING ECONOMIC CONDITIONS, INCLUDING DECLINES IN REAL ESTATE
MARKET VALUES, RAPID CHANGES IN INTEREST RATES AND THE MONETARY AND FISCAL
POLICIES OF THE FEDERAL GOVERNMENT.
11
<PAGE> 19
Our profitability is in part a function of the difference between the
interest earned on investments and the interest paid on deposits and other
interest-bearing liabilities. In the early 1990s, many banking organizations
experienced historically high interest rate spreads. More recently, interest
rate spreads have generally narrowed due to changing market conditions and
competitive pricing pressure, and there can be no assurance that such factors
will not continue to exert such pressure. Substantially all our loans are to
businesses and individuals in lower Michigan and any decline in the economy of
this area could adversely affect us. Like most banking institutions, our
earnings will be affected by general economic conditions and other factors that
influence market interest rates and our ability to respond to changes in those
rates. At any given time, our assets and liabilities will be such that they are
affected differently by a given change in interest rates. As a result, an
increase or decrease in rates, the length of loan terms or the mix of adjustable
and fixed rate loans in our portfolio could have an adverse effect on our net
income or loss, capital and liquidity. The positive trends or developments
discussed in this Joint Proxy Statement/Prospectus might not continue. Negative
trends or developments might have a material adverse effect on us.
WE MUST KEEP UP WITH TECHNOLOGICAL ADVANCES IN THE BANKING INDUSTRY IN
ORDER TO STAY COMPETITIVE.
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better service to customers, the effective use of technology
increases efficiency and enables financial institutions to reduce costs. Our
future success will depend in part on our ability to address the needs of
customers by using technology to provide products and services that will satisfy
customer demands for convenience as well as to create additional efficiencies in
our operations. Many of our competitors have substantially greater resources to
invest in technological improvements. We might not be able to effectively
implement new technology-driven products and services or be successful in
marketing such products and services to our customers.
OUR BUSINESS COULD BE ADVERSELY IMPACTED BY YEAR 2000 COMPLIANCE ISSUES.
Software programs may not recognize calendar dates beginning in the Year
2000. This problem could force computers or machines which use date dependent
software to either shut down or provide incorrect information. This problem
could adversely affect our operations or the operations of companies to which we
have lent money. To address this problem, we have examined our computer and
information systems, contacted our suppliers of information processing services
and also contacted our software and hardware providers. Although we believe that
each of our operations are Year 2000 compliant, undetected problems may remain.
If we, or any of our key suppliers or customers, fail to mitigate internal and
external Year 2000 risks, we may temporarily be unable to process transactions
or service our customers, which could have a material adverse effect on our
business, financial condition or results of operations. Moreover, the failure of
our customers to remedy problems arising from Year 2000 risks may adversely
impact their ability to repay their loans to us. In addition, the integration of
MSB with IBC during the later portion of 1999 could exacerbate any prevailing
Year 2000 compliance problems.
12
<PAGE> 20
THE SPECIAL MEETINGS
DATE, TIMES AND PLACES
IBC. IBC's special meeting will be held at the offices of IBC, 230 West
Main Street, Ionia, Michigan, at 10:00 a.m., local time, on August , 1999.
MSB. MSB's special meeting will be held at the offices of MSB, 623
Washington Avenue, Bay City, Michigan, at 11:00 a.m., local time, on August ,
1999.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETINGS
IBC. At IBC's special meeting, holders of IBC common stock are being asked
to approve the Agreement and related Consolidation Agreement as well as the
resulting issuance of IBC common stock to MSB's shareholders as provided under
the terms of the Agreements. See "The Merger."
MSB. At MSB's special meeting, holders of MSB common stock are being asked
to approve the Agreement and the related Consolidation Agreement. See "The
Merger."
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
IBC. Only holders of record of IBC common stock at the close of business on
July , 1999, the record date for IBC's special meeting, are entitled to notice
of and to vote at IBC's special meeting. On the record date, approximately
7,426,991 shares of IBC common stock were issued and outstanding and held by
approximately holders of record. A majority of the shares of IBC
common stock issued and outstanding and entitled to vote on the record date must
be represented in person or by proxy at IBC's special meeting in order for a
quorum to be present for purposes of transacting business at IBC's special
meeting. In the event that a quorum is not present at IBC's special meeting, it
is expected that the meeting will be adjourned or postponed to solicit
additional proxies. Holders of record of IBC common stock on the record date are
each entitled to one vote per share on each matter to be considered at IBC's
special meeting.
MSB. Holders of record of MSB common stock at the close of business on July
, 1999, the record date for MSB's special meeting, are entitled to receive
notice of and to vote at MSB's special meeting. On the record date,
approximately 4,292,414 shares of MSB common stock were issued and outstanding
and held by approximately holders of record. A majority of the shares
of MSB common stock issued and outstanding and entitled to vote on the record
date must be represented in person or by proxy at MSB's special meeting in order
for a quorum to be present for purposes of transacting business at MSB's special
meeting. In the event that a quorum is not present at MSB's special meeting, it
is expected that the meeting will be adjourned or postponed to solicit
additional proxies. Holders of record of MSB common stock on the record date are
each entitled to one vote per share on each matter to be considered at MSB's
special meeting.
VOTES REQUIRED
IBC. The approval of the Agreement and related Consolidation Agreement and
issuance of the shares of IBC common stock to MSB's shareholders requires the
affirmative vote of a majority of the votes cast with respect to that proposal
and entitled to vote at IBC's special meeting. An abstention or a broker
non-vote, as described below, will not count as a vote cast at IBC's special
meeting.
MSB. The approval and adoption of the Agreement and the related
Consolidation Agreement requires the affirmative vote of the holders of record
of at least two-thirds of the shares of MSB common stock outstanding on the
record date of MSB's special meeting. An abstention or a broker non-vote will
have the same effect as a vote against the proposal to approve the Agreement and
the related Consolidation Agreement.
SHARE OWNERSHIP OF MANAGEMENT
IBC. At the close of business on the record date, directors and executive
officers of IBC and their affiliates beneficially owned and were entitled to
vote approximately 417,829 shares of IBC common stock, which represented
approximately 5.6% of the shares of IBC common stock outstanding on that date.
Each of
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the directors and executive officers has indicated his present intention to
vote, or cause to be voted, the IBC common stock owned by him FOR approval of
the Agreement, the related Consolidation Agreement and the resulting issuance of
IBC common stock to MSB's shareholders under the terms of the Agreements at
IBC's special meeting.
MSB. At the close of business on the record date, directors and executive
officers of MSB and their affiliates beneficially owned and were entitled to
vote approximately 230,725 shares of MSB common stock, which represented
approximately 5.4% of the shares of MSB common stock outstanding on that date.
Each of those directors and executive officers has indicated his present
intention to vote, or cause to be voted, the MSB common stock owned by him FOR
approval and adoption of the Agreement and the related Consolidation Agreement
at MSB's special meeting.
VOTING OF PROXIES
Submitting Proxies
IBC and MSB shareholders may vote their shares in person by attending their
respective special meeting or vote their shares by proxy by completing the
enclosed proxy card, signing and dating it and mailing it in the enclosed
postage pre-paid envelope. IF A WRITTEN PROXY CARD IS SIGNED BY A SHAREHOLDER
AND RETURNED WITHOUT INSTRUCTIONS, THE SHARES REPRESENTED BY THE PROXY WILL BE
VOTED FOR THE PROPOSALS PRESENTED AT IBC'S SPECIAL MEETING OR FOR THE PROPOSALS
PRESENTED AT MSB'S SPECIAL MEETING, AS APPLICABLE.
IBC and MSB shareholders whose shares are held in "street name" (i.e., in
the name of a broker, bank or other record holder) must either direct the record
holder of their shares as to how to vote their shares or obtain a proxy from the
record holder to vote at their respective special meeting.
Revoking Proxies
IBC and MSB shareholders of record may revoke their proxies at any time
before the time their proxies are voted at IBC's special meeting or MSB's
special meeting, respectively. Proxies may be revoked by written notice,
including by telegram or telecopy, to the Corporate Secretary of IBC or MSB, as
applicable, by a later-dated proxy signed and returned by mail or by attending
IBC's special meeting or MSB's special meeting, as applicable, and voting in
person. Attendance at IBC's special meeting or MSB's special meeting will not in
and of itself constitute a revocation of a proxy. Any written notice of a
revocation of a proxy must be sent so as to be delivered before the taking of
the vote at the applicable special meeting as follows:
<TABLE>
<S> <C>
FOR IBC STOCKHOLDERS, TO: FOR MSB STOCKHOLDERS, TO:
Independent Bank Corporation Mutual Savings Bank, f.s.b.
230 West Main Street 623 Washington Avenue
Ionia, Michigan 48846 Bay City, Michigan 48708
Telecopy: 1-616-527-5834 Telecopy: 1-517-892-8892
Attention: Corporate Secretary Attention: Corporate Secretary
</TABLE>
Shareholders who require assistance in changing or revoking a proxy should
contact Corporate Investor Communications, Inc. at 111 Commerce Road, Carlstadt,
New Jersey 07072; telephone number 1-201-896-1900.
General Information
Abstentions may be specified on the proposals. Shares of MSB common stock
or IBC common stock represented at the applicable special meeting for which
proxies have been received, but with respect to which holders of shares have
abstained on any matter, will be treated as present at the applicable special
meeting for purposes of determining the presence or absence of a quorum for the
transaction of all business. For MSB shareholders, an abstention or a broker
non-vote will have the same effect as a vote against the proposal to approve the
Agreement and the related Consolidation Agreement. For IBC shareholders, an
abstention or a
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<PAGE> 22
broker non-vote will not count as a vote cast for purposes of determining
whether the votes representing at least a majority of the shares voted at the
meetings were cast in favor of the proposal.
If any other matters are properly presented at IBC's special meeting, in
the case of the IBC shareholders, or at MSB's special meeting, in the case of
the MSB shareholders, for consideration, the persons named in the enclosed form
of proxy will have discretion to vote or not vote on those matters in accordance
with their best judgment, unless authorization to use that discretion is
withheld. If a proposal to adjourn IBC's special meeting or MSB's special
meeting is properly presented, however, the persons named in the enclosed form
of proxy will not have discretion to vote in favor of the adjournment proposal
any shares which have been voted against the proposal(s) to be presented at the
respective special meetings. Neither IBC nor MSB is aware of any matters
expected to be presented at its respective special meeting other than as
described in their respective notice of special meeting.
The cost of solicitation of proxies will be paid by IBC and MSB, as
applicable. In addition to solicitation by mail, the directors, officers and
employees of IBC and MSB may also solicit proxies from shareholders by
telephone, telecopy, telegram or in person. Arrangements will also be made with
brokerage houses and other custodians, nominees and fiduciaries to send the
proxy materials to beneficial owners; and IBC or MSB, as the case may be, will,
upon request, reimburse those brokerage houses and custodians for their
reasonable expenses in so doing.
IBC and MSB have each retained Corporate Investor Communications, Inc.
("CIC") to aid in the solicitation of proxies and to verify certain records
related to the solicitations. CIC will receive a fee of approximately $15,000 as
compensation for its services and reimbursement for its related out-of-pocket
expenses. IBC and MSB have agreed to indemnify CIC against certain liabilities
arising out of or in connection with its engagement.
Shareholders who submit proxy cards should not send in any stock
certificates with their proxy cards. A letter of transmittal with instructions
for the surrender of certificates representing shares of MSB common stock will
be mailed by IBC to former MSB shareholders shortly after the merger is
completed. See "The Merger -- Exchange of Certificates."
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<PAGE> 23
THE MERGER
The following is a summary of the material terms and provisions of the
Agreement, the Consolidation Agreement, and the Warrant Agreement which is
qualified in its entirety by reference to the Agreement, the Consolidation
Agreement, and the Warrant Agreement. The Agreement and Consolidation Agreement
are attached, collectively, as Appendix A to this Joint Proxy
Statement/Prospectus. The Warrant Agreement is attached as Appendix B to this
Joint Proxy Statement/Prospectus. Certain capitalized terms used in this
document without definition have the meanings ascribed to them in the Agreement
or the Warrant Agreement.
GENERAL
The IBC Board and the MSB Board have each unanimously approved the
Agreement and the Consolidation Agreement which provide for the merger of MSB
with and into a newly formed Michigan bank subsidiary of IBC ("New MSB Bank"),
with New MSB Bank being the surviving corporation in the merger. With certain
limited exceptions described below, each share of MSB common stock outstanding
at the Effective Time will be converted into 0.8 of a share of IBC common stock
(the "conversion ratio"). Shares of IBC common stock issued and outstanding
immediately before the Effective Time will remain issued and outstanding after
the merger.
BACKGROUND OF THE MERGER
In September 1998, MSB was contacted by a financial services company
regarding its interest in pursuing a business combination. Informal discussions
were held between the parties and a confidentiality agreement was entered into
on September 19, 1998. MSB engaged McConnell, Budd & Downes, Inc. ("MB&D") on
October 23, 1998, to provide financial advice with respect to a potential
business combination with the initial suitor and with other potential suitors.
Representatives of MB&D met with the initial suitor, along with certain
executive officers of MSB, to discuss a possible transaction. The parties were
unable to reach an agreement and discussions ended in November. In December,
MB&D participated in an MSB Board meeting by phone and reviewed materials
prepared by MB&D regarding MSB's strategic alternatives. On December 15, 1998,
MSB directed MB&D to contact a number of other financial institutions about a
potential business combination with MSB.
In late December 1998, MB&D contacted four financial organizations
(including the initial suitor and IBC) about pursuing a business combination.
All four organizations executed confidentiality agreements and were provided
both public and non-public financial information and other data regarding MSB.
Over the six weeks subsequent to the December Board meeting, representatives of
MB&D, along with members of senior management from MSB, met with the interested
parties and solicited non-binding expressions of interest regarding an
affiliation with MSB. MSB received four proposals including one from IBC. MB&D
reviewed each of these proposals with the MSB Board in January 1999. After
evaluating the proposals and the advice from MB&D, the MSB Board elected to
continue discussions with IBC and discussions were terminated with the other
parties.
At a regularly scheduled meeting of the IBC Board on January 16, 1999, the
IBC Board authorized the management of IBC to present a preliminary indication
of interest to MSB. During January of 1999, Mr. Van Loan, the Chief Executive
Officer of IBC, and Mr. Shuster, the Chief Executive Officer of MSB, as well as
certain members of their senior management teams, proceeded to discuss a
possible acquisition of MSB by IBC, and from time to time informally advised
members of the IBC Board and the MSB Board, respectively, of the status of those
discussions. Messrs. Van Loan and Shuster preliminarily determined that such a
combination could be beneficial for IBC and MSB and their respective
shareholders in view of the characteristics of the companies' businesses.
On January 19, 1999, IBC executed an engagement letter retaining Stifel
Nicolaus & Company Incorporated ("Stifel") as its financial advisor in
connection with a potential business combination involving IBC and MSB. On
January 22, 1999, IBC sent to the MSB Board a written nonbinding preliminary
proposal to acquire MSB. The preliminary proposal contemplated that IBC would
exchange IBC common stock for
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<PAGE> 24
MSB's common stock. The preliminary proposal was subject to a number of
conditions, including the execution of a mutually acceptable definitive purchase
agreement.
Thereafter, through March 23, 1999, Mr. Shuster and other members of MSB's
senior management continued discussions with Mr. Van Loan and other members of
IBC's senior management concerning the proposed transaction, and each party's
senior management team and advisors continued due diligence investigations of
the other party's business. During this period, senior managements of MSB and
IBC negotiated the terms of the Agreement and the Warrant, including the
structural and financial terms of the merger. The conversion ratio was
determined on the basis of arm's-length negotiation between the parties.
At a regularly scheduled meeting of the IBC Board on March 16, 1999, Mr.
Van Loan and senior management of IBC reviewed the reasons for and the potential
benefits of the merger in light of IBC's due diligence review of MSB's business,
and IBC's legal advisors reviewed the terms of the Agreement and Warrant and
advised the members of the IBC Board of the legal standards applicable to their
consideration of the Agreement and the Warrant. Stifel made a presentation
regarding the financial terms and fairness, from a financial point of view, of
the conversion ratio to holders of IBC common stock. After discussion and
consideration of the factors discussed under "-- Recommendation of the IBC Board
and Reasons for the Merger," the members of the IBC Board present at the meeting
unanimously approved and authorized the execution of the Agreement and the
Warrant (see "-- Terms of the Warrant Agreement").
At a special meeting of the MSB Board on March 24, 1999, Mr. Shuster and
senior management of MSB reviewed the reasons for and the potential benefits of
the merger and discussed the results of MSB's due diligence review of IBC's
business, and MSB's legal advisors reviewed the terms of the Agreement and
Warrant and advised the members of the MSB Board of the legal standards
applicable to their consideration of the Agreement and the Warrant. MSB's
financial advisor made a presentation regarding the financial terms and
fairness, from a financial point of view, of the conversion ratio to holders of
MSB common stock. After discussion and consideration of the factors discussed
under "-- Recommendation of the MSB Board and Reasons for the Merger," the
members of the MSB Board present at the meeting unanimously approved and
authorized the execution of the Agreement and the Warrant (see "-- Terms of the
Warrant Agreement").
The Agreement and the Warrant were each entered into on March 24, 1999. The
related Consolidation Agreement was signed on April 20, 1999.
RECOMMENDATION OF THE IBC BOARD AND REASONS FOR THE MERGER
THE IBC BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, IBC AND THE IBC SHAREHOLDERS. ACCORDINGLY, THE IBC BOARD HAS
UNANIMOUSLY APPROVED THE AGREEMENT AND THE CONSOLIDATION AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT THE IBC SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
AGREEMENT AND THE CONSOLIDATION AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE ISSUANCE OF IBC'S SHARES TO MSB'S SHAREHOLDERS UNDER THE
TERMS OF THE MERGER.
The IBC Board believes that the consummation of the merger presents an
opportunity to expand IBC's operations and geographic coverage in a transaction
that is expected to be accretive to the book value and earnings per share of IBC
common stock. In reaching its decision to approve the Agreement, the
Consolidation Agreement, and the Warrant, the IBC Board consulted with IBC
management, as well as with its financial and legal advisors, and considered a
variety of factors, including the following:
- IBC's familiarity with and review of MSB's business, operations,
financial condition, earnings and prospects.
- The anticipated financial impact of the proposed transaction on the
combined company's future financial performance, including, without
limitation, the increase in IBC's per share book value and the
anticipated increase in IBC's earnings per share beginning in 2000. IBC's
ability to achieve accretive earnings per share following the merger
depends on various factors, a number of which will be beyond its control,
including the regulatory environment, economic conditions, unanticipated
changes in business conditions and inflation. There can be no assurances
in this regard. See "Forward-Looking Statements May Prove Inaccurate."
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<PAGE> 25
- IBC's previous experience successfully acquiring and integrating branches
and banks.
- IBC's desire to expand its geographic market area.
- The expectation that the merger would result in synergies for the
combined company's operations.
- The structure of the merger and the terms of the Agreement and the
Warrant, including the fact that the fixed conversion ratio provides
certainty as to the number of shares of IBC common stock to be issued in
the merger (subject to certain adjustments) and that the merger is
intended to qualify as a reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and for "pooling
of interests" accounting treatment.
- The opinion of Stifel Nicolaus that the merger is fair to the IBC
shareholders from a financial point of view. See "Opinion of Financial
Advisors."
- The belief of IBC's senior management and the IBC Board that IBC and MSB
share a compatible business culture.
- The likelihood of the merger being approved by the appropriate regulatory
authorities. See "--Regulatory Approvals."
The foregoing discussion of the information and factors considered by the
IBC Board is not intended to be exhaustive but includes the material factors
considered by the IBC Board. In reaching its determination to approve and
recommend the merger, the IBC Board did not assign any relative or specific
weights to the foregoing factors, and individual directors may have given
differing weights to different factors. The IBC Board is unanimous in its
recommendation that IBC shareholders vote FOR the approval of the Agreement, the
Consolidation Agreement and the issuance of IBC's common stock to MSB's
shareholders under the terms of the merger.
RECOMMENDATION OF THE MSB BOARD AND REASONS FOR THE MERGER
THE MSB BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, MSB AND THE MSB SHAREHOLDERS. ACCORDINGLY, THE MSB BOARD HAS
UNANIMOUSLY APPROVED THE AGREEMENT AND THE CONSOLIDATION AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT MSB SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
AGREEMENT AND THE RELATED CONSOLIDATION AGREEMENT.
In reaching its decision to approve the Agreement, the Consolidation
Agreement, and the Warrant Agreement, the MSB Board consulted with MSB
management, as well as with its financial and legal advisors, and considered a
number of factors, including the following:
- The MSB Board's familiarity with and review of IBC's business,
operations, financial condition, earnings and prospects.
- The business, operations, financial condition, earnings and prospects of
each of IBC and MSB. In making its determination, the MSB Board took into
account the results of MSB's due diligence review of IBC's business.
- The expectation that the merger would result in synergies for the
combined company's operations.
- The expectation that the merger will offer MSB shareholders greater
market liquidity for their shares and the opportunity for cash dividends.
- The structure of the merger and the terms of the Agreement and the
Warrant, including the fact that, based on the market prices of MSB
common stock and IBC common stock on the date preceding execution of the
Agreement, the fixed conversion ratio provides MSB shareholders with a
premium to the market price of MSB common stock, and that the merger is
intended to qualify as a reorganization under Section 368(a) of the Code
and for "pooling of interests" accounting treatment.
- The opinion of McConnell, Budd & Downes, Inc. that the merger is fair to
the MSB shareholders from a financial point of view. See "Opinion of
Financial Advisors."
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- The improved stability of the combined company's businesses and earnings
relative to MSB on a stand-alone basis made possible by the merger, as a
result of substantially greater geographic, asset and line-of-business
diversification.
- The belief of MSB's senior management and the MSB Board that MSB and IBC
share a compatible business culture.
- The likelihood of the merger being approved by the appropriate regulatory
authorities. See "--Regulatory Approvals."
The foregoing discussion of the information and factors considered by the
MSB Board is not intended to be exhaustive but includes the material factors
considered by the MSB Board. In reaching its determination to approve and
recommend the merger, the MSB Board did not assign any relative or specific
weights to the foregoing factors, and individual directors may have given
differing weights to different factors. The MSB Board is unanimous in its
recommendation that MSB shareholders vote FOR approval and adoption of the
Agreement and the related Consolidation Agreement.
EFFECTIVE TIME OF THE MERGER
The merger will be effective at 11:59 p.m., local Michigan time (the
"Effective Time"), on the "Effective Date," which will be the latest of (i) the
day on which a Certificate of Consolidation with respect to the merger has been
filed with the Michigan Financial Institutions Bureau in accordance with the
requirements of the Michigan Banking Code, (ii) the day on which a Certificate
of Consolidation with respect to the merger has been filed with the Office of
Thrift Supervision, in accordance with the requirements of the laws of the
United States, or (iii) such later date as may be specified in such Certificate
of Consolidation. In no event, however, may the Effective Date be earlier than
the date of the expiration of the last required waiting period following receipt
of the last regulatory approval required in order to consummate the merger.
Unless IBC and MSB otherwise agree, the Effective Date will be not later than
the last business day of the month in which the last of the conditions specified
in the Agreement has been satisfied or waived, or five days after the referenced
Determination Period (as defined below) if MSB is entitled to terminate the
Agreement due to the decrease in IBC's stock price and IBC has elected to adjust
the conversion ratio. It is anticipated that, if the shareholders of IBC and MSB
approve the Agreement and the Consolidation Agreement, respectively, and if the
necessary regulatory approvals are received, and if the other conditions to the
consummation of the merger are satisfied, the Effective Date will occur in
September 1999.
TERMS OF THE TRANSACTION
The Agreement and the Consolidation Agreement provide for the merger of MSB
into New MSB Bank pursuant to the applicable provisions of the Michigan Banking
Code. At the Effective Time, New MSB Bank will be the surviving entity and the
separate existence of MSB will cease. The charter and bylaws of the surviving
entity will be those of New MSB Bank as in effect immediately before the
Effective Time until otherwise amended or repealed.
At the Effective Time, by virtue of the merger, each share of MSB common
stock issued and outstanding immediately before the Effective Time (other than
shares held by MSB, IBC, or any subsidiary of IBC or MSB, in each case other
than in a fiduciary capacity or as a result of debts previously contracted,
which will be canceled and retired at the Effective Time) will cease to be
outstanding and will be converted into the right to receive 0.8 of a share of
IBC common stock, subject to certain adjustments. Cash will be paid in lieu of
the issuance of any fractional shares of IBC common stock. No interest will be
payable with respect to any cash payments to be received by any MSB shareholder.
The MSB Board may terminate the Agreement and the Consolidation Agreement
in certain circumstances where the market price of the IBC common stock has
dropped below a certain threshold and significantly in excess of an overall
downward movement in the Nasdaq Bank Stock Index. In particular, the MSB Board
may terminate the Agreement and the Consolidation Agreement upon written notice
to IBC (the "Termination Notice"), at any time during the Determination Period,
if both of the following conditions are
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satisfied: (i) the Average Closing Price of IBC stock is less than $15.5125; and
(ii)(A) the quotient obtained by dividing the Average Closing Price by $18.25
(referred to as the "IBC Ratio") is less than (B) the quotient obtained by
dividing the Average Index Price by the Index Price on the Starting Date
($1,774) and subtracting 0.15 from the quotient in this clause (ii)(B) (referred
to as the "Index Ratio"). However, during the five day period beginning with
IBC's receipt of MSB's Termination Notice, IBC has the option to elect to
increase the conversion ratio to equal the lesser of (i) the quotient obtained
by dividing (A) the product of 0.85, $18.25 and the conversion ratio by (B) the
Average Closing Price, or (ii) the quotient obtained by dividing (A) the product
of the Index Ratio and the conversion ratio by (B) the IBC Ratio. If IBC makes
this election within this five day period, it must give prompt written notice to
MSB of such election and the revised conversion ratio, whereupon no termination
will have occurred, and the Agreement and the Consolidation Agreement will
remain in effect in accordance with their terms, except that the conversion
ratio will have been so modified.
For purposes of the termination and adjustment provisions described in the
previous paragraph, the defined terms have the following meanings:
"Average Closing Price" means the average of the daily last sale
prices of IBC common stock as reported on the Nasdaq Stock Market
("Nasdaq") (as reported in The Wall Street Journal or, if not reported
therein, in another mutually agreed upon authoritative source) for the
fifteen (15) consecutive full trading days in which such shares are traded
on the Nasdaq ending at the close of trading on the first day of the
Determination Period.
"Average Index Price" means the average of the Index Prices for the
fifteen (15) consecutive full Nasdaq trading days ending at the close of
trading on the first day of the Determination Period.
"Determination Period" means the fifteen (15) day period commencing
two (2) days after the date on which the last Requisite Regulatory Approval
required for consummation of the transaction is received.
"Index Group" means the Nasdaq Bank Stock Index.
"Index Price" on a given date means the average of the closing prices
on such date of the companies comprising the Index Group.
"Starting Date" means the last full day on which the Nasdaq was open
for trading before the execution of the Agreement.
TREATMENT OF MSB OPTIONS
At the Effective Time, each outstanding option to purchase shares of MSB
common stock will become fully exercisable and will be converted into an option
to acquire shares of IBC common stock. Any resulting fractional shares will be
paid in cash, upon exercise, in the same manner as fractional shares resulting
from the merger. The number of shares of IBC common stock that may be acquired
from a converted MSB option will equal the number of shares subject to that
option, multiplied by the conversion ratio. The per share exercise price for
each such option will be adjusted to be equal to the aggregate exercise price
for the shares of MSB common stock purchasable pursuant to such option before
the Effective Time divided by the conversion ratio.
EXCHANGE OF CERTIFICATES
State Street Bank & Trust Company is the transfer agent for IBC common
stock and has been designated by the parties to act as the exchange agent (the
"Exchange Agent") in connection with the merger.
As promptly as practicable after the Effective Date but not later than five
business days after the Effective Date, IBC will cause the Exchange Agent to
prepare and mail to each holder of record on the Effective Date of any shares of
MSB common stock a letter of transmittal containing instructions for the
surrender of all certificates for shares of MSB common stock. Upon the surrender
of a certificate or certificates representing shares of MSB common stock
standing in such holder's name to the Exchange Agent in accordance with the
instructions set forth in the letter of transmittal, the holder will be entitled
to receive in
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exchange a certificate representing the number of whole shares of IBC common
stock into which the shares represented by the certificate or certificates so
surrendered will have been converted and, if applicable, a check payable in the
amount necessary to pay for any fractional shares of IBC common stock. IBC will
deliver to the Exchange Agent such share certificates for whole shares of IBC
common stock and the amount of cash necessary to pay for all fractional shares
of IBC common stock in order to permit the Exchange Agent to promptly deliver
such certificates and cash to the holders of shares of MSB common stock upon its
receipt of certificates representing shares of MSB common stock. No interest
will be payable with respect to either the whole shares of IBC common stock or
the cash payable in lieu of fractional shares. Immediately after the third
anniversary of the Effective Date, the Exchange Agent is required to deliver to
IBC any unclaimed balance of cash owing with respect to fractional shares and
such cash will be retained by, and become the property of IBC, free and clear of
any claims whatsoever.
Neither IBC nor the Exchange Agent shall be obligated to deliver a
certificate for IBC common stock or a check for cash in lieu of fractional
shares to a former shareholder of MSB until such former shareholder surrenders
the certificate or certificates representing shares of MSB common stock standing
in such former shareholder's name or, if such former shareholder is unable to
locate such certificate or certificates, an appropriate affidavit of loss and
indemnity agreement and bond as may be required by IBC. Until so surrendered,
each outstanding certificate for shares of MSB common stock will be deemed for
all corporate purposes (except the payment of dividends) to evidence ownership
of the number of whole shares of IBC common stock into which the shares of MSB
common stock represented thereby shall have been converted.
After the Effective Date, no dividends or distributions payable to holders
of record of IBC common stock will be paid to any holder of an outstanding
certificate formerly representing shares of MSB common stock until such
certificate(s) are surrendered by such holder in accordance with the terms of
the Consolidation Agreement. Promptly upon surrender of such outstanding
certificate(s), there shall be paid to such holder of the certificate or
certificates for IBC common stock issued in exchange therefor the amount of
dividends and other distributions, if any, which theretofore became payable with
respect to such full shares of IBC common stock, but which have not theretofore
been paid on such stock. No interest shall be payable with respect to the
payment of any dividends or other distributions. All such dividends or other
distributions unclaimed at the end of three years from the Effective Date shall,
to the extent such dividends have been previously paid to the Exchange Agent, be
repaid by the Exchange Agent to IBC, and thereafter the holders of such
outstanding certificates for MSB common stock shall look, subject to applicable
escheat, unclaimed funds, and other laws, only to IBC as general creditors for
payment.
The stock transfer books of MSB will be closed as of the close of business
on the day that is one business day prior to the Effective Date. After such
date, there shall be no further registration on the records of MSB of transfers
of outstanding certificates formerly representing shares of MSB common stock.
TERMS OF THE WARRANT
MSB granted the Warrant to IBC pursuant to the Warrant Agreement and the
Agreement. Under the terms of the Warrant, IBC has the right to purchase up to
853,792 shares of MSB common stock, which represents 19.9% of the outstanding
shares of MSB common stock, for a purchase price of $9.8125 per share (subject
to certain adjustments), under certain circumstances.
IBC may not exercise the Warrant unless it has obtained all required
approvals, if any, of appropriate regulatory authorities having jurisdiction,
including the Office of Thrift Supervision, under all applicable laws and
regulations. Further, subject to the terms and conditions in the Warrant and in
the Warrant Agreement as well as the provisions of applicable law, IBC may not
exercise the Warrant without the written consent of MSB except within ninety
days after the occurrence of any of the following events (a "Triggering Event"):
(i) any material, willful, and intentional breach of the Agreement by MSB
that would permit IBC to terminate the Agreement (A) occurring after
the receipt by MSB of a proposal to engage in an "Acquisition
Transaction" (as defined below), (B) occurring after the announcement
by any other person, group of persons, or entity of an intention to
engage in an Acquisition Transaction, or (C) in anticipation and for
the purpose of engaging in an Acquisition Transaction;
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(ii) (A) a proposal to engage in an Acquisition Transaction is submitted
to and approved by the shareholders of MSB at any time before
December 31, 2000, or (B) a "Tender Offer" (as defined below) is
commenced and the transactions contemplated in the Tender Offer are
completed in such a manner that the person, group of persons, or
entity making the Tender Offer acquires beneficial ownership of more
than 20% of the capital stock or any other class of voting securities
of MSB, and the merger is not consummated before December 31, 2000;
(iii) (A) a proposal to engage in an Acquisition Transaction is received by
MSB or a Tender Offer is made directly to the shareholders of MSB or
the intention of making an Acquisition Transaction or Tender Offer is
announced at any time before the MSB special meeting; and (B) the
Board of Directors of MSB (1) fails to recommend to the shareholders
of MSB that they vote their shares of MSB common stock in favor of
the approval of the merger, (2) withdraws such recommendation
previously made, (3) fails to solicit proxies of shareholders of MSB
to approve the merger, or (4) fails to hold the MSB special meeting.
Notwithstanding the foregoing, the Warrant will not be exercisable after
the occurrence of an "Exercise Termination Event" which for purposes of the
Warrant means (i) the Effective Time, (ii) the failure of the shareholders of
IBC to approve the merger; (iii) the failure of any applicable regulatory
authority to provide any required approval or consent to the merger, which
failure was not the result of the existence of a proposal to engage in an
Acquisition Transaction or a breach by MSB of any of its obligations under any
of the merger Documents; or (iv) the merger Documents are terminated pursuant to
Section 6.1 of the Agreement, unless the event giving rise to the right to
terminate is preceded by a Triggering Event or the receipt by MSB of a proposal
to engage in an Acquisition Transaction, or the announcement by another person,
group of persons, or entity of a proposal to engage in an Acquisition
Transaction.
For purposes of the Warrant, a "Tender Offer" means a tender or exchange
offer made by any person, group of persons, or entity other than IBC or an
affiliate of IBC to acquire equity securities of MSB if, upon the completion of
the transactions proposed in such offer, such person, group of persons, or
entity would own or have the right to acquire beneficial ownership of more than
20% of the capital stock or any other class of voting securities of MSB. A
Tender Offer which is contingent upon the expiration of the Warrant is deemed to
commence when it is announced. An "Acquisition Transaction" means a transaction
between MSB and any person, group of persons, or entities other than IBC, or an
affiliate of IBC, involving (A) the sale or other disposition of more than 20%
of the shares of the capital stock or any other class of voting securities of
MSB, including, but not limited to, a Tender Offer, (B) the sale or other
disposition of 15% or more of the consolidated assets or deposits of MSB, or (C)
a merger or consolidation involving MSB other than a transaction pursuant to
which MSB will be the surviving corporation and the current shareholders of MSB
will be the owners of a majority of the stock of the surviving corporation
following the transaction.
Under the terms of the Warrant Agreement, MSB will repurchase from IBC (or
any subsequent holder of the Warrant), at a price based on the highest price
paid for shares of MSB common stock in connection with certain transactions
involving a merger, business combination, or other acquisition transaction
relating to MSB, the Warrant and all shares of MSB common stock purchased
pursuant to an exercise of the Warrant at the request of IBC (or any subsequent
holder) at any time within one year of the occurrence of such merger, business
combination, or other transaction.
COVENANTS OF THE PARTIES
The Agreement requires MSB, IBC, and their respective subsidiaries to use
reasonable efforts to take all actions and do all things necessary, proper, or
advisable under applicable law to consummate and make effective the merger,
subject to the terms and conditions of the Agreement. Each of MSB and IBC is
required to keep the other party advised of all material developments relevant
to its business and the consummation of the merger and to permit the other party
to make reasonable investigation of its business and properties. Each party must
use its reasonable efforts to obtain all consents necessary or desirable for the
consummation of the transactions contemplated by the Agreement.
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<PAGE> 30
Unless IBC consents otherwise, the Agreement requires MSB to use its best
efforts to maintain its properties; to comply with applicable laws; to maintain
its books and records consistent with past practices; to make no change in its
Charter or Bylaws; to operate its business in the usual, regular, and ordinary
course; to preserve intact its business organization and assets and maintain its
rights and franchises; and to keep available the services of its present
officers and employees and preserve the goodwill of its customers and others
having business relations with it.
In addition, the Agreement provides that, without the consent of IBC, MSB
cannot do, or agree or commit to do, any of the following:
- sell, mortgage, pledge, encumber, or otherwise dispose of any of MSB's
material property and assets otherwise than in the ordinary course of
business, except as to dispositions that MSB is compelled to make or over
which it has no control, which it will use its best efforts to prevent;
- repurchase, redeem, or otherwise acquire or exchange (other than in the
ordinary course under employee benefit plans) any shares, or securities
convertible into any shares, of the capital stock of MSB;
- declare or pay any dividend, or make any other distribution in respect to
MSB's capital stock, in liquidation or otherwise;
- purchase any securities or make any material investments, except as
provided for in the Agreement;
- grant any increase in compensation or benefits to its employees or
officers except as made in the ordinary course of business and not
inconsistent with past practices or as required by law, pay any severance
or termination pay or any bonus other than pursuant to written policies
or contracts in effect on the date of the Agreement, enter into or amend
any severance agreements with officers, grant any increase in
compensation or benefits to directors, voluntarily accelerate the vesting
of any employee benefits other than pursuant to written policies or
contracts in effect on the date of the Agreement, or grant any stock
appreciation rights, cash awards, or any rights to acquire any MSB
securities under any MSB stock option plan or enter into or amend any
employment contract that is not terminable on 30 days notice or less
without penalty or obligation;
- adopt or agree to adopt any new employee benefit plan, or make any
material change to an existing employee benefit plan, other than as
required by law or as permitted by the Agreement, or make any
distributions from such employee benefit plans except as required by law
or the terms of such plan and consistent with past practices;
- make any significant change in any tax or accounting method or system of
internal accounting controls, except as may be appropriate to conform
with changes in the tax laws, regulatory accounting requirements, or
generally accepted accounting principles or as provided by the Agreement;
- commence any litigation other than in the ordinary course of business in
accordance with past practice or settle certain material litigation;
- enter into or commit to enter into any agreement to purchase trust,
consulting, professional, data processing or other material non-employee
services which is not terminable by MSB without cost or penalty upon 30
days' notice;
- terminate or amend any material lease or other material agreement except
for the expiration of contracts at the end of their term and termination
of contracts which are terminable by the other party without any fault or
omission on the part of MSB;
- pay or incur liabilities in excess of $30,000 in any single transaction
for property, except for normal replacements;
- open or materially enlarge or remodel any of MSB's facilities, except as
disclosed to IBC;
- lease, purchase or otherwise acquire any real property for use as a
branch bank or apply for regulatory approval for any new branch banking
facility;
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- make any change in the number of capital shares issued and outstanding,
except pursuant to existing MSB stock options and securities issuable
under the Warrant Agreement;
- do or fail to do anything that would cause a breach of, or default under,
any existing contract or arrangement as to which MSB or any of its
properties is bound; and
- make any borrowings except in the ordinary course of business.
Each of MSB and IBC is required to give prompt written notice to the other
party upon becoming aware of any change or any condition, event or circumstance,
fact or occurrence (other than general economic or competitive conditions) which
is reasonably expected to have a material adverse effect on it or would cause or
constitute a material breach of any of its representations, warranties, or
covenants contained in the Agreement and to use reasonable efforts to prevent or
promptly cure the same.
The Agreement provides that MSB, IBC, and their respective subsidiaries
will file all reports required to be filed with the applicable regulatory
authorities; that the financial statements contained in all such reports will be
prepared in accordance with the laws applicable to such reports; and that all
such reports filed with the Securities and Exchange Commission (in the case of
IBC) or the OTS (in the case of MSB) will comply with all applicable securities
laws and will not contain an untrue statement of material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
Under the Agreement, MSB and IBC are each required to:
- maintain the confidentiality of all confidential information furnished to
it by the other party;
- not use such information other than in furtherance of the transactions
contemplated by the Agreement and related Consolidation Agreement; and
- promptly return or certify the destruction of all documents and work
papers containing confidential information received from the other party
if the Agreement and Consolidation Agreement are terminated before the
Effective Time.
The Agreement provides that MSB will not (i) solicit, encourage, or
authorize any individual, corporation or other entity to solicit from any third
party any inquiries or proposals relating to or which may be reasonably expected
to lead to an "Acquisition Transaction," which term has the same meaning as
provided in the Warrant, as described under "Terms of the Warrant" above, except
pursuant to a written direction from a regulatory authority or (ii) negotiate
with or entertain any proposals from any other person for any Acquisition
Transaction, except pursuant to a written direction from any regulatory
authority or to the extent necessary to comply with the fiduciary duties of
MSB's Board of Directors, as advised by counsel. Furthermore, except as
necessary to comply with the fiduciary duties of MSB's Board of Directors, as
advised by counsel, MSB may not furnish any non-public information that it is
not legally obligated to furnish in connection with, or enter into any agreement
with respect to, any Acquisition Transaction, but MSB may communicate and
disclose information about such a proposal to engage in an Acquisition
Transaction to its shareholders if and to the extent that it is required to do
so in order to comply with its legal obligations as advised by counsel. MSB is
required to notify IBC in the event that it receives any inquiry or proposal
relating to any Acquisition Transaction, keep IBC informed of the status and
details of any such inquiry or proposal, and must give IBC five days' advance
notice of any agreement to be entered into with, or any information to be
supplied to, any person making such inquiry or proposal.
Before the Effective Time, MSB and IBC are required to consult with each
other as to the form and substance of any press release or other public
disclosure related to transactions contemplated by the Agreement. MSB and IBC
are required to use reasonable efforts to cause the merger to qualify as a
reorganization within the meaning of the applicable tax law.
In addition, IBC is to provide certain benefits and indemnification to
certain present and former directors, officers, employees, and agents of MSB.
See "The Merger -- Interests of Management."
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MSB BENEFIT PLANS
In connection with the proposed merger, IBC has agreed to the disposition
of various employee benefit plans currently covering the employees of MSB and
its affiliates. The MSB Employee Stock Ownership Plan and Trust (the "MSB ESOP")
will be merged into the IBC Employee Stock Ownership Plan and Trust (the "IBC
ESOP") following the later of the Effective Time or the completion of certain
cash allocations and distributions described below. Upon the merger of the MSB
ESOP and the IBC ESOP, remaining account balances of MSB ESOP participants who
are not then employed by IBC or an affiliate will be distributed to those
participants based upon the vesting schedule provisions of the MSB ESOP at the
Effective Time. The Agreement provides that all cash held in the MSB ESOP
suspense account attributable to certain securities Litigation Proceeds will be
allocated to the accounts of current and former MSB ESOP participants as of the
Effective Time. Those cash allocations, as well as all remaining cash to be
allocated to MSB ESOP participant accounts and attributable to the Litigation
Proceeds will be either distributed to or rolled over by MSB ESOP participants
and former participants, at their election, pursuant to the MSB ESOP in effect
at the Effective Time. These allocations and distributions or rollovers will be
made as soon as practicable after the later of the Effective Time or the date of
receipt of a private letter ruling requested by MSB from the Internal Revenue
Service addressing the treatment of the Litigation Proceeds held by the MSB
ESOP.
Following the merger of the MSB ESOP and the IBC ESOP, the remaining
account balances of MSB ESOP participants who are employed by IBC or an
affiliate will be maintained for their benefit in separate accounts established
under the IBC ESOP and will vest in such MSB ESOP participant accounts according
the MSB ESOP vesting schedule in effect at the Effective Time. Those MSB
employees who become employees of IBC or an affiliate at the Effective Time will
be entitled to participate in the IBC ESOP as of the later to occur of the
Effective Time or the date such MSB ESOP participants satisfy eligibility
requirements of the IBC ESOP. Former MSB employees will receive credit for prior
employment with MSB for eligibility and vesting purposes under the IBC ESOP. IBC
is required to maintain and operate the MSB ESOP in accordance with its terms
and applicable law and may not amend the MSB ESOP or the IBC ESOP in a way that
would adversely affect the rights of MSB ESOP participants with respect to their
account balances that are transferred to the IBC ESOP.
The Agreement provides that all participants in MSB's 401(k) plan will be
fully vested at the Effective Time. The MSB 401(k) plan may be merged with IBC's
defined contribution plan, in which case all MSB 401(k) participants will become
participants in IBC's 401(k) plan and their prior employment with MSB will be
counted for purposes of eligibility and vesting. If the MSB 401(k) plan is not
merged with the IBC's 401(k) plan within eighteen months after the Effective
Time, the MSB 401(k) plan will be maintained as a separate plan solely for the
benefit of MSB 401(k) plan participants.
At the Effective Time, MSB's participation in the MSB pension plan will
terminate. All amounts contributed by MSB to that plan before the Effective
Time, as well as all earnings, will be applied only to provide benefits to MSB
employees who participate in the MSB pension plan.
Also, at the Effective Time, each employee of MSB will become entitled to
participate in each of the employee benefit plans maintained by IBC at the
Effective Time, under the terms of those respective plans.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The merger and the other related transactions will occur only if the
Agreement and the related Consolidation Agreement is approved by the holders of
a majority of the shares of IBC common stock present and voting at the IBC
special meeting and if the Agreement and the related Consolidation Agreement is
approved by the holders of at least two-thirds of the outstanding shares of MSB
common stock at the MSB special meeting. In addition, the obligations of MSB and
IBC to consummate the merger are subject to the satisfaction of certain other
conditions, including: (i) the receipt of all required regulatory approvals of
the merger and the expiration of any applicable waiting or appeal periods; (ii)
the absence of any proceeding, pending or overtly threatened, before any
governmental agency in which it is sought to restrain or prohibit the
consummation of the transactions contemplated by the Agreement; (iii) no stop
orders suspending the effectiveness of the registration statement shall have
been issued, no action, suit, proceeding or investigation
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by the SEC to suspend the effectiveness thereof shall have been initiated and be
continuing, and all necessary approvals under state securities laws or the 1933
Act or the 1934 Act, as amended, relating to the issuance or trading of the IBC
common stock issuable pursuant to the merger shall have been received; and (iv)
the receipt by MSB and IBC of a letter from KPMG LLP that the merger will be
accounted for as a pooling of interests.
Conditions to IBC's obligations. The obligations of IBC to consummate the
merger are further conditioned upon the following: (i) the representations and
warranties of MSB set forth in the Agreement being true and correct in all
material respects as of the date of the Agreement and at the Effective Time;
(ii) the receipt by IBC of a certificate signed by the Chief Executive Officer
and Secretary of MSB to the effect that the representations and warranties of
MSB set forth in the Agreement are true and correct in all material respects as
of the Effective Time and all conditions to the obligations of IBC as set forth
in the Agreement and required to be fulfilled by MSB have been fulfilled on or
before the Closing Date; (iii) the receipt by IBC of an opinion rendered by
legal counsel to MSB as to certain matters set forth in the Agreement; (iv)
between the date of the Agreement and the Effective Time, no event has occurred
which might reasonably be expected to result in a material adverse change in
MSB's business; (v) MSB has provided to IBC any information necessary to make
its representations true and correct as of the Closing Date, and that
information shall not reflect a material adverse change from the representations
and warranties made as of the date of the Agreement; and (vi) before the
Effective Time, MSB shall not have been required, in accordance with generally
accepted accounting principles, to record an accrual in excess of $1,800,000
relating to the Pending Litigation because a loss from the Pending Litigation
has become reasonably probable and such loss can be reasonably estimated.
Conditions to MSB's obligations. The obligations of MSB to consummate the
merger are further conditioned upon the following: (i) the representations and
warranties of IBC set forth in the Agreement being true and correct in all
material respects as of the date of the Agreement and at the Effective Time;
(ii) the receipt by MSB of a certificate signed by the President and Secretary
of IBC to the effect that the representations and warranties of IBC set forth in
the Agreement are true and correct in all material respects as of the Effective
Time and all conditions to the obligations of IBC as set forth in the Agreement
and required to be fulfilled by IBC have been fulfilled on or before the Closing
Date; (iii) the receipt by MSB of an opinion rendered by counsel to IBC as to
certain matters set forth in the Agreement; (iv) between the date of the
Agreement and the Effective Time, no event has occurred which might reasonably
be expected to result in a material adverse change in IBC's business; (v) IBC
has provided to MSB any information necessary to make its representations true
and correct as of the Closing Date, and that information shall not reflect a
material adverse change from the representations and warranties made as of the
date of the Agreement; and (vi) effective as of the Effective Time, IBC shall
have entered into a Management Continuity Agreement with the Chief Executive
Officer of MSB in the form required by the Agreement.
AMENDMENT
The Agreement and the Consolidation Agreement may be amended by a
subsequent writing signed by MSB and IBC and authorized by their respective
Boards of Directors, whether before or after shareholder approval of the
Agreement and the Consolidation Agreement has been obtained, provided that,
after any such approval by the shareholders of IBC or MSB, there may be no
amendment unless the Boards of Directors of IBC and MSB determine that such
amendment does not and will not have a material adverse effect on the
shareholders of IBC and MSB.
TERMINATION
The Agreement and the Consolidation Agreement may be terminated and the
merger abandoned at any time before the Effective Time as follows: (i) by mutual
consent of the Board of Directors of IBC and the Board of Directors of MSB; (ii)
by either party if an event shall have occurred which might reasonably be
expected to result in a material adverse change in the other party's business;
(iii) by either party if any Litigation, other than the Pending Litigation, is
pending or overtly threatened (a) against or affecting the other party in a way
which might reasonably be expected to result in a material adverse change in the
other
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party's business, or (b) before any court or other governmental agency by the
federal or any state government in which it is or will be sought to restrain or
prohibit the consummation of the merger; (iv) by the Board of Directors of
either party in the event of a material inaccuracy of any representation or
warranty of the other party or the material breach of any covenant or Agreement,
in any case which cannot be or has not been cured within 30 days after the
giving of written notice to the breaching party of the breach; (v) by the Board
of Directors of either party in the event any required consent of any regulatory
authority is denied and that denial is final; (vi) by the Board of Directors of
either party in the event the merger fails to have been consummated by November
30, 1999; (vii) by either party if the approval of shareholders shall not have
been obtained; (viii) by MSB if, as a result of a Tender Offer by a party other
than IBC, or any written offer or proposal with respect to an Acquisition
Transaction, the Board of Directors of MSB, upon advice of counsel and
subsequent to negotiation with IBC, determines in good faith that its fiduciary
obligations under applicable law require that such Tender Offer or written offer
of proposal be accepted; (ix) by MSB if the price of IBC's common stock
decreases and gives right to the Board of MSB to file a Termination Notice (See
"The Merger -- Terms of the Transaction"); and (x) by IBC, in the event that the
Board of Directors of MSB fails to reaffirm its approval of the merger or
resolves not to reaffirm the merger, or affirms, recommends, or authorizes
entering into any other Acquisition Transaction or other transaction involving a
merger, share exchange, consolidation.
In the event of the termination and abandonment of the Agreement and the
Consolidation Agreement, they will become void and the respective
representations, warranties, obligations, covenants, and agreements of the
parties will not survive such termination, except for certain provisions which
will remain in effect under their express terms.
The Agreement provides that MSB will pay to IBC a fee in the amount of the
direct costs and expenses or portion thereof incurred by or on behalf of IBC in
connection with the transactions contemplated by the Agreement, but in no event
to exceed $250,000, if any of certain "Triggering Events" occurs. For purposes
of the Agreement, "Triggering Events" have the same meaning as provided in the
Warrant, as described under "Terms of the Warrant" above. Notwithstanding the
foregoing, the termination fee will not be payable upon a failure to consummate
the Merger solely as a result of any of the following: (i) the failure of the
shareholders of IBC to approve the merger; or (ii) the failure of any applicable
regulatory authority to provide any required approval or consent to the merger,
which failure was not the result of the existence of a proposal to engage in an
Acquisition Transaction or a breach by MSB of any of its obligations under the
Agreement and the Consolidation Agreement.
NO DISSENTING SHAREHOLDERS' RIGHTS
Under applicable law, neither the holders of IBC common stock nor the
holders of MSB common stock are entitled to dissenting shareholders' rights in
connection with the consummation of the merger.
INTERESTS OF MANAGEMENT
Upon consummation of the merger, IBC has agreed to honor the provisions of
MSB's severance pay plan. In addition, IBC has agreed to provide severance
payments to employees of MSB and its affiliates, excluding employees covered by
the severance pay plan. Benefits are to be provided to employees of MSB and its
affiliates who are not offered comparable employment by IBC or an affiliate
following the Effective Time, as well as employees of MSB or its affiliates who
are offered and accept employment by IBC or affiliate following the Effective
Time but are subsequently terminated within twelve months after the Effective
Time for any reason other than cause. For nonofficers of MSB, employee severance
payments are to be paid at the rate of one week of current base salary for each
full year of service subject to a maximum of twenty-six weeks and a minimum of
three weeks of paid salary. For officers, the severance benefits are equal to
two weeks of current base salary for each full year of service subject to a
maximum of twenty-six weeks and a minimum of paid salary. In addition,
management employees will be entitled to the benefits as described above under
the caption "The Merger -- MSB Benefit Plans."
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IBC has also agreed that, for a period of six years after the Effective
Date (or the applicable statute of limitations period, if longer), IBC will
indemnify the present and former directors, officers, employees, and agents of
MSB and its affiliates against certain liabilities arising at or before the
Effective Time to the fullest extent permitted under applicable law, in
accordance with the terms of the Agreement. IBC has also agreed, for a period of
three years after the Effective Date to use its reasonable efforts to cause the
individuals, serving as officers and directors of MSB and its subsidiaries
immediately before the Effective Time, to be covered by the directors and
officers' liability insurance policies maintained by the resultant bank (or by
IBC), or to substitute policies of at least the same coverage and amounts and
containing terms and conditions that are not less advantageous than the policies
previously maintained by MSB and its affiliates. The insurance policies will
specifically exclude liabilities relating to the Pending Litigation, and IBC is
not obligated to expend, for such policies, any more than twice the aggregate
premiums paid by MSB for directors and officers' liability insurance for the
year ending December 31, 1998.
All outstanding options to acquire shares of MSB common stock will become
immediately exercisable at the effective date of the merger. See the discussion
under the caption "The Merger -- Treatment of MSB Options." In addition, as a
condition to the consummation of the merger, IBC is required to enter into a
management continuity agreement with Robert Shuster, the Chief Executive Officer
of MSB. The management continuity agreement is a standard form of management
continuity agreement provided to other executives of IBC. The agreement provides
for continuing benefits in the event of a change in control of IBC and if an
employee's service with IBC or an affiliate is terminated, the employee's duties
and responsibilities are reduced, the employee's compensation is reduced, or the
employee is required to relocate under certain conditions.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material United States federal income
tax consequences of the merger. This summary is based on the Internal Revenue
Code and is for general information only. This summary is not a complete
description of all the possible tax consequences of the merger and the tax
treatment of a particular shareholder will depend upon such shareholder's
particular situation. Special tax considerations not discussed herein may be
applicable to particular classes of taxpayers, such as foreign citizens,
broker-dealers, certain retirement plans, tax-exempt entities, financial
institutions, or insurance companies, or to any shareholder who acquired MSB
common stock through the exercise of an employee stock option or otherwise as
compensation. All shareholders should consult with their own tax advisors as to
particular tax consequences of the merger to them, including the applicability
and effect of state, local, and foreign tax laws and possible changes in the tax
law.
IBC and MSB have each received an opinion of Varnum, Riddering, Schmidt &
Howlett LLP to the effect that, for federal income tax purposes, the merger will
constitute a reorganization within the meaning of Section 368(a) of the Code and
will result in the tax consequences described below. In rendering this opinion,
Varnum, Riddering, Schmidt & Howlett LLP has relied upon certain assumptions and
representations of the parties and their respective officers, as well as the
directors and certain shareholders of MSB.
The following is a summary of the tax consequences which will result:
(a) No gain or loss will be recognized by a MSB shareholder upon such
shareholder's receipt of shares of IBC common stock solely in exchange
for such shareholder's shares of MSB common stock, except to the extent
that such shareholder receives any cash in lieu of the issuance of
fractional shares.
(b) The tax basis of the IBC common stock received will be the same as the
tax basis of the MSB common stock surrendered in exchange therefor
(reduced by any amount allocated to a fractional share of IBC common
stock with respect to which cash is received).
(c) The holding period for tax purposes of the IBC common stock to be
received by MSB shareholders will include the holding period of the
shares of MSB common stock surrendered in exchange therefor, provided
that MSB common stock was held as a capital asset in the hands of the
MSB shareholder on the Effective Date.
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(d) The payment of cash in lieu of fractional share interests of IBC common
stock will be treated for federal income tax purposes as if the
fractional shares were distributed as part of the exchange and then
redeemed by IBC. These cash payments will be treated as having been
received as distributions in full payment in exchange for the stock
redeemed subject to the conditions and limitations of Section 302 of
the Code.
(e) No gain or loss will be recognized by either IBC or MSB (except for the
inclusion in income of amounts resulting from any required changes in
accounting methods or similar items) as a result of the consummation of
the merger.
The foregoing discussion is based on currently existing provisions of the
Code, existing and proposed treasury regulations thereunder, and current
administrative rulings and court decisions. The opinion described above is not
binding on the Internal Revenue Service and no rulings of the Internal Revenue
Service will be sought or obtained in relation to the merger. There can be no
assurance that the Internal Revenue Service will agree with the tax consequences
of the merger described above. All of the foregoing discussion is subject to
change and any such change could affect the continuing validity of such
discussion.
Payments made in lieu of the issuance of fractional shares of IBC common
stock may be subject to information reporting to the Internal Revenue Service
and to a 31% backup withholding tax. Backup withholding will not apply, however,
to a payment to a MSB shareholder or other payee if such shareholder or payee
completes and signs the substitute Form W-9 that will be included as part of the
transmittal letter or otherwise proves to IBC and the Exchange Agent that it is
exempt from backup withholding.
EACH MSB SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR
CONCERNING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER,
INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER TAX
LAWS AND ANY PROPOSED CHANGES IN SUCH TAX LAWS.
ACCOUNTING TREATMENT
We anticipate that the merger will be accounted for as a pooling of
interests. The consummation of the merger is conditioned on the receipt by IBC
and MSB of a letter from their respective independent certified public
accountants regarding the appropriateness of pooling of interests accounting for
the merger if consummated in accordance with the Agreement.
REGULATORY APPROVALS
Various aspects of the proposed merger are subject to approval by the
Federal Reserve Board, the Michigan Financial Institutions Bureau, the Federal
Deposit Insurance Corporation and the Office of Thrift Supervision.
Federal Reserve Approval. On April 23, 1999, IBC filed an Application with
the Federal Reserve Bank of Chicago, pursuant to Section 3(a)(3) of the Bank
Holding Company Act, which requires the Federal Reserve Board's approval for IBC
to acquire 100% of the voting shares of the bank resulting from the merger. We
expect that the application will be acted upon by the Federal Reserve Bank of
Chicago under authority delegated to it by the Federal Reserve Board.
FDIC Approval. On April 23, 1999, IBC caused an Interagency Bank Merger
Application to be filed with the FDIC for approval of the consolidation of MSB
with IBC's newly formed interim bank subsidiary. The FDIC has agreed to handle
this application using its expedited processing procedure. Under this procedure,
the FDIC will take action on the application on the later of (1) forty-five days
after the date of the FDIC's receipt of a substantially complete application,
(2) ten days after the date of last publication required of the filing of the
application, or (3) five days after receipt of the Attorney General's report on
the competitive factors involved in the proposed merger. The FDIC informed IBC
that the application was considered substantially complete as of April 23, 1999.
The FDIC, however, has the right to remove the application from its expedited
processing procedures for certain reasons established in the FDIC regulations.
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<PAGE> 37
Michigan Financial Institution Bureau Approval. On April 26, 1999, the
Financial Institutions Bureau of the state of Michigan accepted the application
of the New MSB Bank for permission to consolidate with MSB, pursuant to section
130 of the Michigan Banking Code.
Notice to the Office of Thrift Supervision. The Office of Thrift
Supervision requires only that the notice of the proposed combination of MSB and
IBC's interim subsidiary bank be provided to it at the time of filing of the
other required federal applications. MSB filed the requested notice with the
Office of Thrift Supervision on April 24, 1999.
The managements of IBC and MSB believe that the Federal Reserve will
approve the application made to it, that the FIB and the FDIC will approve the
applications filed with them, and that the merger will not be subject to
challenge by the Department of Justice under the antitrust laws. However, no
assurance can be provided that such approvals will be obtained, that the
Department of Justice will not challenge the merger under the antitrust laws, or
that the approvals by the FIB and the FDIC will not contain conditions
unacceptable to either IBC or MSB. See "The Merger -- Conditions to Consummation
of the Merger."
RESALES OF IBC COMMON STOCK
Although the IBC common stock to be issued upon consummation of the merger
has been registered under the Securities Act of 1933, as amended, certain
directors and officers of MSB and other persons deemed to be affiliates of MSB
and their affiliates may not resell or otherwise dispose of the shares of IBC
common stock received by them in connection with the merger unless such sales
are made pursuant to an effective registration under the Securities Act of 1933
or pursuant to Rule 145 promulgated by the SEC or another exemption from
registration under such Act. MSB is required to deliver to IBC from each of such
person a written undertaking to the effect that no sale, transfer, or other
disposition will be made of any IBC common stock received in the merger except
in accordance with the above restrictions.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
IBC has a dividend reinvestment and stock purchase plan that provides, for
those IBC shareholders who elect to participate, that dividends on IBC common
stock will be used to purchase either original issue shares or shares in the
open market at the market value of IBC common stock on a quarterly basis. The
plan also permits participants to invest in additional shares of IBC common
stock through optional cash payments, of not less than $50 per payment nor more
than $5,000 per quarter, at the then-current market price of such stock at the
time of purchase. Optional cash investment purchases will be made on behalf of
plan participants by the plan administrator on the succeeding dividend payment
date. Following the merger, former shareholders of MSB who elect to retain their
IBC common stock will be eligible to participate in this plan.
OPINIONS OF FINANCIAL ADVISORS
OPINION OF FINANCIAL ADVISOR TO IBC
IBC has retained Stifel as its financial advisor in connection with the
merger and to render a fairness opinion with respect thereto. Stifel is an
investment banking and securities firm with membership on all principal U.S.
securities exchanges. As part of its investment banking activities, Stifel is
regularly engaged in the valuation of businesses and their securities in
connection with merger transactions and other types of acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
Following the March 16, 1999 meeting of the Board of Directors of IBC, Stifel
rendered its oral opinion that the conversion ratio was fair to the holders of
IBC common stock from a financial point of view. Stifel has confirmed its March
23, 1999 oral opinion by delivery of its written opinion to the IBC Board of
Directors, dated the date of this Joint Proxy Statement/Prospectus, that, based
upon and subject to the various considerations set forth therein, as of the date
hereof the conversion ratio is fair to the holders of IBC common stock from a
financial point of view. Stifel is familiar with IBC, having acted as its
financial advisor in connection with, and having participated in the
negotiations leading to, the Agreement.
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<PAGE> 38
The full text of Stifel's opinion as of the date hereof, which sets forth
the assumptions made, matters considered and limitations of the review
undertaken, is attached as Appendix C to this Joint Proxy Statement/ Prospectus
and is incorporated herein by reference, and should be read in its entirety in
connection with this Joint Proxy Statement/Prospectus. The summary of the
opinion of Stifel set forth in this Joint Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion.
Stifel's opinion is directed only to the fairness of the conversion ratio
from a financial point of view and does not constitute a recommendation to any
holders of IBC common stock as to how such holders of IBC common stock should
vote at the special meeting or as to any other matter.
In connection with its March 23, 1999 oral opinion and its written opinion
dated the date hereof, Stifel reviewed, among other things: the Agreement; the
financial statements of IBC and MSB included in their respective Annual Reports
on Form 10-K for the five years ended December 31, 1998 and their respective
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999; certain
internal financial analyses and forecasts for IBC prepared by its management;
certain pro forma financial forecasts for IBC and MSB on a combined basis,
giving effect to the merger, prepared by the respective managements of IBC and
MSB utilizing IBC's and MSB's internal financial forecasts. Stifel conducted
conversations with IBC's senior management and MSB's senior management regarding
recent developments and management's financial forecasts for IBC and MSB,
respectively. In addition, Stifel spoke to members of IBC's senior management
and MSB's senior management regarding factors which affect each entity's
business. Stifel has reviewed the analysts' forecasts for MSB used by the
management of IBC in preparing pro forma financial forecasts for the combined
company resulting from the merger. Stifel has also compared certain financial
and securities data of IBC and MSB with various other companies whose securities
are traded in public markets, reviewed the historical stock prices and trading
volumes of the common stock of IBC and MSB, reviewed the financial terms of
certain other business combinations and conducted such other financial studies,
analyses and investigations as it deemed appropriate for purposes of its
opinion. Stifel also took into account its assessment of general economic,
market and financial conditions and experience in other transactions, as well as
its experience in securities valuations and its knowledge of the banking and
thrift industries generally.
In rendering its opinion, Stifel relied upon and assumed, without
independent verification, the accuracy and completeness of all of the financial
and other information that was provided to it or that was otherwise reviewed by
it and did not assume any responsibility for independently verifying any of such
information. With respect to the financial forecasts supplied to Stifel
(including without limitation, projected cost savings and operating synergies
resulting from the merger), Stifel assumed with IBC's consent that they were
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of IBC and MSB as to the future operating and financial
performance of IBC and MSB, that they would be realized in the amounts and time
periods estimated and that they provided a reasonable basis upon which Stifel
could form its opinion. Stifel also assumed that there were no material changes
in the assets, liabilities, financial condition, results of operations, business
or prospects of either IBC or MSB since the date of the last financial
statements made available to it. Stifel also assumed, without independent
verification and with IBC's consent, that the aggregate allowances for loan
losses set forth in the financial statements of IBC and MSB are in the aggregate
adequate to cover all such losses. Stifel did not make or obtain any independent
evaluation, appraisal or physical inspection of IBC's or MSB's assets or
liabilities, the collateral securing any of such assets or liabilities, or the
collectibility of any such assets nor did it review loan or credit files of IBC
or MSB. Stifel relied on advice of IBC's counsel and accountants as to all legal
and accounting matters with respect to IBC, the Agreement and the transactions
and other matters contained or contemplated therein. Stifel assumed, with IBC's
consent, that there are no factors that would delay or subject to any adverse
conditions any necessary regulatory or governmental approval and that all
conditions to the merger will be satisfied and not waived. Stifel was retained
by the IBC Board to express an opinion as to the fairness of the conversion
ratio to the holders of IBC common stock, from a financial point of view.
The financial forecasts furnished to Stifel for IBC and MSB and estimates
of cost savings and operating synergies resulting from the merger were prepared
by the managements of IBC and MSB and constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. As a
matter of policy, IBC and MSB do not publicly disclose internal management
forecasts, projections or
31
<PAGE> 39
estimates of the type furnished to Stifel in connection with its analysis of the
financial terms of the merger, and such forecasts and estimates were not
prepared with a view towards public disclosure. These forecasts and estimates
were based on numerous variables and assumptions which are inherently uncertain
and which may not be within the control of the management of either IBC or MSB,
including, without limitation, factors related to the integration of IBC and MSB
and general economic, regulatory and competitive conditions. Accordingly, actual
results could vary materially from those set forth in such forecasts and
estimates.
In connection with rendering its March 23, 1999 oral opinion, Stifel
performed a variety of financial analyses that are summarized below. Such
summary does not purport to be a complete description of such analyses. Stifel
believes that its analyses and the summary set forth herein must be considered
as a whole and that selecting portions of such analyses and the factors
considered therein, without considering all factors and analyses, could create
an incomplete view of the analyses and processes underlying its opinions. The
preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. In its analyses, Stifel made numerous assumptions with respect to
industry performance, business and economic conditions, and other matters, many
of which are beyond the control of IBC or MSB. Any estimates contained in
Stifel's analyses are not necessarily indicative of actual future values or
results, which may be significantly more or less favorable than suggested by
such estimates. Estimates of values of companies do not purport to be appraisals
or necessarily reflect the actual prices at which companies or their securities
actually may be sold. No company or transaction utilized in Stifel's analyses
was identical to IBC or MSB or the merger. Accordingly, such analyses are not
based solely on arithmetic calculations; rather, they involve complex
considerations and judgments concerning differences in financial and operating
characteristics of the relevant companies, the timing of the relevant
transactions, and prospective buyer interest, as well as other factors that
could affect the public trading values of the company or companies to which they
are being compared. None of the analyses performed by Stifel was assigned a
greater significance by Stifel than any other.
The following is a summary of the financial analyses performed by Stifel in
connection with providing its oral opinion, on March 23, 1999. In connection
with its written opinion dated as of the date of this Joint Proxy
Statement/Prospectus, Stifel intends on performing procedures to update certain
of its analyses and review the assumptions on which such analyses were based and
the factors considered in connection therewith. In updating its opinion, Stifel
will not utilize any methods of analysis in addition to those described.
Pro Forma Effect of the Merger. Stifel reviewed certain estimated future
operating and financial information developed by IBC and MSB and certain
estimated future operating and financial information for the pro forma combined
entity resulting from the merger for the twelve month periods ended December 31,
1999 and December 31, 2000 prepared by the management of IBC and MSB. Based on
this analysis, Stifel compared certain of IBC's estimated future per share
results with such estimated figures for the pro forma combined entity. Stifel
compared IBC's estimated future stand-alone earnings per share with such
estimated figures for the pro forma combined entity. On a pro forma basis, the
merger is forecast to be dilutive to IBC's earnings per share for the twelve
month period ended December 31, 1999 and accretive to IBC's earnings per share
for the twelve month period ended December 31, 2000. This analysis did not
purport to be indicative of actual future results. Stifel also reviewed certain
historical financial information in order to determine the effect of the merger
on IBC's book value and tangible book value. Based on this analysis, at December
31, 1998, on a pro forma basis the merger will be accretive to IBC's book value
per share and tangible book value per share.
Analysis of Thrift Merger Transactions. Stifel analyzed certain information
relating to recent transactions in the Thrift industry, consisting of 14
acquisitions announced between January 1, 1998 and March 16, 1999, involving
sellers in the Midwest Region of the United States with assets between $250
million and $1 billion ("Group A"), a second group of 37 acquisitions announced
between January 1, 1998 and March 16, 1999, involving sellers in all regions of
the United States with assets between $250 million and $1 billion ("Group B"),
and a third group of 95 acquisitions announced between January 1, 1998 and March
16, 1999, involving sellers in all regions of the United States without regard
to asset size ("Group C") (the "Selected
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<PAGE> 40
Transactions"). Stifel calculated the following ratios with respect to the
merger and the Selected Transactions:
<TABLE>
<CAPTION>
GROUP A SELECTED TRANSACTIONS
IBC/ -----------------------------
RATIOS MSB MINIMUM MEDIAN MAXIMUM
------ ---- ------- ------ -------
<S> <C> <C> <C> <C>
Deal Price per share/Book Value............................. 177.1% 115.4% 247.8% 371.8%
Deal Price per share/Tangible Book Value.................... 177.1 115.4 249.9 402.2
Adjusted Deal Price/6.50% Equity............................ 175.9 57.6 287.0 535.0
Deal Price per share/Last 12 months earnings per share...... 23.9x 11.5x 27.9x 51.3x
Deal Price/Assets........................................... 11.3% 17.4% 25.3% 37.6%
Premium over Tangible Book Value/Deposits................... 6.6 -3.9 19.1 38.2
Deal Price/Deposits......................................... 15.2 21.2 36.2 54.3
</TABLE>
<TABLE>
<CAPTION>
GROUP B SELECTED TRANSACTIONS
IBC/ -----------------------------
RATIOS MSB MINIMUM MEDIAN MAXIMUM
------ ---- ------- ------ -------
<S> <C> <C> <C> <C>
Deal Price per share/Book Value............................. 177.1% 111.7% 221.2% 371.8%
Deal Price per share/Tangible Book Value.................... 177.1 115.1 223.2 402.2
Adjusted Deal Price/6.50% Equity............................ 175.9 57.6 302.9 535.0
Deal Price per share/Last 12 months earnings per share...... 23.9x 8.0x 26.3x 51.3x
Deal Price/Assets........................................... 11.3% 8.2% 23.7% 43.4%
Premium over Tangible Book Value/Deposits................... 6.6 -3.9 18.9 38.2
Deal Price/Deposits......................................... 15.2 9.8 32.2 76.7
</TABLE>
<TABLE>
<CAPTION>
GROUP C SELECTED TRANSACTIONS
IBC/ -----------------------------
RATIOS MSB MINIMUM MEDIAN MAXIMUM
------ ---- ------- ------ -------
<S> <C> <C> <C> <C>
Deal Price per share/Book Value............................. 177.1% 107.4% 201.9% 403.1%
Deal Price per share/Tangible Book Value.................... 177.1 107.4 204.2 457.6
Adjusted Deal Price/6.50% Equity............................ 175.9 -56.4 264.3 535.0
Deal Price per share/Last 12 months earnings per share...... 23.9x 8.0x 25.4x 58.1x
Deal Price/Assets........................................... 11.3% 5.9% 21.5% 55.7%
Premium over Tangible Book Value/Deposits................... 6.6 -18.4 14.5 40.7
Deal Price/Deposits......................................... 15.2 6.2 30.4 88.1
</TABLE>
Analysis of Premium to Market Price for Thrift Merger Transactions. Stifel
analyzed the premium paid to the then current market price one day before the
date of announcement of a transaction for transactions in the Thrift industry,
announced between January 1, 1998 and March 23, 1999 and involving sellers in
the Mid Atlantic, Midwest, Northeast, Southeast, Southwest and West Regions of
the United States and the United States. Stifel calculated the following ratios
with respect to the merger and the Selected Transactions:
<TABLE>
<CAPTION>
TRANSACTIONS ANNOUNCED BETWEEN
1/1/98 & 3/16/99
IBC/ ------------------------------
REGION MSB MINIMUM MEDIAN MAXIMUM
------ ---- ------- ------ -------
<S> <C> <C> <C> <C>
Mid Atlantic Region......................................... 52.7% 1.2% 16.7% 51.2%
Midwest Region.............................................. 52.7 0.0 28.8 129.1
Northeast Region............................................ 52.7 6.3 19.0 28.2
Southeast Region............................................ 52.7 2.5 27.8 50.8
Southwest Region............................................ 52.7 6.2 10.4 14.5
West Region................................................. 52.7 8.8 22.7 50.0
United States............................................... 52.7 0.0 24.0 129.1
</TABLE>
Comparison of Selected Companies. Stifel reviewed and compared certain
multiples and ratios for a peer group of 8 selected thrifts with assets between
$300 million and $800 million which Stifel deemed to be relevant. The group of
selected thrifts consisted of Camco Financial Corp., EFC Bancorp, Inc., First
Defiance
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<PAGE> 41
Financial, North Central Bancshares Inc., First Northern Capital, First
SecurityFed Financial, HMN Financial, Inc., and Industrial Bancorp Inc. In order
to calculate a range of imputed values for a share of MSB common stock, Stifel
applied a 30% control premium to the trading prices of the selected group of
comparable companies and compared the resulting theoretical offer price to each
of book value, tangible book value, adjusted 6.5% equity, latest 12 month
earnings, estimated 1999 earnings as provided by Institutional Brokers Estimate
System ("IBES"), assets, tangible book value to deposits and deposits. Stifel
then applied the resulting range of multiples and ratios for the peer group
specified above to the appropriate financial results of MSB. This analysis
resulted in a range of imputed values for MSB common stock of between $10.76 and
$24.33 based on the median multiples and ratios for the peer group. The control
premium selected by Stifel was based on a 5 year analysis of market premiums
paid in thrift merger transactions. This analysis did not purport to reflect the
prices at which shares of MSB common stock may trade in the public markets. The
value of one share of MSB common stock under the terms of the Agreement was
calculated to be $14.60 as of March 23, 1999.
Additionally, Stifel calculated the following ratios with respect to the 8
selected comparable companies after application of the 30% control premium:
<TABLE>
<CAPTION>
8 SELECTED COMPARABLE
COMPANIES
IBC/ ---------------------
RATIOS MSB MINIMUM MEDIAN MAXIMUM
------ ---- ------- ------ -------
<S> <C> <C> <C> <C>
Deal Price per share/Book Value............................. 177.1% 104.6% 130.6% 199.1%
Deal Price per share/Tangible Book Value.................... 177.1 104.6 146.4 199.1
Adjusted Deal Price/6.50% Equity............................ 175.9 116.1 157.6 338.5
Deal Price per share/Last 12 months earnings per share...... 23.9x 15.1x 19.1x 35.3x
Deal Price per share/Estimated 1999 earnings per share...... 19.5x 14.3x 16.7x 22.2x
Deal Price/Assets........................................... 11.3% 12.6% 18.2% 31.2%
Premium over Tangible Book Value/Deposits................... 6.6 1.7 7.6 20.9
Deal Price/Deposits......................................... 15.2 20.2 25.3 41.9
</TABLE>
Present Value Analysis. Applying discounted cash flow analysis to the
theoretical future earnings and dividends of IBC and MSB, Stifel compared the
calculated value of an IBC share to the calculated value of the combined entity.
The analysis was based upon management's projected earnings growth, a range of
assumed price/earnings ratios, and a 10%, 12% and 14% discount rate. Stifel
selected the range of terminal price/earnings ratios on the basis of past and
current trading multiples for IBC and other publicly traded comparable
commercial banks. The stand-alone present value of IBC common stock calculated
on this basis ranged from $14.45 to $25.53 per share. The present value of one
share of common stock in the combined entity under the terms of the Agreement
calculated on this basis ranged from $14.82 to $26.22 per share.
Discounted Cash Flow Analysis. Using a discounted cash flow ("DCF")
analysis, Stifel estimated the net present value of the future streams of
after-tax cash flow that MSB could produce to benefit IBC ("Dividendable Net
Income"). In this analysis, Stifel assumed that MSB would perform in accordance
with management's estimates and calculated assumed after-tax distributions to
IBC such that its tangible common equity ratio would be maintained at 6.5% of
assets. Additionally, Stifel assumed certain cost savings and revenue
enhancements estimated by IBC and MSB to result from the merger and Stifel
adjusted MSB's pre-merger equity by the amount of the estimated after-tax
restructuring charge estimated by IBC and MSB to result from the merger. Stifel
calculated the sum of (1) the estimated terminal values per share of MSB common
stock based on assumed multiples to MSB's projected 2004 earnings ranging from
14.0x to 18.0x, plus (2) the assumed 1999 -- 2003 Dividendable Net Income
streams per share, in each case discounted to present values at assumed discount
rates ranging from 10.0% to 14.0%. This DCF analysis indicated an implied equity
value reference range of $17.10 to $24.84 per share of MSB common stock. This
analysis did not purport to be indicative of actual future results and did not
purport to reflect the prices at which shares of MSB common stock may trade in
the public markets. A DCF analysis was included because it is a widely used
valuation methodology, but the results of such methodology are highly dependent
upon the
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<PAGE> 42
numerous assumptions that must be made, including estimated revenue
enhancements, earnings growth rates, dividend payout rates, terminal values and
discount rates.
Contribution Analysis. Stifel reviewed certain financial information for
IBC and MSB for the twelve month period ended December 31, 1998 including total
revenues, net revenues before and after provision for loan losses, net income
before preferred dividends and extraordinary items, total assets, loans, total
deposits and total equity and compared the percentage contribution of MSB to the
pro forma combined figures for IBC and MSB and to the percentage of total
outstanding IBC common stock that would be owned by the MSB stockholders as a
result of the merger. The contribution analysis showed that MSB would contribute
21% of the pro forma combined total revenues, 14% of pro forma combined net
revenues before provision for loan losses, 13% of pro forma combined net
revenues after provision for loan losses, 21% of pro forma combined net income
before preferred dividends and extraordinary items and restructuring charges,
35% of pro forma combined total assets, 29% of pro forma combined loans, 34% of
pro forma combined total deposits, and 38% of pro forma combined total equity.
Additionally, Stifel performed similar analysis based on management's estimates
of projected earnings of the combined company as adjusted for anticipated cost
savings and revenue enhancements resulting from the merger for the future twelve
month periods ended December 31, 1999 and December 31, 2000. The contribution
analysis showed that MSB would contribute 22% of the pro forma combined net
income for the twelve month period ended December 31, 1999 and 35% of the pro
forma combined net income for the twelve month period ended December 31, 2000.
Under the terms of the Agreement, MSB shareholders would own 32% of the total
outstanding IBC common shares. Ownership figures are based on an conversion
ratio of 0.8.
No company or transaction used in the above analyses as a comparison is
identical to IBC, MSB, or the merger. Accordingly, an analysis of the results of
the foregoing is not mathematical; rather, it involves complex considerations
and judgements concerning differences in financial and operating characteristics
of the companies and other facts that could affect the public trading value of
the companies to which they are being compared.
As described above, Stifel's oral opinion was among the many factors taken
into consideration by the IBC Board in making its determination to approve the
merger.
Pursuant to the terms of Stifel's engagement, IBC has paid Stifel $25,000.
IBC has also agreed to reimburse Stifel for certain out-of-pocket expenses and
has agreed to indemnify Stifel, its affiliates and their respective partners,
directors, officers, agents, consultants, employees and controlling persons
against certain liabilities, including liabilities under the federal securities
laws.
In the ordinary course of its business, Stifel actively trades equity
securities of IBC and MSB for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
OPINION OF FINANCIAL ADVISOR TO MSB
On March 24, 1999, McConnell, Budd & Downes, Inc. ("MB&D") delivered its
oral opinion to the Board of Directors of MSB that as of that date the
conversion ratio was fair, from a financial point of view to MSB shareholders.
The basis for the opinion, which is unchanged, has been updated for the purposes
of this document. The opinion appears in written form in Appendix D to this
Joint Proxy Statement/Prospectus. The conversion ratio of 0.8 shares of IBC
common stock in exchange for each share of MSB common stock, was negotiated
based on consideration of a number of factors including but not limited to the
following:
- An analysis of the historical and projected future contributions of
recurring earnings by the parties.
- An analysis of the possible future earnings per share results for the
parties on both a combined and a stand-alone basis.
- An analysis of the potential to realize reductions of recurring operating
expenses by the parties to this transaction.
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<PAGE> 43
- Consideration of the anticipated dilutive or accretive effects of the
prospective transaction to the earnings per share of IBC and by
extension, through the conversion ratio, to earnings per share equivalent
of MSB.
- Consideration of the probable impact on dividends per share to be
received by MSB shareholders as a result of the contemplated transaction.
- Consideration of the relative earning asset contributions of the parties.
- Consideration of the loan portfolios and relative asset quality as
disclosed by the parties.
- Consideration of the apparent adequacy of reserves for loan and lease
losses of the parties.
- Analysis of the historical trading range, trading pattern and relative
liquidity of the common shares of each of the parties.
- Consideration of the capitalization, the tangible equity capitalization
and the market capitalization of each of the parties.
- Contemplation of other factors, including certain intangible factors.
Based on reported audited financial data for MSB and IBC as of December 31,
1998, the relative contributions of the parties to the pro forma IBC on a
pooling basis would have been approximately as follows:
PRO FORMA CONTRIBUTION TABLE
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ITEM IBC MSB
---- --- ---
<S> <C> <C>
Assets.......................................... 65.73% 34.28%
Net Loans....................................... 70.90 29.10
Deposits........................................ 66.37 33.63
Equity.......................................... 65.86 34.14
Tangible Equity................................. 58.51 41.49
Pro Forma Combined Earnings..................... 79.40 20.60
Ownership interests............................. 68.20 31.80
</TABLE>
Based on adjusted fully converted shares and share equivalents outstanding
for the two companies as of December 31, 1998 and the negotiated conversion
ratio of 0.80 to 1, current MSB shareholders would have owned approximately the
indicated percentage amounts of the pro forma shares outstanding of IBC.
MB&D has acted as financial advisor to MSB on a contractual basis since
October 23, 1998. MB&D was retained to provide general advisory services to MSB
including assistance on the potential sale of the company. With respect to the
pending transaction involving IBC, MB&D advised MSB during the evaluation and
negotiation process leading up to the execution of the Agreement and provided
MSB with a number of analyses as to a range of financially feasible conversion
ratios that might be achieved in a hypothetical transaction. The determination
of the applicable conversion ratio was arrived at in an arms-length negotiation
between IBC and MSB in a process in which MB&D advised MSB and participated
directly in the negotiations.
MB&D was retained based on its qualifications and experience in the
financial analysis of banking and thrift institutions generally, its knowledge
of the Michigan banking markets in particular and of the Midwestern United
States banking markets in general as well as its experience with merger and
acquisition transactions involving banking institutions. As a part of its
investment banking business, which is focused exclusively on financial services
industry participants, MB&D is continually engaged in the valuation of financial
institutions and their securities in connection with its equity brokerage
business generally and mergers and acquisitions in particular. Members of the
Corporate Finance Advisory Group of MB&D have extensive experience in advising
financial institution clients on mergers and acquisitions. In the ordinary
course of its business as a NASD broker-dealer, MB&D may, from time to time
purchase securities from or
36
<PAGE> 44
sell securities to MSB or IBC and as a market maker in securities, MB&D may from
time to time have a long or short position in, and buy or sell debt or equity
securities of MSB or IBC for its own account or for the accounts of its
customers. In addition, in the ordinary course of business, the employees of
MB&D may have direct or indirect investments in the debt or equity securities of
either or both MSB or IBC.
MB&D urges that all MSB shareholders read the opinion in its entirety and
the Joint Proxy Statement/ Prospectus in its entirety. The opinion of MB&D is
directed only to the conversion ratio at which shares of MSB common stock may be
exchanged for shares of IBC common stock. The opinion of MB&D does not
constitute a recommendation to any holder of MSB common stock as to how such
holder should vote at the MSB special meeting. The summary of the opinion of
MB&D and the matters considered in our analysis set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the text of
the opinion itself. The opinion of MB&D is necessarily based upon conditions as
of the date of the opinion and upon information made available to MB&D through
the date thereof. No limitations were imposed by the MSB Board upon MB&D with
respect to the investigations made, matters considered or procedures followed in
the course of rendering its opinions.
MATERIALS REVIEWED AND ANALYSES PERFORMED BY MB&D: In connection with the
rendering and updating of its opinion, MB&D reviewed the following documents and
considered the following subjects:
- The Agreement and related Consolidation Agreement detailing the pending
transaction.
- The Joint Proxy Statement/Prospectus in substantially the form to be
mailed to MSB shareholders.
- MSB Annual Reports to shareholders for 1995, 1996, 1997 and 1998.
- MSB Annual Reports on Form 10-K for 1995, 1996, 1997 and 1998.
- Related financial information for the four calendar years ended December
31, 1995, 1996, 1997 and 1998 for MSB.
- MSB Quarterly Report on Form 10-Q and related unaudited financial
information for the first quarter of 1999.
- MSB's press release concerning unaudited results for the first quarter of
1999.
- IBC Annual Reports to shareholders for 1996, 1997 and 1998.
- IBC Annual Reports on Form 10-K and related financial information for the
three calendar years ended December 31, 1998, 1997 and 1996.
- IBC Quarterly Report on Form 10-Q and related unaudited financial
information for the first quarter of 1999.
- IBC's press release concerning unaudited results for the first quarter of
1999.
- Internal financial information and financial forecasts, relating to the
business, earnings, cash flows, assets and prospects of the respective
companies furnished to MB&D by MSB and IBC respectively.
- We held discussions with members of the senior management and Board of
MSB concerning the past and current results of operations of MSB, its
current financial condition and management's opinion of its future
prospects.
- We also held discussions with members of the senior management of IBC
concerning the past and current results of operations of IBC, its current
financial condition and management's opinion of its future prospects.
- We reviewed the historical record of reported prices, trading volume and
dividend payments for both MSB and IBC common stock.
- Based primarily on anecdotal information, we gave consideration to the
current state of and future prospects for the economy of Michigan
generally and the relevant market areas for MSB and IBC in particular.
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<PAGE> 45
- We employed specific merger analysis models developed by MB&D to evaluate
potential business combinations of financial institutions using both
historical reported information and projected information for both MSB
and IBC and reviewed the results.
- We reviewed the reported financial terms of selected recent business
combinations of financial institutions for purposes of comparison to the
pending transaction.
- We performed such other studies and analyses as MB&D considered
appropriate under the circumstances associated with this particular
transaction.
The opinion of MB&D takes into account its assessment of general economic,
market and financial conditions and its experience in other transactions
involving participants in the financial services industry, as well as its
experience in securities valuation and its knowledge of the banking industry
generally. For purposes of reaching its opinion, MB&D has assumed and relied
upon the accuracy and completeness of the information provided to it or made
available by MSB and IBC and does not assume any responsibility for the
independent verification of such information. With respect to financial
forecasts made available to MB&D it is assumed by MB&D that they were prepared
on a reasonable basis and reflect the best currently available estimates and
good faith judgments of the management of MSB and IBC, respectively, as to the
future performance of MSB and IBC. MB&D has also relied upon assurances of the
management of MSB and IBC that they were not aware of any facts or of the
omission of any facts that would make the information or financial forecasts
provided to MB&D incomplete or misleading. In the course of rendering our
opinion, MB&D has not completed any independent valuation or appraisal of any of
the assets or liabilities of either MSB or IBC and has not been provided with
such valuations or appraisals from any other source.
The following is a summary of the material analyses employed by MB&D in
connection with rendering its written opinion. Given that it is a summary, it
does not purport to be a complete and comprehensive description of all the
analyses performed, or an enumeration of every matter considered by MB&D in
arriving at its opinion. The preparation of a fairness opinion is a complicated
process, involving a determination as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances. Therefore, such an opinion is not readily susceptible
to a summary description. In arriving at its opinion, MB&D did not attribute any
particular weight to any one specific analysis or factor considered by it and
made qualitative as well as quantitative judgments as to the significance of
each analysis and factor. Therefore, MB&D believes that its analyses must be
considered as a whole and feels that attributing undue weight to any single
analysis or factor considered could create a misleading or incomplete view of
the process leading to the formation of its opinion. In its analyses, MB&D has
made certain assumptions with respect to banking industry performance, general
business and economic conditions and other factors, many of which are beyond the
control of management of either MSB or IBC. Estimates, which are referred to in
our analyses are not necessarily indicative of actual values or predictive of
future results or values, which may vary significantly from those set forth. In
addition, analyses relating to the values of businesses do not purport to be
appraisals or to reflect the prices at which businesses might actually be sold.
Accordingly, such analyses and estimates are inherently subject to uncertainty
and MB&D does not assume responsibility for the accuracy of such analyses or
estimates.
ANALYSIS OF THE ANTICIPATED TRANSACTION AND THE APPLICABLE CONVERSION RATIO
IN RELATION TO MSB: Pursuant to the terms of the Agreement and related
Consolidation Agreement, the anticipated consideration to be exchanged in the
transaction for each outstanding share of MSB common stock is a fixed exchange
of 0.8 shares of IBC common stock for each share of MSB common stock. It is
anticipated that the transaction will be tax free to those shareholders of MSB
who hold their shares as a capital asset and that the transaction will be
accounted for as a pooling-of-interests.
PROJECTED TRANSACTION VALUE: Based upon the conversion ratio of 0.8 for
each share of MSB common stock exchanged and the last trade value of IBC common
stock reported by Nasdaq Stock Market ("Nasdaq") on March 19, 1999 (the last day
of the full week preceding the date on which the pending transaction was
announced), which was $18.375, the theoretical market value of the anticipated
transaction was approximately $66 million as of that date, based on an estimated
3,604,000 shares of IBC common stock to be issued to MSB shareholders. On a per
share basis this is equivalent to approximately $14.70 per share,
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<PAGE> 46
($18.375 X 0.8). The merger was announced after the close of trading on March
24, 1999. Given that the applicable conversion ratio in this case is fixed, the
market value of the securities to be received by MSB's shareholders will
fluctuate as the market value of IBC common stock fluctuates. Based on the last
trade value for IBC common stock reported by Nasdaq as of , 1999
which was $ , the theoretical market value of the anticipated
transaction was approximately $ million as of such date, based on an updated
estimate of approximately million shares of IBC common stock to be issued
to MSB shareholders. This value will continue to fluctuate as the value of a
share of IBC common stock fluctuates in the market.
MULTIPLE OF HISTORICAL AND PROJECTED EARNINGS FOR MSB COMMON STOCK: The
cited per share theoretical value of $14.70 as of March 19, 1999, represents a
multiple of 24.2 times reported earnings per share for 1998 which was $0.61. The
cited per share theoretical value of $14.70 represents a multiple of 24.2 times
management's internal estimate of stand alone EPS for 1999 which is $0.61. The
cited per share theoretical value of $14.70 represents a multiple of 19.6 times
the IBES estimate for 1999 of $0.75. Based on the closing market value for IBC
common stock as of , 1999 which was $ and a revised
transaction value per share of $ , the multiples of earnings were
and times for 1998 reported EPS, management's
internal estimate for 1999 stand-alone earnings per share, and the IBES estimate
for 1999, respectively.
MULTIPLE OF STATED BOOK VALUE OF MSB COMMON STOCK: The cited theoretical
value of $14.70 represents a multiple of 1.75 times MSB's reported $8.42 book
value per share as of December 31, 1998. The updated value per share of
$ represents times MSB's unaudited book value per share
as of , 1999.
MULTIPLE OF TANGIBLE BOOK VALUE OF MSB COMMON STOCK: The cited theoretical
value of $14.70 represents a multiple of 1.75 times MSB's reported $8.42
tangible book value per share as of December 31, 1998. The updated value per
share of represents times MSB's unaudited tangible
book value per share as of , 1999.
PERCENTAGE OF MARKET VALUE OF MSB COMMON STOCK: Based upon the cited
theoretical values of $14.70 and $ for the two cited valuation dates,
the theoretical values represent 148.86% (a 48.87% premium) and % (a %
premium) of the last reported bid prices for MSB common stock which was $9.875
on March 19, 1999 and $ on , 1999.
SPECIFIC ACQUISITION ANALYSIS: MB&D employs a proprietary analytical model
to examine hypothetical transactions involving banking companies. The model uses
forecast earnings data, selected current period balance sheet and income
statement data, current market and trading information and a number of
assumptions as to interest rates for borrowed funds, the opportunity costs of
funds, discount rates, dividend streams, effective tax rates, transaction
structures (the alternative or combined uses of common equity, cash, debt or
other securities, to fund a transaction) and the projected impact (if any) of
any required deposit divestitures that might be necessary to complete in
conjunction with obtaining regulatory approval of a given transaction. The model
distinguishes between purchase and pooling accounting treatments and inquires
into the likely economic feasibility of a given hypothetical transaction at a
given price level or specified exchange rate while employing a specified
transaction structure. The model also permits evaluation of various levels of
potential non-interest expense savings which might be achieved along with
various potential implementation time tables for such savings, as well as the
possibility of revenue enhancement opportunities which may arise in a given
hypothetical transaction.
For the purposes of rendering our opinion with respect to this transaction,
MB&D evaluated a conversion ratio of 0.80 shares of common stock of IBC in
exchange for each share of MSB in a tax deferred transaction conditioned on the
receipt of pooling of interests accounting treatment. We believe that the
consensus 1999 estimated earnings per share dilution on a pro forma basis
(before consideration of cost savings or potential revenue enhancements and
excluding non-recurring expenses) for IBC would approximate 16.6% or $0.25 per
share. At the same time, our calculations suggest that this transaction would be
accretive (17.5%) to tangible book value per share on a pro forma basis to IBC.
The transaction would result in an increase of dividend payments to MSB
shareholders from zero to $0.45 per share of MSB common stock. The pro forma
entity would be adequately capitalized with a ratio of tangible common equity to
tangible assets in excess of 5.30%.
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<PAGE> 47
In order for the transaction to become neutral to earnings per share from a
dilution perspective, we estimate that it would be necessary to achieve a
reduction in pre-tax non-interest-expense of approximately $4.5 million which
represents 32.3% of 1998 non-interest expenses for MSB of $14 million. Because
the estimation of incremental amounts of recurring cost savings and the exact
timing of their realization is not possible for outside observers we do not
attempt to forecast the future quarter in which the pending transaction will
become either earnings neutral or accretive. MB&D anticipates that with a
reasonably aggressive implementation of cost savings initiatives and revenue
enhancements, that this transaction will become accretive to earnings per share
of IBC in the year 2000.
EARNINGS PASS-THROUGH ANALYSIS: Earnings pass-through analysis is based on
a comparison of anticipated pro forma values to stand-alone values as of a given
point in time. For example, based on an MSB management internal forecast of $.61
in stand-alone earnings per share for 1999, one should query what earnings would
be associated with 0.80 shares of pro forma IBC common stock. Our calculations
suggest that with zero cost savings or revenue enhancements and factoring out
non-recurring and transaction expenses, the earnings associated with 0.80 shares
of IBC common stock would represent a 63.9% increase over the earnings
associated with one share of MSB or approximately $1.00 per share. The primary
conclusion of this analysis is that a MSB shareholder who exchanges their shares
for IBC common shares at the conversion ratio of 0.80:1 will then hold a
security which, we believe, will generate more earnings per share per future
period than the single share of MSB common stock exchanged. The implication is
that as long as IBC trades at a price earnings ratio which is similar to the
price earnings ratio at which shares of MSB historically traded, or higher, the
market value of the 0.80 shares of IBC will exceed the market value of the MSB
share exchanged.
DISCOUNTED CASH FLOW ANALYSIS: MB&D reviewed a discounted cash flow model
which it prepared based on projections provided by the management of MSB. The
model employed a projection of hypothetical point estimate earnings for MSB on
an independent stand-alone basis for calendar years 1999 through 2001. We
assumed a 5% growth rate in earnings per share in 2002 and 2003. Similar
exercises were completed for the hypothetical combination of MSB and IBC for the
same periods with and without hypothetical cost saving opportunities employing,
in the case of IBC, projections for IBC which were based on 10% annual EPS
growth. As part of each exercise, a 10% annual growth in estimated cash
dividends was used to project dividend streams, which would be available to
shareholders. MB&D employed a range of possible future market price/earnings
ratios ranging from a minimum of 10.5 times earnings to a maximum of 16.5 times
earnings in order to project possible future values for a share of MSB common
stock on an independent basis. These multiples were below the trading and
potential takeover multiples reviewed for peer organizations and comparable
sized merger transactions based on the fact that MSB has not been providing for
income tax expense, and its after-tax earnings are more analogous to the pre-tax
earnings of its peers. MB&D employed a range of possible future trading
price/earnings values for a share of MSB common stock on an equivalent amount of
IBC common stock reflecting the conversion ratio indicated in the expression of
interest of 13.5 times earnings to a maximum of 19.5 times earnings.
Given the model time horizon and a discount rate range of 10% to 14%, these
assumptions resulted in the range of present discounted values for a share of
MSB common stock on an independent basis depicted in the table below. Such
values ranged from $8.86 to $16.09 and include consideration of the present
discounted value of the projected stream of cash dividends, which might be
received by a shareholder during the cited period. While MSB does not presently
pay a cash dividend, it was assumed that it would begin paying a dividend in
1999. The same exercise completed for the pro forma IBC without any cost savings
generated a range of present discounted values (also using a 10% to 14% range of
discount rates) which ranged from $12.56 to $20.55. The same exercise completed
for the pro forma IBC with cost savings equal to 15% of MSB'S 1998 noninterest
expense, generated a range of present discounted values (also using a 10% to 14%
range of discount rates) which ranged from $13.58 to $22.32. These values
represent the discounted present values of the sum of the future possible
trading values of the equivalent of one share of MSB common stock plus the
discounted value of the stream of cash dividends which are projected to have
been received between the present and the future valuation date at the end of
2003. In the event that there is no difference between the discounted cash flow
analyses represented by two alternatives one could be said to be financially
indifferent between alternatives. In each case reviewed, the full range of
present discounted values for the hypothetical
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<PAGE> 48
combinations of MSB and IBC exceeded the full range of present discounted values
for MSB on a stand-alone basis.
SUMMARY OF PRESENT DISCOUNTED VALUES BASED ON POINT EARNINGS ESTIMATES FOR 5
YEARS
CASE 1: MSB REMAINS INDEPENDENT
<TABLE>
<CAPTION>
FUTURE TRADING MULTIPLE
10.5X 13.5X 16.5X
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRESENT 10% $10.52 $13.31 $16.09
Discounted 12% 9.65 12.19 14.73
VALUE 14% 8.86 11.18 13.51
</TABLE>
CASE 2: PRO FORMA VALUES AFTER HYPOTHETICAL ACQUISITION AT EXPRESSION EXCHANGE
RATE
<TABLE>
<CAPTION>
FUTURE TRADING MULTIPLE
13.5X 16.5X 19.5X
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRESENT 10% $14.86 $17.70 $20.55
Discounted 12% 13.65 16.25 18.85
VALUE 14% 12.56 14.94 17.32
</TABLE>
CASE 3: SAME AS CASE 2 PLUS 15% PRE-TAX COST SAVINGS
<TABLE>
<CAPTION>
FUTURE TRADING MULTIPLE
13.5X 16.5X 19.5X
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRESENT 10% $16.08 $19.20 $22.32
Discounted 12% 14.77 17.62 20.47
VALUE 14% 13.58 16.19 18.80
</TABLE>
The point of such a discounted cash flow exercise is not to make a precise
estimate of where MSB common stock on a stand-alone basis will be trading at a
precise point in the future. It is equally not an effort to predict, on a
precise basis, where the pro forma IBC common stock will be trading at an exact
point in the future. We readily acknowledge that with the large number of
variables involved including many which are beyond the control of management,
that such predictions with any degree of precision are well beyond the
capability of MB&D, MSB or IBC. Rather, the point of the exercise is to employ
reasonable future point earnings estimates to complete an analysis designed to
test a hypothesis that the result of one given course of action is likely to be
better over time than another. In our opinion, the results of the present
discounted cash flow analysis provides comfort that the shareholders of MSB are
likely to be better off as a result of completing the pending transaction with
IBC than they would likely be by remaining an independent financial institution.
It is important to note that the discount factors employed embody both the
concept of a time value of money and risk factors that reflect the uncertainty
of the forecasted cash flows and terminal price/earnings multiples. Use of
higher discount rates would result in lower discounted present values.
Conversely, use of lower discount rates would result in higher discounted
present values. MB&D advised the MSB Board of Directors that although discounted
cash flow analysis is a frequently used valuation methodology, it relies on
numerous assumptions, including discount rates, terminal values, future earnings
performance and asset growth rates, as well as dividend payout ratios. The
accurate specification of such assumptions for time periods more than one year
in the future is a very difficult process and contains the possibility of
inaccuracy despite our attempts to be both accurate and conservative in our
analysis. Consequently, any or all of these assumptions may vary from actual
future performance and results. Any errors made in the selection of assumptions
for such an exercise can interact with one another and can lead to conclusions
that may demonstrate little resemblance to actual events.
OTHER FACTORS GIVEN CONSIDERATION: MB&D has given consideration to a number
of additional factors associated with the pending transaction which it believes
are favorable from the point of view of a MSB shareholder. Completion of the
merger will give the pro forma IBC a core market share position in more banking
markets in Michigan. The sum of the enumerated market share improvements should
be beneficial to
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<PAGE> 49
the ability of the pro forma company to compete in these competitive banking
markets. MB&D believes that the conversion ratio negotiated reflects a
reasonable share of ownership in the pro forma IBC for MSB shareholders based on
both a historical and a projected contribution analysis. MB&D believes that the
pro forma entity will be a more visible financial institution in the financial
markets, may attract increased research coverage and generate greater liquidity,
from a shares traded perspective, than is the case for MSB on a stand-alone
basis. MB&D also believes that MSB shareholders will encounter prospects for
greater future annual cash dividends based upon projected cost savings and the
earnings growth expectations of the combined company than would have been the
case for continued independence.
ANALYSIS OF OTHER COMPARABLE TRANSACTIONS: MB&D is reluctant to place
emphasis on the analysis of comparable transactions ("Comparable Analysis"), as
a valuation methodology due to what it considers to be inherent limitations of
the application of the results to specific cases. It has observed that such
analysis as routinely employed by some industry observers and financial advisors
fails to adequately take into consideration such factors as:
- material differences in the underlying capitalization of the comparable
institutions which are being acquired;
- differences in the historic earnings (or loss) patterns recorded by the
compared institutions which can depict a very different trend than might
be implied by examining only recent financial results;
- failure to exclude non-recurring profit or loss items from the last
twelve months' earnings streams of target companies which can distort
apparent earnings multiples;
- material differences in the form or forms of consideration used to
complete the transaction;
- differences between the planned method of accounting for the completed
transaction; and
- such less accessible factors as the relative population, business and
economic demographics of the acquired entity's markets as compared or
contrasted to such factors for the markets in which comparable companies
are doing business.
Of equal significance, Comparable Analysis rarely seems to take into
consideration the degree of facilities overlap between the acquiror's market and
that of the target or the absence of such overlap and the resulting cost savings
differentials between otherwise apparently comparable transactions. MB&D
consequently believes that Comparable Analysis has serious inherent limitations
and should not be relied upon to any material extent by members of management,
the Board of Directors or shareholders, in considering the presumed merits of a
pending transaction.
With these reservations in mind, we nonetheless examined statistics
associated with sixteen transactions (excluding the subject transaction)
involving financial institutions located in the Midwest and announced between
January 1, 1998 and March 19, 1999. The transactions examined were:
- the acquisition of Emerald Financial Corp by Fifth Third Bancorp;
- the acquisition of CFSB Bancorp Inc. by Old Kent Finl Corp;
- the acquisition of FCB Financial Corp. by Anchor BanCorp WI;
- the acquisition of D&N Financial Corp by Republic Bancorp;
- the acquisition of Enterprise Federal Bancorp by Fifth Third Bancorp;
- the acquisition of Calumet Bancorp by FBOP Corporation;
- the acquisition of Westco Bancorp Inc. by MAF Bancorp;
- the acquisition of First Mutual Bancorp by Union Planters Corp;
- the acquisition of 1st Bancorp by German American Bancorp;
- the acquisition of Home Bancorp of Elgin by State Finl Services;
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<PAGE> 50
- the acquisition of Trumbull Finl Corp by Second Bancorp;
- the acquisition of CS Financial Corp by Charter One Finl;
- the acquisition of Security First Corp by FirstMerit Corp;
- the acquisition of AmerUS Bank by Commercial Federal;
- the acquisition of CitFed Bancorp, Inc. by Fifth Third Bancorp; and
- the acquisition of State Savings Co by Fifth Third Bancorp.
The table which follows permits a comparison of the mean and median values
for four selected statistics arising from the list of sixteen transactions
evaluated with the "comparable" statistics calculated for the transaction which
is described in this Joint Proxy Statement/Prospectus.
"COMPARABLE" STATISTICS AS OF THE ANNOUNCEMENT DATE
<TABLE>
<CAPTION>
ANNOUNCED
ANNOUNCED TRANSACTION PRICE /
ANNOUNCED TRANSACTION TRANSACTION PRICE / TRAILING TWELVE-
PRICE / STATED BOOK VALUE TANGIBLE BOOK VALUE MONTHS EARNINGS
------------------------- ------------------- -------------------
<S> <C> <C> <C>
Comparable median........................ 249.26% 258.48% 27.45X
MSB / IBC(1)............................. 175.00 175.00 24.20
</TABLE>
- -------------------------
(1) Based on a conversion ratio of 0.8 to 1 and the closing trading value for
IBC common stock, which was $18.375 on March 19, 1999.
OBSERVATIONS: A median value (as we are using the term) is that value which
is the middle number in a range of values for the group. The relationship of the
announced transaction value to stated book value and tangible book value is well
below both the mean and median for the transaction sample. The ratio of the
transaction price to both stated and tangible book value is less than the
medians for such measures for the transaction sample. The multiple of trailing
12 month earnings represented by the cited transaction price (24.20 times), is
also less than the median for such measure for the transaction sample. It is
important to note that MSB's earnings do not reflect any provisioning for income
taxes while the vast majority of the comparable transactions include
organizations which have accrued for taxes resulting in after-tax earnings which
are lower than pre-tax earnings. Pre-tax and after tax earnings are the same for
MSB. Given our enumerated reservations concerning the problematic nature of such
superficial comparisons we are willing to supply the information, but reluctant
to draw conclusions based on such comparisons alone. MB&D is inclined to place
more weight on the other methods of analysis summarized in this section than on
Comparable Analysis regardless of whether or not the apparent comparisons appear
to be in favor of, or not in favor of a given pending transaction.
COMPENSATION OF MB&D: Pursuant to a letter agreement with MSB dated October
23, 1998, MB&D will receive a fee equivalent to 0.65% (65 basis points) of the
market value of consideration to be received by MSB's shareholders for the first
$50 million in aggregate consideration to be received by MSB's shareholders plus
an amount equal to 1.40% (140 basis points) of the difference in the total
market value of the transaction over $50 million. MB&D was paid $25,000 upon the
signing of the engagement letter, $172,000 (one third of the aggregate fee less
a credit for the initial retainer fee) after the execution of the Agreement for
the pending transaction with IBC and will be paid one third of the fee upon
issuance of its Opinion to be included as an exhibit to this Joint Proxy
Statement/Prospectus. Payment of the balance of the fee will be conditioned on
the closing of the pending transaction and will be calculated as illustrated
below to arrive at a total fee, from which will be deducted the portion already
paid to MB&D. An illustration of the potential compensation based on specified
illustrative assumptions follows.
- Assume that the market value of IBC common stock as of the closing is
$18.25.
- Assume diluted shares outstanding of MSB is equal to: 4,506,000
- Then: Base fee: $50,000,000 X 0.0065 = $325,000
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<PAGE> 51
Additional fee: ((4,506,000 X 0.80 X $18.25) - $50,000,000) X .014
= $221,026
Total illustrative Fee: $325,000 + $221,026 = $546,026
The fee which will be payable to MB&D is impacted by the trading value of
IBC common stock and would comprise more than the illustrated amount, if IBC is
trading at a value in excess of $18.25 and would comprise less than the
illustrated amount in the event IBC is trading at a value which is less than
$18.25.
The fee that we will receive represents compensation for services rendered
in connection with the analysis of the hypothetical transaction, support of the
negotiations, our participation in the drafting of documentation and for the
rendering of our Opinion. In addition, MSB has agreed to reimburse MB&D for its
reasonable out-of-pocket expenses incurred in connection with the transaction.
MSB also has agreed to indemnify MB&D and its directors, officers and employees
against certain losses, claims, damages and liabilities relating to or arising
out of our engagement, including liabilities under the federal securities laws.
EFFECT OF THE MERGER ON SHAREHOLDERS' RIGHTS
INTRODUCTION
As a result of merger, holders of MSB common stock, whose rights are
presently governed by federal law and the Federal Stock Charter and Bylaws, as
amended, of MSB, will become shareholders of IBC, a Michigan corporation.
Accordingly, their rights will be governed by the Michigan Business Corporation
Act, and by the Restated Articles of Incorporation and Amended and Restated
Bylaws of IBC. Certain differences arise from this change of governing law as
well as from distinctions between the Federal Stock Charter and Bylaws of MSB
and the Articles of Incorporation and Bylaws of IBC. The following discussion is
not intended to be a complete statement of the differences affecting the rights
of shareholders, but summarizes certain significant differences.
CAPITAL STOCK
MSB's Federal Stock Charter authorizes the issuance of 25,000,000 shares of
capital stock, of which 20,000,000 shares are Common Stock, par value $.01 per
share, and 5,000,000 shares are preferred stock, par value $.01 per share. The
holders of the MSB common stock exclusively possess all voting power. Each
holder of shares of Common Stock is entitled to one vote for each share held by
such holder. MSB may provide supplementary sections to its federal stock charter
to issue its preferred stock in classes, which must be separately identified.
The shares of any class may be divided into and issued in series, with each
series separately designated so as to distinguish the shares thereof from the
shares of all other series and classes. The terms of each series must also be
set forth in a supplementary section of the Federal Stock Charter. All shares of
the same class must be identical except with respect to relative voting,
dividend, liquidation, and other rights, preferences, and limitations as may be
authorized by the Board of Directors of MSB. At March 31, 1999, there were
4,292,414 shares of MSB common stock outstanding and no outstanding shares of
preferred stock.
The Articles of Incorporation of IBC authorize the issuance of 14,200,000
shares of capital stock, of which 14,000,000 shares are Common Stock, par value
$1.00 per share, and 200,000 shares are preferred stock, without par value. The
authorized shares of Common Stock are all of one class with equal voting power,
and each share is equal to every other share. IBC's Board of Directors is
authorized to cause the preferred stock to be issued from time to time in one or
more series, with such designations and such relative voting, dividend,
liquidation and other rights, preferences and limitations as need be authorized
by the Board of Directors of IBC. At March 31, 1999, there were 7,426,991 shares
of IBC common stock outstanding and no outstanding shares of preferred stock.
Under MSB's Federal Stock Charter, shares of capital stock may not be
issued directly or indirectly to officers, directors or controlling persons of
MSB (other than as part of a general public offering or as qualifying shares to
a director) unless the issuance or the plan under which they would be issued is
approved by a majority of the votes eligible to be cast at a shareholder
meeting. This restriction on issuing stock to officers, directors or controlling
persons is not contained in IBC's Articles of Incorporation. The Michigan
Business
44
<PAGE> 52
Corporation Act, in conjunction with IBC's Articles of Incorporation, authorizes
the issuance of additional shares of stock up to the amount authorized as
approved by the Board of Directors, without the approval of the shareholders.
Neither MSB shareholders nor IBC shareholders have any preemptive rights to
purchase additional shares of stock upon an offering or sale for cash or
otherwise of such stock.
Aside from the proposed merger, IBC has no present intention to issue
additional shares of stock at this time, other than upon the exercise of stock
options and shares issuable under IBC's Dividend Reinvestment and Stock Purchase
Plan. If additional shares were issued, the percentage ownership interests of
existing shareholders would be reduced. Moreover, such additional share issuance
could be construed as having an anti-takeover effect. The ability to issue
additional shares, which exists under both the Federal Stock Charter of MSB and
the Articles of Incorporation of IBC, gives management greater flexibility in
financing corporate operations.
PAYMENT OF DIVIDENDS
The OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. Effective
April 1, 1999, the OTS revised its capital distribution regulation. Under the
revised regulation, institutions that are not subsidiaries of a savings and loan
holding company can qualify for a capital distribution without a notice or
application to OTS, if they meet certain conditions, including retaining a
well-capitalized designation following the distribution and having CAMELS and
compliance ratings of 1 or 2. Other institutions either have to notify OTS or
obtain the OTS's approval, depending on the condition of the institution and the
amount and nature of the capital distribution, but such institutions may now
file a schedule of proposed capital distributions for a year at a time, rather
than filing separate notices.
In addition to the foregoing, earnings of MSB appropriated to bad debt
reserves and deducted for federal income tax purposes are not available for
payment of cash dividends or other distributions without payment of taxes at the
then current tax rate by MSB on the amount of earnings removed from the reserves
for such distributions. Finally, MSB is not permitted to pay dividends on its
capital stock if its regulatory capital would thereby be reduced below the
remaining balance of the liquidation account which was established for the
benefit of certain depositors of MSB at the time of its conversion from MSB to
stock form.
Unlike MSB, IBC is not subject to regulatory restrictions on the payment of
dividends to shareholders. However, capital guidelines adopted by federal and
state regulatory agencies as well as restrictions imposed by law limit the
amount of cash dividends that the subsidiary banks can pay to IBC. Under the
Michigan Business Corporation Act, dividends must be paid out of surplus. A
distribution may not be made if, after giving it effect, the corporation would
not be able to pay its debts as the debts become due in the usual course of
business, or the corporation's total assets would be less than the sum of its
total liabilities plus the amount that would be needed if the corporation were
to be dissolved at the time of the distribution to satisfy the preferential
rights upon dissolution of shareholders whose preferential rights are superior
to those receiving the distribution. In addition, the ability of IBC to pay
dividends is limited by its ability to obtain funds from its banks and by
regulatory capital guidelines applicable to IBC. See "Regulation and
Supervision -- The Subsidiary Banks of IBC -- Dividends."
The payment of future cash dividends by IBC subsequent to the merger will
continue to depend upon the earnings of its subsidiary banks, its financial
condition and capital requirements, as well as the tax and regulatory
considerations discussed herein. IBC's Board of Directors considers many
factors, including profitability, maintenance of adequate capital, current and
anticipated future income, outstanding loan commitments, adequacy of loan loss
reserves, cash flow requirements and economic conditions.
45
<PAGE> 53
FISCAL YEAR; ANNUAL MEETING OF SHAREHOLDERS
The fiscal year of MSB ends on December 31 of each year. Pursuant to MSB'S
Bylaws, annual meetings of shareholders for the election of directors and
transaction of any other business shall be held annually within 120 days after
the end of MSB'S fiscal year, as determined by the Board of Directors. The
fiscal year of IBC ends on December 31 of each year. Pursuant to IBC'S Bylaws,
annual meetings of shareholders for the election of directors and transaction of
any other business shall be held on a date not later than 180 days after the end
of the immediately preceding fiscal year as determined by the Board of
Directors. It is expected that the next annual meeting of IBC's shareholders
will be held in April, 2000.
SPECIAL MEETINGS OF SHAREHOLDERS
Special meetings of the holders of MSB common stock generally may be called
by the chairman of the Board, the president, a majority of the Board of
Directors or upon the written request of the holders of not less than one tenth
(1/10) of all the outstanding capital stock entitled to vote at the meeting.
IBC's Bylaws provide that special meetings of shareholders generally may be
called by the chairman of the Board, the president or the secretary and must be
called by either of them pursuant to a resolution therefor by the Board of
Directors or upon written request of the holders of not less than three fourths
(3/4) of the voting shares of IBC's outstanding capital stock.
CUMULATIVE VOTING
Cumulative voting entitles each shareholder to cast a number of votes in
the election of directors equal to the number of such shareholders shares of
Common Stock multiplied by the number of directors to be elected, and to
distribute such votes among one or more of the nominees to be elected. MSB's
Federal Stock Charter and Bylaws allow cumulative voting rights with respect to
the election of directors. Michigan law permits cumulative voting in elections
of directors if provided for in a corporation's articles of incorporation. IBC's
Articles of Incorporation do not authorize cumulative voting by shareholders in
the election of IBC's directors. The absence of cumulative voting rights
effectively means that the holders of a majority of the shares voted at a
meeting of shareholders may, if they so choose, elect all directors of IBC to be
selected at that meeting, thus precluding minority shareholder representation on
IBC's Board of Directors.
VACANCIES ON THE BOARD OF DIRECTORS
Any vacancy on the Board of Directors of MSB may be filled by the
affirmative vote of a majority of the remaining directors, although less than a
quorum, and any director so appointed is to serve until the next election of
directors by shareholders. Additionally, any directorship of MSB to be filled by
reason of an increase in the number of directors may be filled by election by
the Board of Directors for a term of office only until the next election of
directors by the shareholders.
The Articles of Incorporation of IBC provide that any vacancies in the
Board of Directors, and any newly created directorships resulting from any
increase in the number of directors, may be filled only by vote of the Board of
Directors, acting by an affirmative vote of a majority of the "Continuing
Directors," as hereinafter defined, and a seventy-five percent (75%) majority of
all the directors then in office, although less than a quorum, for a remaining
term of office only until the next election by the shareholders. The term
"Continuing Director" means any member of the Board of Directors of IBC who is
unaffiliated with an Interested Shareholder and was a member of the Board before
the time that the Interested Shareholder became an Interested Shareholder, and
any successor of a Continuing Director who is unaffiliated with the Interested
Shareholder and is recommended to succeed a Continuing Director by a majority of
Continuing Directors then on the Board. The term "Interested Shareholder"
generally means any individual, corporation, partnership or other person or
entity which together with its "affiliates" beneficially owns in the aggregate
10% or more of the voting power of IBC's outstanding voting stock; any
"affiliate" of IBC which at any time within the two year period immediately
prior to the date in question was the beneficial owner, directly or indirectly,
of ten percent (10%) or more of the voting power of the then outstanding Common
Stock; or an assignee of or successor to any shares of voting stock which were
at any time within the two (2) year period immediately
46
<PAGE> 54
prior to the date in question beneficially owned by any Interested Shareholder,
if such assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering within the
meaning of the Securities Act of 1933.
NUMBER AND TERM OF DIRECTORS
MSB's Federal Stock Charter provides that the number of directors, as
stated in its Bylaws, shall not be fewer than five nor more than fifteen, except
when a greater number is approved by the OTS. MSB's Bylaws provide that its
Board of Directors shall consist of five members and shall be divided into three
equal classes which shall each be elected for three-year terms. IBC's Articles
of Incorporation provide that the size of its Board of Directors shall be
determined from time to time by resolution adopted by the affirmative vote of
(i) at least seventy-five percent (75%) of the Board of Directors, and (ii) a
majority of the Continuing Directors. IBC's Board of Directors currently
consists of seven members, and is divided into three classes. Directors of IBC
are elected for staggered three-year terms.
REMOVAL OF DIRECTORS
OTS regulations provide that at a meeting of shareholders called expressly
for that purpose, any director may be removed for cause by a vote of the holders
of a majority of the shares then entitled to vote at an election of directors.
MSB's Bylaws state that if less than the entire Board is to be removed, no one
of the directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors pursuant to the
provisions of MSB's Federal Stock Charter, the provisions of the Bylaws shall
apply, with respect to the removal of a director or directors so elected, to the
vote of the holders of the outstanding shares of that class and not to the vote
of the outstanding shares as a whole.
The Articles of Incorporation of IBC provide that any one or more directors
of IBC may be removed at any time, with or without cause, but only by either:
(i) the affirmative vote of a majority of the Continuing Directors and at least
a seventy-five percent (75%) majority of the Board of Directors, or (ii) the
affirmative vote, at a meeting of the shareholders called for that purpose, of
the holders of at least seventy-five percent (75%) of the voting power of the
then outstanding shares of capital stock of IBC entitled to vote generally in
the election of directors voting together as a single class.
APPROVAL OF MERGERS, CONSOLIDATIONS, SALE OF SUBSTANTIALLY ALL ASSETS AND
CERTAIN BUSINESS COMBINATIONS
Generally, the affirmative vote of a majority of shares present in person
or represented by proxy at a meeting and entitled to vote on the subject matter
constitutes the act of MSB shareholders; provided, however, that, where a
separate vote by class or classes is required, a majority of the outstanding
shares of such class or classes, present in person or represented by proxy,
constitutes a quorum entitled to take action with respect to a vote on that
matter, and the affirmative vote of the majority of shares of such class or
classes, present in person or represented by proxy at the meeting, constitutes
the act of such class or classes.
Under present federal regulations, the approval of the holders of at least
two thirds of MSB common stock is required for a merger, consolidation or sale
of assets not in the ordinary course of business (except for a merger with an
interim savings institution, which requires only a majority vote), except that
no shareholder approval is required if MSB is the acquiring institution and the
transaction involves, among other things, the issuance of shares of MSB common
stock amounting to 15% or fewer of the shares of MSB common stock outstanding
immediately prior to the transaction. MSB may effect a dissolution pursuant to a
plan adopted and approved by MSB's Board of Directors, by the OTS, and by the
holders of a majority of MSB's outstanding shares of Common Stock.
In general, Michigan law requires a corporation to obtain the affirmative
vote of the holders of the majority of the shares entitled to vote to effect
amendments to the articles of incorporation which would create dissenters=
rights, a merger, sale of assets other than in the ordinary course of business,
or dissolution of the corporation. IBC's Articles of Incorporation require the
approval of the holders of at least three fourths (3/4)
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<PAGE> 55
of IBC's outstanding shares of voting stock to approve any proposed (i) merger
or consolidation of IBC as a result of which IBC will not be the surviving
corporation, or (ii) the sale of all or substantially all of the assets of IBC.
Michigan law provides certain limitations with respect to "control shares."
"Control shares" are generally defined under Michigan law as shares of a
corporation which would, if aggregated with all other shares of that corporation
owned by a person, entitle that person, directly or indirectly, to exercise or
direct the exercise of voting power within specified ranges. "Control-share
acquisition" is generally defined by Michigan law as an acquisition (other than
an acquisition specifically exempted from the definition of control share
acquisition, such as an acquisition pursuant to certain mergers), directly or
indirectly, by any person of ownership of, or the power to direct the exercise
of voting power with respect to, issued and outstanding control shares. Under
Michigan law, shareholders or investors cannot vote any shares beyond the
control shares 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.
Additionally, Michigan law has "fair price" provisions which impose
additional voting requirements for business combinations with "interested
shareholders" (generally, persons holding more than 10% of the corporation's
voting stock). Under these provisions, 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 the board of directors,
higher than normal voting requirements are imposed. Under Michigan law,
transactions to which the higher voting requirements apply require an advisory
statement from the board of directors and must be approved by not less than 90%
of the votes of each class of stock entitled to vote and by not less than
two-thirds of the votes, other than the votes of the interested shareholder (and
affiliates of the interested shareholder), of each class entitled to vote.
The super majority vote, control share, and fair price provisions of
Michigan law may deter or render more difficult attempts by third parties to
obtain control of IBC if such attempts are not supported by IBC's Board of
Directors.
ADVANCE NOTICE REQUIREMENTS FOR NOMINATIONS OF DIRECTORS AND PRESENTATION OF NEW
BUSINESS AT MEETINGS OF SHAREHOLDERS
MSB's Bylaws generally provide that any shareholder desiring to make a
nomination for the election of directors or a proposal for new business at an
annual meeting of shareholders must submit written notice to the secretary of
MSB at least five (5) days in advance of the annual meeting. Failure to comply
with these advance notice requirements will preclude such nominations or new
business from being considered at the meeting, in which case the proposal will
be considered at a meeting taking place 30 days or more thereafter.
IBC's Bylaws provide that a shareholder wishing to make a proposal
generally must give written notice to IBC not less than 30 days before the
meeting, together with certain information relating to the new business. A
shareholder wishing to make a nomination of a director may make the nomination
only if written notice of the shareholder's nomination is given and received by
IBC (a) with respect to an election to be held at an annual meeting of
shareholders, not later than sixty (60) nor more than ninety (90) days prior to
the first anniversary of the preceding year's annual meeting of shareholders,
and (b) with respect to an election to be held at a special meeting of
shareholders called for that purpose, not later than the close of business on
the tenth (10th) day following the date on which notice of the special meeting
was first mailed to the shareholders by the corporation. Each shareholder's
notice of intent to make a nomination shall include certain information relating
to the nomination.
AMENDMENT OF FEDERAL STOCK CHARTER, ARTICLES OF INCORPORATION AND BYLAWS
MSB's Federal Stock Charter provides that it may be amended only if the
amendment is first proposed by MSB's Board of Directors, then preliminarily
approved by the OTS, and thereafter approved by the holders of a majority of
MSB's outstanding shares of common stock. The Bylaws of MSB may be amended by
the
48
<PAGE> 56
vote of either a majority of the Board of Directors or a majority of the votes
cast by the shareholders of MSB at a meeting of MSB's shareholders.
IBC's Articles of Incorporation provide that specified provisions contained
in the Articles of Incorporation may not be repealed or amended except upon the
affirmative vote of not less than 75% of the voting power of the shares of the
then outstanding voting stock, voting together as a single class. This
requirement exceeds the majority vote of the outstanding stock that would
otherwise be required by Michigan law for the repeal or amendment of a
certificate provision. The specific provisions are those (i) governing the
calling of special meetings, the absence of cumulative voting rights and the
requirement that shareholder action be taken only at annual or special meetings,
(ii) providing the mechanism for removing directors, and (iii) governing the
required shareholder vote for amending the Articles of Incorporation of IBC.
This provision is intended to prevent the holders of less than 75% of the
outstanding stock of IBC from circumventing any of the foregoing provisions by
amending the Articles of Incorporation to delete or modify one of such
provisions. This provision would enable the holders of more than 25% of IBC's
voting stock to prevent amendments to IBC's Articles of Incorporation or Bylaws,
even if such amendments were favored by the holders of a majority of the voting
stock.
IBC's Bylaws may be amended either by a majority vote of IBC's Board of
Directors or by the affirmative vote of the holders of a majority of the
outstanding shares of IBC's stock entitled to vote at any annual or special
meeting.
CERTAIN ANTI-TAKEOVER PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
The Board of Directors believes that certain of the provisions described
above reduce IBC's vulnerability to takeover attempts and certain other
transactions which have not been negotiated with and approved by its Board of
Directors. These provisions include: the absence of cumulative voting; the
requirement of advance notice of shareholder nominations and new business; and
the classification of the Board of Directors. The Board of Directors believes
these provisions are in the best interests of MSB and of IBC and its
shareholders. In the judgment of the Board of Directors, the Board of Directors
is in the best position to consider all relevant factors and to negotiate for
what is in the best interests of the shareholders and IBC's other constituents.
Accordingly, the Board of Directors of IBC believes that it is in the best
interests of IBC and its shareholders to encourage potential acquirors to
negotiate directly with IBC's Board of Directors and that these provisions will
encourage such negotiations and discourage nonnegotiated takeover attempts. It
is also the view of the Board of Directors that these provisions should not
discourage persons from proposing a merger or other transaction at a price
reflective of the true value of IBC.
Certain corporate takeover practices could be highly disruptive to a
company and could result in inequitable treatment among the company's
shareholders. These practices typically involve a purchaser's acquisition of a
substantial portion of a company's capital stock and attempt to replace
incumbent management and the board of directors. Takeover attempts which have
not been negotiated with and approved by the board of directors present to
shareholders the risk of a takeover on terms which may be less favorable than
might otherwise be available. A transaction which is negotiated and approved by
the board of directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value for the company
and its shareholders, with due consideration given to matters such as the
management and business of the acquiring corporation and maximum strategic
development of the target company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause great expense. Although a tender offer or
other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all the outstanding
shares of a target company. As a result, shareholders may be presented with the
alternative of partially liquidating their investment at a time that may be
disadvantageous, or retaining their investment in an enterprise which is under
different management and whose objectives may not be similar to those of the
remaining shareholders.
While the Board of Directors of IBC is not aware of any effort that might
be made to obtain control of IBC after the merger, the Board of Directors, as
discussed above, believes that it is appropriate to include certain provisions
as part of IBC's Articles of Incorporation to protect the interests of IBC and
its shareholders
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<PAGE> 57
from hostile takeovers which the Board of Directors might conclude are not in
the best interests of MSB, IBC or IBC's shareholders. These provisions may have
the effect of discouraging a future takeover attempt which is not approved by
the Board of Directors but which individual shareholders may deem to be in their
best interests or in which shareholders may receive a substantial premium for
their shares over then current market prices. As a result, shareholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the current Board of
Directors or management of IBC more difficult.
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<PAGE> 58
BUSINESS OF THE PARTIES TO THE MERGER
INDEPENDENT BANK CORPORATION
GENERAL
The subsidiary banks of IBC transact business in the single industry
segment of commercial banking. Most of the banks' offices provide full-service
lobby and drive-in services in the communities which they serve. Automatic
teller machines are also provided at most locations.
The banks' activities cover all phases of commercial banking, including
checking and savings accounts, commercial and agricultural lending, direct and
indirect consumer financing, mortgage lending and deposit box services. The
banks' mortgage lending activities are conducted through separate mortgage
company subsidiaries formed during 1998. The banks also offer title insurance
services through a separate subsidiary. The banks do not offer trust services.
The principal markets are the rural and suburban communities across lower
Michigan that are served by the banks' branch networks. The local economies of
the communities served by the banks are relatively stable and reasonably
diversified. The banks serve their markets through their four main offices and a
total of 56 branch and 11 loan production offices.
The banks compete with other commercial banks, savings and loan
associations, credit unions, mortgage banking companies, securities brokerage
companies, insurance companies, and money market mutual funds. Many of these
competitors have substantially greater resources than IBC and the banks and
offer certain services that IBC and the banks do not currently provide. Such
competitors may also have greater lending limits than the banks.
Price (the interest charged on loans and/or paid on deposits) remains a
principal means of competition within the financial services industry. The banks
also compete on the basis of service and convenience, utilizing the strengths
and benefits of the Registrant's decentralized structure to providing financial
services. As of December 31, 1998, IBC and the banks had 597 full-time employees
and 198 part-time employees.
DIVIDENDS AND PRICE RANGE OF IBC COMMON STOCK
IBC common stock is traded on the Nasdaq National Market under the symbol
"IBCP." The following table sets forth the cash dividends declared and the high
and low last sales prices for IBC common stock on the Nasdaq National Market
during the periods indicated. The dividends and price ranges have been adjusted
to reflect stock dividends and stock splits, as appropriate.
<TABLE>
<CAPTION>
DIVIDENDS PRICE RANGE
PER --------------------
1997 SHARE HIGH LOW
---- --------- ---- ---
<S> <C> <C> <C>
First Quarter........................... $0.11 $15.88 $13.50
Second Quarter.......................... 0.11 17.75 15.25
Third Quarter........................... 0.11 20.25 17.25
Fourth Quarter.......................... 0.12 25.75 20.00
</TABLE>
<TABLE>
<CAPTION>
DIVIDENDS PRICE RANGE
PER --------------------
1998 SHARE HIGH LOW
---- --------- ---- ---
<S> <C> <C> <C>
First Quarter........................... $0.12 $28.25 $24.00
Second Quarter.......................... 0.12 30.19 15.69
Third Quarter........................... 0.12 27.88 19.75
Fourth Quarter.......................... 0.13 24.50 18.00
</TABLE>
<TABLE>
<CAPTION>
DIVIDENDS PRICE RANGE
PER --------------------
1999 SHARE HIGH LOW
---- --------- ---- ---
<S> <C> <C> <C>
First Quarter........................... $0.14 $21.12 $15.50
</TABLE>
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<PAGE> 59
On March 23, 1999, the last trading day before the announcement of the
proposed merger, the high and low sales prices per share of IBC common stock on
the Nasdaq National Market were $18.688 and $18.250, respectively. On
, 1999, such prices were $ and $ , respectively.
OTHER INFORMATION
Because information regarding IBC is readily available to investors, the
law permits this document to be abbreviated by incorporating certain information
regarding IBC by reference to certain reports and other documents filed with the
SEC. See "Where You Can Find More Information." Other than as described herein,
there have been no material changes in the affairs of IBC since the filing of
its Annual Report on Form 10-K for the year ended December 31, 1998, that have
not been described in a subsequent report filed with the SEC pursuant to the
Securities and Exchange Act of 1934, as amended.
MUTUAL SAVINGS BANK, F.S.B.
GENERAL
MSB was originally organized in 1890 as a Michigan-chartered building and
loan association. In 1928, MSB merged with another Michigan-chartered building
and loan association, which had been organized in 1887. MSB converted to a
federally chartered mutual savings and loan association in 1985, under the name
Mutual Savings and Loan Association, F.A. In 1990, MSB converted to a federal
savings bank.
On July 16, 1992, MSB completed its conversion from a federally chartered
mutual savings bank to a federally chartered stock savings bank, by issuing
2,875,000 shares of $0.01 par value common stock at a price of $4.375 per share,
as adjusted for a 100% common stock split in the form of a dividend, paid on
September 8, 1993. In November 1993, MSB issued an additional 1,347,138 shares
as part of a rights offering to existing stockholders at $17.25 a share.
MSB's principal business is attracting retail deposits and investing those
deposits, together with other borrowings and funds generated from operations, in
one- to four-family residential mortgage loans, consumer loans, commercial real
estate and business loans, mortgage-backed securities, U.S. Government and
federal agency securities and other marketable securities. MSB's revenues are
derived principally from interest earned on its loans, mortgage-backed
securities and investment portfolios, as well as gains and fees on loans sold,
loan servicing fee income, service charges on deposit accounts and commission
income from the sale of investment and insurance products. MSB's expenses
primarily consist of interest paid on its deposits and borrowings, employee
compensation, occupancy expenses, federal deposit insurance premiums and general
and administrative expenses. MSB's primary sources of funds are deposits,
borrowings, principal and interest payments on loans and mortgage-backed
securities and proceeds from sales of mortgage loans.
MSB also operates two wholly owned subsidiaries, MSB Service Corporation
and MSB Investment and Insurance Services, Inc., ("MSBi"). MSB's two
subsidiaries have contracted with unaffiliated third parties to provide various
investment services including the sale of mutual fund and annuity products. MSBi
also sells life insurance, long-term care insurance and group health and
disability insurance.
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<PAGE> 60
DIVIDENDS AND PRICE RANGE OF MSB COMMON STOCK
MSB common stock is traded on the Nasdaq Stock Market under the symbol
"MSBK." To date, no dividends have been paid on MSB's stock. The following table
sets forth the high and low last sales prices for MSB common stock on the Nasdaq
Stock Market during the periods indicated.
<TABLE>
<CAPTION>
PRICE RANGE
--------------------
1997 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter.................................... $ 8.00 $ 5.50
Second Quarter................................... 10.13 6.50
Third Quarter.................................... 15.03 9.75
Fourth Quarter................................... 14.63 11.25
</TABLE>
<TABLE>
<CAPTION>
PRICE RANGE
--------------------
1998 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter.................................... $14.31 $11.25
Second Quarter................................... 13.00 11.06
Third Quarter.................................... 12.00 6.75
Fourth Quarter................................... 9.63 5.56
</TABLE>
<TABLE>
<CAPTION>
PRICE RANGE
--------------------
1999 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter.................................... $13.00 $ 8.63
</TABLE>
On March 23, 1999, the last trading day before the announcement of the
proposed merger, the high and low sales prices per share of MSB common stock on
the Nasdaq Stock Market were $9.75 and $9.56, respectively. On
, 1999, the sale prices were $ and $ ,
respectively.
REGULATION AND SUPERVISION
The following is a summary of certain statutes and regulations affecting
IBC. This summary is qualified in its entirety by such statutes and regulations.
A change in applicable laws or regulations may have a material effect on IBC and
the business of IBC.
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state law. Consequently, the growth and earnings
performance of IBC and its subsidiary banks can be affected not only by
management decisions and general economic conditions, but also by the statutes
administered by, and the regulations and policies of, various governmental
regulatory authorities. Those authorities include, but are not limited to, the
Board of Governors of the Federal Reserve System (the "Federal Reserve"), the
Federal Deposit Insurance Corporation (the "FDIC"), the Commissioner of the
Michigan Financial Institutions Bureau ("Commissioner"), the Internal Revenue
Service, and state taxing authorities. The effect of such statutes, regulations
and policies can be significant, and cannot be predicted with a high degree of
certainty.
Federal and state laws and regulations generally applicable to financial
institutions and their holding companies regulate, among other things, the scope
of business, investments, reserves against deposits, capital levels relative to
operations, lending activities and practices, the nature and amount of
collateral for loans, the establishment of branches, mergers, consolidations and
dividends. The system of supervision and regulation applicable to IBC and its
subsidiary banks establishes a comprehensive framework for their operations and
is intended primarily for the protection of the FDIC's deposit insurance funds,
the depositors of IBC's subsidiary banks, and the public, rather than
shareholders of IBC.
Federal law and regulations establish supervisory standards applicable to
the lending activities of the Bank, including internal controls, credit
underwriting, loan documentation and loan-to-value ratios for loans secured by
real property.
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<PAGE> 61
IBC
IBC is a bank holding company and, as such, is registered with, and subject
to regulation by, the Federal Reserve under the Bank Holding Company Act, as
amended (the "BHCA"). Under the BHCA, IBC is subject to periodic examination by
the Federal Reserve, and is required to file periodic reports of its operations
and such additional information as the Federal Reserve may require.
In accordance with Federal Reserve policy, a bank holding company is
expected to act as a source of financial strength to its subsidiary banks and to
commit resources to support the subsidiary banks in circumstances where the bank
holding company might not do so absent such policy. In addition, if the
Commissioner deems a bank's capital to be impaired, the Commissioner may require
a bank to restore its capital by special assessment upon a bank holding company,
as the bank's sole shareholder. If the bank holding company were to fail to pay
such assessment, the directors of that bank would be required, under Michigan
law, to sell the shares of that bank stock owned by the bank holding company to
the highest bidder at either public or private auction and use the proceeds of
the sale to restore the bank's capital.
Any capital loans by a bank holding company to a subsidiary bank are
subordinate in right of payment to deposits and to certain other indebtedness of
such subsidiary bank. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
Investments and Activities. In general, any direct or indirect acquisition
by a bank holding company of any voting shares of any bank which would result in
the bank holding company's direct or indirect ownership or control of more than
5% of any class of voting shares of such bank, and any merger or consolidation
of the bank holding company with another bank holding company, will require the
prior written approval of the Federal Reserve under the BHCA. In acting on such
applications, the Federal Reserve must consider various statutory factors
including the effect of the proposed transaction on competition in relevant
geographic and product markets, and each party's financial condition, managerial
resources, and record of performance under the Community Reinvestment Act.
In addition and subject to certain exceptions, the Change in the Bank
Control Act ("Control Act") and regulations promulgated thereunder by the
Federal Reserve, require any person acting directly or indirectly, or through or
in concert with one or more persons, to give the Federal Reserve 60 days'
written notice before acquiring control of a bank holding company. Transactions
which are presumed to constitute the acquisition of control include the
acquisition of any voting securities of a bank holding company having securities
registered under Section 12 of the Securities Exchange Act of 1934, as amended,
if, after the transaction, the acquiring person (or persons acting in concert)
owns, controls or holds with power to vote 25% or more of any class of voting
securities of the institution. The acquisition may not be consummated subsequent
to such notice if the Federal Reserve issues a notice within 60 days, or within
certain extensions of such period, disapproving the acquisition.
The merger or consolidation of an existing bank subsidiary of a bank
holding company with another bank, or the acquisition by such a subsidiary of
the assets of another bank, or the assumption of the deposit and other
liabilities by such a subsidiary requires the prior written approval of the
responsible Federal depository institution regulatory agency under the Bank
Merger Act, based upon a consideration of statutory factors similar to those
outlined above with respect to the BHCA. In addition, in certain cases an
application to, and the prior approval of, the Federal Reserve under the BHCA
and/or Commissioner under Michigan banking laws, may be required.
With certain limited exceptions, the BHCA prohibits any bank holding
company from engaging, either directly or indirectly through a subsidiary, in
any activity other than managing or controlling banks unless the proposed
non-banking activity is one that the Federal Reserve has determined to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. Under current Federal Reserve regulations, such permissible
non-banking activities include such things as mortgage banking, equipment
leasing, securities brokerage, and consumer and commercial finance company
operations. As a result of recent amendments to the BHCA, well-capitalized and
well-managed bank holding companies may engage de novo
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<PAGE> 62
in certain types of non-banking activities without prior notice to, or approval
of, the Federal Reserve, provided that written notice of the new activity is
given to the Federal Reserve within 10 business days after the activity is
commenced. If a bank holding company wishes to engage in a non-banking activity
by acquiring a going concern, prior notice and/or prior approval will be
required, depending upon the activities in which the company to be acquired is
engaged, the size of the company to be acquired and the financial and managerial
condition of the acquiring bank company.
In evaluating a proposal to engage (either de novo or through the
acquisition of a going concern) in a non-banking activity, the Federal Reserve
will consider various factors, including among others the financial and
managerial resources of the bank holding company, and the relative public
benefits and adverse effects which may be expected to result from the
performance of the activity by an affiliate of the bank holding company. The
Federal Reserve may apply different standards to activities proposed to be
commenced de novo and activities commenced by acquisition, in whole or in part,
of a going concern.
CAPITAL REQUIREMENTS
The Federal Reserve uses capital adequacy guidelines in its examination and
regulation of bank holding companies. If capital falls below minimum guidelines,
a bank holding company may, among other things, be denied approval to acquire or
establish additional banks or non-bank businesses.
The Federal Reserve's capital guidelines establish the following minimum
regulatory capital requirements for bank holding companies: (i) a leverage
capital requirement expressed as a percentage of total assets, and (ii) a
risk-based requirement expressed as a percentage of total risk-weighted assets.
The leverage capital requirement consists of a minimum ratio of Tier 1 capital
(which consists principally of shareholder's equity) to total assets of 3% for
the most highly rated companies with minimum requirements of 4% to 5% for all
others. The risk-based requirement consists of a minimum ratio of total capital
to total risk-weighted assets of 8%, of which at least one-half must be Tier 1
capital.
The risk-based and leverage standards presently used by the Federal Reserve
are minimum requirements, and higher capital levels will be required if
warranted by the particular circumstances or risk profiles of individual banking
organizations. For example, Federal Reserve regulations provide that additional
capital may be required to take adequate account of, among other things,
interest rate risk and the risks posed by concentrations of credit,
nontraditional activities or securities trading activities. Further, any banking
organization experiencing or anticipating significant growth would be expected
to maintain capital ratios, including tangible capital positions (i.e., Tier 1
capital less all intangible assets), well above the minimum levels. The Federal
Reserve has not advised IBC of any specific minimum Tier 1 Capital leverage
ratio applicable to it.
FDICIA requires the federal bank regulatory agencies biennially to review
risk-based capital standards to ensure that they adequately address interest
rate risk, concentration of credit risk and risks from non-traditional
activities.
DIVIDENDS
IBC is a corporation separate and distinct from its subsidiary banks. Most
of IBC's revenues will be received by it in the form of dividends, if any, paid
by its subsidiary banks. Thus, IBC's ability to pay dividends to its
shareholders will indirectly be limited by statutory restrictions on the ability
of its banks to pay dividends. See "-- The Subsidiary Banks of
IBC -- Dividends." Further, the Federal Reserve has issued a policy statement on
the payment of cash dividends by bank holding companies. In the policy
statement, the Federal Reserve expressed its view that a bank holding company
experiencing earnings weaknesses should not pay cash dividends exceeding its net
income or which can only be funded in ways that weakened the bank holding
company's financial health, such as by borrowing. Additionally, the Federal
Reserve possesses enforcement powers over bank holding companies and their
non-bank subsidiaries to prevent or remedy actions that represent unsafe or
unsound practices or violations of applicable statutes and regulations. Among
these powers is the ability to proscribe the payment of dividends by banks and
bank holding companies. Similar enforcement powers over subsidiary banks are
possessed by the FDIC. The "prompt corrective action"
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<PAGE> 63
provisions of federal law and regulation authorizes the Federal Reserve to
restrict the payment of dividends by IBC for an insured bank which fails to meet
specified capital levels.
In addition to the restrictions on dividends imposed by the Federal
Reserve, the Michigan Business Corporation Act provides that dividends may be
legally declared or paid only if after the distribution, a corporation such as
IBC, can pay its debts as they come due in the usual course of business and its
total assets equal or exceed the sum of its liabilities plus the amount that
would be needed to satisfy the preferential rights upon dissolution of any
holders of preferred stock whose preferential rights are superior to those
receiving the distribution. The Company is authorized to issue preferred stock
but it has no current plans to issue any such preferred stock.
THE SUBSIDIARY BANKS OF IBC
General. IBC'S subsidiary banks are each Michigan banking corporations, and
their deposit accounts are principally insured by the Bank Insurance Fund
("BIF") of the FDIC. As BIF-insured Michigan chartered banks, the banks are
subject to the examination, supervision, reporting and enforcement requirements
of the Commissioner, as the chartering authority for Michigan banks, and the
FDIC, as administrator of the BIF. These agencies and the federal and state laws
applicable to the banks and their operations, extensively regulate various
aspects of the banking business including, among other things, permissible types
and amounts of loans, investments and other activities, capital adequacy,
branching, interest rates on loans and on deposits, the maintenance of
non-interest bearing reserves on deposit accounts, and the safety and soundness
of banking practices.
Deposit Insurance. As FDIC-insured institutions, the banks are required to
pay deposit insurance premium assessments to the FDIC. The FDIC adopted a
risk-based assessment system under which all insured depository institutions are
placed into one of nine categories and assessed insurance premiums, based upon
their level of capital and supervisory evaluation. Institutions classified as
well-capitalized and considered healthy pay the lowest premium while
institutions that are less than adequately capitalized and considered of
substantial supervisory concern pay the highest premium. Risk classification of
all insured institutions is made by the FDIC for each semi-annual assessment
period.
The FDICIA requires the FDIC to establish assessment rates at levels which
will maintain the Deposit Insurance Fund at a mandated reserve ratio of not less
than 1.25% of estimated insured deposits. Accordingly, the FDIC established the
schedule of BIF insurance assessments, ranging from 0% of deposits for
institutions in the lowest risk category to .27% of deposits for institutions in
the highest risk category.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution or its
directors have engaged or are engaging in unsafe or unsound practices, or have
violated any applicable law, regulation, order, or any condition imposed in
writing by, or written agreement with, the FDIC, or if the institution is in an
unsafe or unsound condition to continue operations. The FDIC may also suspend
deposit insurance temporarily during the hearing process for a permanent
termination of insurance if the institution has no tangible capital.
Capital Requirements. The FDIC has established the following minimum
capital standards for state-chartered, FDIC-insured non-member banks, such as
IBC's subsidiary banks: a leverage requirement consisting of a minimum ratio of
Tier 1 capital to total assets of 3% for the most highly-rated banks with
minimum requirements of 4% to 5% for all others, and a risk-based capital
requirement consisting of a minimum ratio of total capital to total
risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital.
Tier 1 capital consists principally of shareholders= equity. These capital
requirements are minimum requirements. Higher capital levels will be required if
warranted by the particular circumstances or risk profiles of individual
institutions. For example, FDIC regulations provide that higher capital may be
required to take adequate account of, among other things, interest rate risk and
the risks posed by concentrations of credit, nontraditional activities or
securities trading activities.
Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether
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the institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." Federal regulations define these capital categories as
follows:
<TABLE>
<CAPTION>
TOTAL TIER 1
RISK-BASED RISK-BASED
CAPITAL RATIO CAPITAL RATIO LEVERAGE RATIO
------------- ------------- --------------
<S> <C> <C> <C>
Well capitalized.................. 10% or above 6% or above 5% or above
Adequately capitalized............ 8% or above 4% or above 4% or above
Undercapitalized.................. Less than 8% Less than 4% Less than 4%
Significantly undercapitalized.... Less than 6% Less than 3% Less than 3%
Critically undercapitalized....... -- -- A ratio of tangible
equity to total assets
of 2% or less
</TABLE>
Depending upon the capital category to which an institution is assigned,
the regulators' corrective powers include: requiring the submission of a capital
restoration plan; placing limits on asset growth and restrictions on activities;
requiring the institution to issue additional capital stock (including
additional voting stock) or to be acquired; restricting transactions with
affiliates; restricting the interest rate the institution may pay on deposits;
ordering a new election of directors of the institution; requiring that senior
executive officers or directors be dismissed; prohibiting the institution from
accepting deposits from correspondent banks; requiring the institution to divest
certain subsidiaries; prohibiting the payment of principal or interest on
subordinated debt; and ultimately, appointing a receiver for the institution.
In general, a depository institution may be reclassified to a lower
category than is indicated by its capital levels if the appropriate federal
depository institution regulatory agency determines the institution to be
otherwise in an unsafe or unsound condition or to be engaged in an unsafe or
unsound practice. This could include a failure by the institution, following
receipt of a less-than-satisfactory rating on its most recent examination
report, to correct the deficiency.
Commissioner Assessments. Michigan banks are required to pay supervisory
fees to the Commissioner to fund the operations of the Michigan Financial
Institutions Bureau. The amount of supervisory fees paid by a bank is based upon
the bank's total assets, as reported to the Commissioner.
FICO Assessments. The banks, as members of BIF, are subject to assessments
to cover the payments on outstanding obligations of the Financing Corporation
("FICO"). FICO was created in 1987 to finance the recapitalization of the
Federal Savings and Loan Insurance Corporation, the predecessor to the FDIC's
Savings Association Insurance Fund (the "SAIF"), which insures the deposits of
thrift institutions. Until January 1, 2000, the FICO assessments made against
BIF members may not exceed 20 percent of the amount of FICO assessments made
against SAIF members. Currently, SAIF members pay FICO assessments at a rate
equal to approximately 0.063 percent of deposits, while BIF members pay FICO
assessments at a rate equal to approximately 0.013 percent of deposits. Between
January 1, 2000, and the maturity of the outstanding FICO obligations in 2019,
BIF members and SAIF members will share the cost of the interest on the FICO
bonds on a pro rata basis. It is estimated that FICO assessments during this
period will be less than 0.025% of deposits.
Dividends. Under Michigan law, banks are restricted as to the maximum
amount of dividends they may pay on their common stock.
Banks may not pay dividends except out of net profits after deducting its
losses and bad debts. A Michigan state bank may not declare or pay a dividend
unless the bank will have a surplus amounting to at least 20% of its capital
after the payment of the dividend. If the bank has a surplus less than the
amount of its capital, it may not declare or pay any dividend until an amount
equal to at least 10% of net profits for the preceding one-half year (in the
case of quarterly or semi-annual dividends) or full-year (in the case of annual
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<PAGE> 65
dividends) has been transferred to surplus. A Michigan state bank may, with the
approval of the Commissioner, by vote of shareholders owning two thirds of the
stock eligible to vote increase its capital stock by a declaration of a stock
dividend, provided that after the increase the bank's surplus equals at least
20% of its capital stock, as increased. The bank may not declare or pay any
dividend until the cumulative dividends on preferred stock (should any such
stock be issued and outstanding) have been paid in full.
Federal law generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. The FDIC may prevent an insured bank from paying dividends if
the bank is in default of payment of any assessment due to the FDIC. In
addition, the FDIC may prohibit the payment of dividends by the Bank, if such
payment is determined, by reason of the financial condition of the bank, to be
an unsafe and unsound banking practice.
Insider Transactions. Banks are subject to certain restrictions imposed by
the Federal Reserve Act on "covered transactions" with IBC or its subsidiaries
on investments in the stock or other securities of IBC or its subsidiaries and
the acceptance of the stock or other securities of IBC or its subsidiaries as
collateral for loans. Certain limitations and reporting requirements are also
placed on extensions of credit by the banks to their directors and officers, to
directors and officers of IBC and its subsidiaries, to principal shareholders of
IBC, and to "related interests" of such directors, officers and principal
shareholders. In addition, federal law and regulations may affect the terms upon
which any person becoming a director or officer of IBC or one of its
subsidiaries or a principal shareholder of IBC may obtain credit from banks with
which the banks maintain a correspondent relationship.
Safety and Soundness Standards. Pursuant to FDICIA, the FDIC adopted
guidelines to establish operational and managerial standards to promote the
safety and soundness of federally insured depository institutions. The
guidelines establish standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and
earnings. In general, the guidelines prescribe the goals to be achieved in each
area, and each institution will be responsible for establishing its own
procedures to achieve those goals. If an institution fails to comply with any of
the standards set forth in the guidelines, the institution's primary federal
regulator may require the institution to submit a plan for achieving and
maintaining compliance. The preamble to the guidelines states that the agencies
expect to require a compliance plan from an institution whose failure to meet
one or more of the standards is of such severity that it could threaten the safe
and sound operation of the institution. Failure to submit an acceptable
compliance plan, or failure to adhere to a compliance plan that has been
accepted by the appropriate regulator, would constitute grounds for further
enforcement action.
State Bank Activities. Under FDICIA, as implemented by final regulations
adopted by the FDIC, FDIC-insured state banks are prohibited, subject to certain
exceptions, from making or retaining equity investments of a type, or in an
amount, that are not permissible for a national bank. FDICIA, as implemented by
FDIC regulations, also prohibits FDIC-insured state banks and their
subsidiaries, subject to certain exceptions, from engaging as a principal in any
activity that is not permitted for a national bank or its subsidiary,
respectively, unless the bank meets, and continues to meet, its minimum
regulatory capital requirements and the FDIC determines the activity would not
pose a significant risk to the deposit insurance fund of which the bank is a
member. Impermissible investments and activities must be otherwise divested or
discontinued within certain time frames set by the FDIC in accordance with
FDICIA. These restrictions are not currently expected to have a material impact
on the operations of IBC's subsidiary banks.
Consumer Banking. The banks' business includes making a variety of types of
loans to individuals. In making these loans, the banks are subject to State
usury and regulatory laws and to various federal statutes, such as the Equal
Credit Opportunity Act, Fair Credit Reporting Act, Truth in Lending Act, Real
Estate Settlement Procedures Act, and Home Mortgage Disclosure Act, and the
regulations promulgated thereunder which prohibit discrimination, specify
disclosures to be made to borrowers regarding credit and settlement costs, and
regulate the mortgage loan servicing activities of the banks, including the
maintenance and operation of escrow accounts and the transfer of mortgage loan
servicing. In receiving deposits, the banks are
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<PAGE> 66
subject to extensive regulation under state and federal law and regulations,
including the Truth in Savings Act, the Expedited Funds Availability Act, the
Bank Secrecy Act, the Electronic Funds Transfer Act, and the Federal Deposit
Insurance Act. Violation of these laws could result in the imposition of
significant damages and fines upon the banks and their respective directors and
officers.
Other. The Riegle-Neal Act allows bank holding companies to acquire banks
located in any state in the United States without regard to geographic
restrictions or reciprocity requirements imposed by state law, but subject to
certain conditions, including limitations on the aggregate amount of deposits
that may be held by the acquiring holding company and all of its insured
depository institution affiliates. The Riegle-Neal Act also allows banks to
establish interstate branch networks through acquisitions of other banks,
subject to certain conditions that include limitations on the aggregate amount
of deposits that may be held by the surviving bank and all of its insured
depository institution affiliates. The establishment of de novo interstate
branches or the acquisition of individual branches of a bank in another state
(rather than the acquisition of an out-of-state bank in its entirety) is allowed
by the Riegle-Neal Act only if specifically authorized by state law. The
legislation allowed individual states to "opt-out" of certain provisions of the
Riegle-Neal Act if appropriate legislation was enacted prior to June 1, 1997.
Michigan did not opt out of the Riegle-Neal Act, and now permits both U.S.
and non-U.S. banks to establish branch offices in Michigan. The Michigan Banking
Code permits, in appropriate circumstances and with the approval of the
Commissioner, (i) the acquisition of all or substantially all of the assets of a
Michigan-chartered bank by an FDIC-insured bank, savings bank, or savings and
loan association located in another state, (ii) the acquisition by a
Michigan-chartered bank of all or substantially all of the assets of an
FDIC-insured bank, savings bank or savings and loan association located in
another state, (iii) the consolidation of one or more Michigan-chartered banks
and FDIC-insured banks, savings banks or savings and loan associations located
in other states having laws permitting such consolidation, with the resulting
organization chartered by Michigan, (iv) the establishment by a foreign bank,
which has not previously designated any other state as its home state under the
International Banking Act of 1978, of branches located in Michigan, and (v) the
establishment or acquisition of branches in Michigan by FDIC-insured banks
located in other states, the District of Columbia or U.S. territories or
protectorates having laws permitting Michigan-chartered banks to establish
branches in such jurisdiction. Further, the Michigan Banking Code permits, upon
written notice to the Commissioner, (i) the acquisition by a Michigan-chartered
bank of one or more branches (not comprising all or substantially all of the
assets) of an FDIC-insured bank, savings bank or savings and loan association
located in another state, the District of Columbia, or a U.S. territory or
protectorate, (ii) the establishment by Michigan-chartered banks of branches
located in other states, the District of Columbia, or U.S. territories or
protectorates, and (iii) the consolidation of one or more Michigan-chartered
banks and FDIC-insured banks, savings banks or savings and loan associations
located in other states, with the resulting organization chartered by one of
such other states.
In addition to the authorization of interstate banking discussed above,
Michigan law permits banks to consolidate on a state-wide basis and to operate
the offices of merged banks as branches of a surviving bank. Also, with the
written approval of the Commissioner, banks may relocate their main office to
any location in the state, establish and operate branch banks anywhere in the
state and contract with other banks to act as branches thereof. To better serve
their customers, the banks have entered into interbank branching agreements,
whereby each of the banks may act as a branch of the other three banks. It is
expected that the resulting bank would enter into a similar interbank branching
agreement with IBC's four other banks.
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<PAGE> 67
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of shares of MSB
common stock held, as of May 15, 1999, by each director of MSB, each of MSB's
executive officers whose annual salary and bonus for the year ended December 31,
1998, exceeded $100,000, the directors and all executive officers as a group,
and persons known to MSB that own more than 5% of MSB's outstanding shares of
common stock. All of the shares shown in the following table are shares of
common stock and are owned both of record and beneficially by the person named
and the person named possesses sole voting and investment power, except as
otherwise indicated in the footnotes to the table.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS
------------------------ ---------- ----------
<S> <C> <C>
More than Five Percent Shareholders
Mutual Savings Bank, f.s.b Employee Stock Ownership Plan
("ESOP"), 623 Washington Avenue Bay City, Michigan
48708..................................................... 304,567(1) 7.1%
Independent Bank Corporation,
230 West Main Street, Ionia, Michigan 48846................. 853,792(2) 19.9%
Directors and Executive Officers
E. James Barrett............................................ 24,716(3) 0.5%(9)
William P. Brennan.......................................... 95,712(4) 2.1%(9)
Charles E. McCuistion....................................... 125,225(5) 2.8%(9)
Thomas T. Princing.......................................... 68,428(6) 1.5%(9)
Robert N. Shuster........................................... 55,535(7) 1.2%(9)
All executive officers and directors as a group (10
persons).................................................. 464,521(8) 10.3%(10)
</TABLE>
- -------------------------
(1) Based on Schedule 13G, dated January 12, 1999 as updated by information
available to MSB. The amount reported represents shares held by the ESOP.
Gary W. Wilds and Bernard D. Williams, as the trustees of the ESOP, may be
deemed to beneficially own the shares held by the ESOP. Pursuant to the
terms of the ESOP, the trustees are required to vote ESOP shares allocated
to the accounts of participants in accordance with directions received from
such participants and to vote allocated ESOP shares for which no direction
is received and unallocated ESOP shares in proportion to the vote of ESOP
shares allocated to accounts of participants and with respect to which
timely directions to vote have been received from participants.
(2) Based on Schedule 13D, dated March 24, 1999. The amount represents the
number of shares of MSB common stock that may be acquired under the terms
of the Warrant. See "The Merger -- Terms of the Warrant."
(3) Includes options to purchase 10,000 shares granted under the Mutual Savings
Bank Long-Term Incentive Plan ("Plan").
(4) Includes 34,284 shares owned by Brennan Realty and options to purchase
10,000 shares granted under the Plan.
(5) Includes options to purchase 91,460 shares granted under the Plan.
(6) Includes 1,142 shares held by Frankenmuth Brewing Co., Inc. (Mr. Princing
owns one-third of the outstanding stock of this company) and options to
purchase 10,000 shares granted under the Plan.
(7) Includes options to purchase 48,000 shares granted under the Plan.
(8) Includes options to purchase 233,796 shares granted under the Plan.
(9) Percentage is calculated on a partially diluted basis, assuming only the
exercise of stock options by such individual which are exercisable within
60 days.
(10) Percentage is calculated on a fully diluted basis, assuming the exercise of
all stock options which are exercisable within 60 days.
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WHERE YOU CAN FIND MORE INFORMATION
IBC files annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information IBC files at the Securities and
Exchange Commission's public reference rooms at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as at the Securities and Exchange
Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of these materials may also be obtained from the Securities and Exchange
Commission at prescribed rates by writing to the Public Reference Section of the
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the Securities and Exchange Commission at 1-800-SEC- 0330 for
further information on the public reference rooms. IBC's filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the Securities and Exchange Commission at "http:
//www.sec.gov." Press releases and other financial information regarding IBC are
also available on its website at www.ibcp.com.
MSB files annual, quarterly and special reports, proxy statements and other
information with the Office of Thrift Supervision. Copies of these materials may
also be obtained from the OTS at prescribed rates by writing to the OTS at 1700
G Street, N.W., Washington D.C. 20052. MSB's internet address is
www.mutualsb.com. In addition, IBC has filed with the Securities and Exchange
Commission, MSB's latest Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, MSB's latest Quarterly Report on Form 10-Q for the period
ended March 31, 1999, and MSB's Current Report on Form 8-K dated March 24, 1999,
each of which was filed by MSB with the OTS.
IBC has filed with the Securities and Exchange Commission an S-4
registration statement with respect to the IBC common stock to be issued to
holders of MSB common stock under the Agreement. This Joint Proxy
Statement/Prospectus constitutes the prospectus of IBC that is filed as part of
the registration statement. Other parts of the registration statement are
omitted from this Joint Proxy Statement/Prospectus in accordance with the rules
and regulations of the Securities and Exchange Commission. Copies of the
registration statement, including exhibits, may be inspected, without charge, at
the offices of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained from the Securities and
Exchange Commission at prescribed rates.
The Securities and Exchange Commission permits IBC to "incorporate by
reference" information into this Joint Proxy Statement/Prospectus, which means
that IBC can disclose important information to you by referring you to another
document filed separately with the Securities and Exchange Commission. The
following documents previously filed with the Securities and Exchange Commission
by IBC (Commission File Number 0-7818) are incorporated by reference into this
Joint Proxy Statement/Prospectus:
1. IBC's Annual Report on Form 10-K for the fiscal year ended December 31,
1998;
2. IBC's Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1999;
3. IBC's Report on Form 8-K, dated May 25, 1999, with respect to MSB's
Annual Report on Form 10-K for the year ended December 31, 1998, MSB's
Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1999, and MSB's Current Report on Form 8-K dated March 24, 1999, each as
filed by MSB with the OTS;
4. IBC's Proxy Statement relating to the Annual Meeting of Stockholders of
IBC held on April 20, 1999; and
5. The description of the IBC common stock contained in its Registration
Statement filed under Section 12 of the Exchange Act.
IBC is also incorporating by reference additional documents that it files with
the Commission between the date of this Joint Proxy Statement/Prospectus and the
date of the special meetings.
61
<PAGE> 69
The Securities and Exchange Commission and the OTS permit MSB to
"incorporate by reference" information into this Joint Proxy
Statement/Prospectus, which means that MSB can disclose important information to
you by referring you to another document filed separately with the OTS. These
documents also have been filed with the Securities and Exchange Commission by
means of the filing of IBC's Report on Form 8-K, dated May 25, 1999, referenced
above. Those documents previously filed with the Securities and Exchange
Commission and the OTS are incorporated by reference into this Joint Proxy
Statement/Prospectus and, other than MSB's current Report on Form 8-K, dated
March 24, 1999, accompany this Joint Proxy Statement/Prospectus:
1. MSB's Annual Report on Form 10-K for the year ended December 31, 1998;
2. MSB's Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1999;
3. MSB's Current Report on Form 8-K, dated March 24, 1999.
If you are an IBC or MSB shareholder, you can obtain any of the IBC
documents incorporated by reference from the Securities and Exchange Commission.
Documents incorporated by reference are available from IBC without charge,
excluding all exhibits unless IBC has specifically incorporated by reference an
exhibit in this Joint Proxy Statement/Prospectus. You may obtain documents
incorporated by reference in this Joint Proxy Statement/Prospectus by requesting
them in writing or by telephone from IBC at the following address or telephone
number:
Independent Bank Corporation
230 West Main Street
Ionia, Michigan 48846
Tel: 616-527-9450
Attn: Corporate Secretary
You should rely only on the information contained or incorporated by reference
in this Joint Proxy Statement/ Prospectus to vote on the proposal(s) presented
at your special shareholders meeting. We have not authorized anyone to provide
you with information that is different from what is contained in this Joint
Proxy Statement/ Prospectus. This Joint Proxy Statement/Prospectus is dated July
, 1999. You should not assume that the information contained in this Joint
Proxy Statement/Prospectus is accurate as of any date other than that date, and
neither the mailing of this Joint Proxy Statement/Prospectus to you nor the
issuance of IBC common stock in the merger will create any implication to the
contrary.
This Joint Proxy Statement/Prospectus is being furnished:
(1) to MSB shareholders in connection with the solicitation of proxies by
the MSB Board for use at MSB's special meeting. Each copy of this Joint
Proxy Statement/Prospectus mailed to MSB shareholders is accompanied by
a form of proxy for use at MSB's special meeting. This Joint Proxy
Statement/Prospectus also serves as a prospectus for holders of MSB
common stock in connection with the IBC common stock to be issued upon
completion of the merger; and
(2) to IBC shareholders in connection with the solicitation of proxies by
the IBC Board for use at IBC's special meeting. Each copy of this Joint
Proxy Statement/Prospectus mailed to IBC shareholders is accompanied by
a form of proxy for use at IBC'S special meeting.
IBC has supplied all information contained or incorporated by reference in this
Joint Proxy Statement/ Prospectus relating to IBC, and MSB has supplied all such
information relating to MSB.
EXPERTS
The consolidated financial statements of IBC included in IBC's Annual
Report on Form 10-K as of December 31, 1998, and 1997, and for each of the years
in the three-year period ended December 31, 1998, have been audited by KPMG LLP,
independent accountants, as stated in their report in the Form 10-K thereon and
incorporated by reference in this document. These consolidated financial
statements have been incorporated by reference in this document and in IBC's S-4
registration statement of which this document forms a
62
<PAGE> 70
part in reliance upon KPMG LLP's report given upon the authority of that firm as
experts in accounting and auditing.
The consolidated financial statements of MSB included in MSB's Annual
Report on Form 10-K as of December 31, 1998, and 1997, and for each of the years
in the three year period ended December 31, 1998, have been audited by KPMG LLP,
independent accountants, as stated in their report included in the documents
which accompany this Joint Proxy Statement/Prospectus. These consolidated
financial statements have been included in this document and in IBC's S-4
Registration Statement of which this document forms a part in reliance upon KPMG
LLP's report given upon the authority of that firm as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters relating to the validity of the IBC common stock
issuable in connection with the merger and certain other legal matters relating
to the merger will be passed upon for IBC by Varnum, Riddering, Schmidt &
Howlett LLP, Grand Rapids, Michigan. Varnum, Riddering, Schmidt & Howlett LLP,
has advised IBC that members of that firm own approximately shares of IBC
common stock. Certain legal matters in connection with the merger will be passed
upon for MSB by Schiff Hardin & Waite, Chicago, Illinois.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
IBC and MSB have made statements in this document and in documents that are
incorporated by reference in this document that constitute forward-looking
statements, as that term is defined in the Securities Reform Act of 1995. These
statements are subject to risks and uncertainties. Forward-looking statements
include information concerning possible or assumed future results of operations
of IBC, MSB or the combined company. These statements may relate to, but are not
limited to, information or assumptions about deposit and loan growth, income,
earnings per share, return on equity, capital expenditures, dividends, capital
structure, debt to capitalization ratios, interest rates, the Year 2000 plans
and related risks, pending legal proceedings and claims (including environmental
matters), future economic performance, operating income improvements, synergies,
management's plans, goals and objectives for future operations and growth. These
forward-looking statements generally are accompanied by words such as "intend,"
"anticipate," "believe," "estimate," "project," "expect," "should" or similar
expressions. You should understand that forward-looking statements are not
guarantees since there are inherent difficulties in predicting future results.
Actual results could differ materially from those expressed or implied in the
forward-looking statements. Factors that could cause actual results to differ
include, but are not necessarily limited to, those discussed in this Joint Proxy
Statement/Prospectus and in the documents referred to in this document.
63
<PAGE> 71
INDEX TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction to Unaudited Pro Forma Combined Financial
Statements................................................ F-2
Unaudited Pro Forma Combined Statement of Financial
Condition as of March 31, 1999............................ F-3
Unaudited Pro Forma Combined Statement of Operations for the
Three Months Ended March 31, 1999......................... F-4
Unaudited Pro Forma Combined Statement of Operations for the
Year Ended December 31, 1998.............................. F-5
Unaudited Pro Forma Combined Statement of Operations for the
Year Ended December 31, 1997.............................. F-6
Unaudited Pro Forma Combined Statement of Operations for the
Year Ended December 31, 1996.............................. F-7
Notes to Unaudited Pro Forma Combined Financial
Statements................................................ F-8
</TABLE>
F-1
<PAGE> 72
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined financial statements give effect to the
merger to be accounted for as a pooling of interests. The combined financial
statements on the following pages present (i) the historical consolidated
statements of financial condition and the pro forma combined statement of
financial condition of both IBC and MSB at March 31, 1999; and (ii) the
historical consolidated statements of operations and pro forma combined
statements of operations of IBC and MSB for the three months ended March 31,
1999, and for each of the years in the three-year period ended December 31,
1998. The pro forma combined statement of financial condition gives effect to
the merger as if it had occurred on the date presented and the pro forma
combined statements of operations give effect to the merger as if it had been
effected for all periods presented.
The pro forma statement of financial condition gives effect to nonrecurring
charges related to the merger, estimated tax benefits associated with the
elimination of the valuation allowance on deferred tax assets previously
recorded by MSB and balance sheet restructuring through the sale of certain
loans and securities. The pro forma statement of financial condition also
assumes each of the outstanding shares of MSB common stock is converted into
0.80 shares of IBC common stock.
The pro forma combined financial statements exclude the estimated effect of
revenue enhancements and expense savings associated with the consolidation of
operations of IBC and MSB. Such combined statements do, however, give effect to
the elimination of the valuation allowance on deferred tax assets previously
recorded by MSB in the periods presented.
The pro forma combined financial statements are intended for informational
purposes and may not be indicative of the combined financial position or results
of operations that actually would have occurred had the transaction been
consummated during the periods or as of the dates indicated, or which will be
attained in the future. The pro forma combined financial statements should be
read in conjunction with the 1998 Annual Reports on Form 10-K and the Quarterly
Reports on Form 10-Q for the period ended March 31, 1999, of IBC and MSB.
F-2
<PAGE> 73
INDEPENDENT BANK CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF FINANCIAL CONDITION
MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
INDEPENDENT MUTUAL PRO FORMA
BANK SAVINGS ----------------------------
CORPORATION BANK ADJUSTMENTS COMBINED
----------- ------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks...................... $ 33,174 $ 10,367 $ 43,541
Interest bearing deposits.................... 6,543 6,543
---------- -------- ----------
Total Cash and Cash Equivalents...... 33,174 16,910 50,084
---------- -------- ----------
Securities available for sale................ 88,793 51,057 $ 65,000(a) 204,850
Securities held to maturity.................. 16,100 130,159 (50,000)(a) 96,259
Federal Home Loan Bank stock, at cost........ 12,589 7,023 19,612
Loans held for sale.......................... 29,564 4,653 34,217
Loans
Commercial and agricultural............... 245,457 42,156 287,613
Real estate mortgage...................... 439,969 247,623 (15,000)(a) 672,592
Installment............................... 137,317 57,304 194,621
---------- -------- -------- ----------
Total Loans.......................... 822,743 347,083 (15,000) 1,154,826
Allowance for loan losses................. (9,989) (1,891) (11,880)
---------- -------- -------- ----------
Net Loans............................ 812,754 345,192 (15,000) 1,142,946
Property and equipment, net.................. 28,379 8,140 (800)(b) 35,719
Accrued income and other assets.............. 33,187 5,943 1,410(b)
11,003(d) 51,543
---------- -------- -------- ----------
Total Assets......................... $1,054,540 $569,077 $ 11,613 $1,635,230
========== ======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest bearing...................... $ 98,293 $ 10,514 $ 108,807
Savings and NOW........................... 382,744 150,588 533,332
Time...................................... 335,418 263,275 598,693
---------- -------- ----------
Total Deposits....................... 816,455 424,377 1,240,832
Federal funds purchased...................... 16,100 16,100
Other borrowings............................. 118,823 98,283 217,106
Guaranteed preferred beneficial interests in
Company's subordinated debentures......... 17,250 17,250
Accrued expenses and other liabilities....... 14,038 9,732 $ 4,200(b) 27,970
---------- -------- -------- ----------
Total Liabilities.................... 982,666 532,392 4,200 1,519,258
========== ======== ======== ==========
Commitments and contingent liabilities
Shareholders' Equity
Preferred stock...........................
Common stock.............................. 7,427 43 3,389(c) 10,859
Capital surplus........................... 38,464 32,120 (3,389)(c) 67,195
Retained earnings......................... 24,474 5,433 (3,590)(b)
10,964(d) 37,281
Accumulated other comprehensive income.... 1,509 (112) 39(d) 1,436
Unearned employee stock ownership plan
shares.................................. (799) (799)
---------- -------- -------- ----------
Total shareholders' Equity........... 71,874 36,685 7,413 115,972
---------- -------- -------- ----------
Total Liabilities and shareholders'
Equity............................. $1,054,540 $569,077 $ 11,613 $1,635,230
========== ======== ======== ==========
</TABLE>
See notes to pro forma combined financial statements.
F-3
<PAGE> 74
INDEPENDENT BANK CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INDEPENDENT MUTUAL PRO FORMA
BANK SAVINGS -----------------------------
CORPORATION BANK ADJUSTMENTS COMBINED(E)
----------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans.................... $19,508 $6,426 $25,934
Securities available for sale................. 1,613 671 2,284
Securities held to maturity
Taxable.................................... 23 1,867 1,890
Tax-exempt................................. 254 254
Other investments............................. 249 168 417
------- ------ ----- -------
Total Interest Income................. 21,647 9,132 30,779
------- ------ ----- -------
Interest Expense
Deposits...................................... 6,444 4,331 10,775
Other borrowings.............................. 2,334 1,493 3,827
------- ------ ----- -------
Total Interest Expense................ 8,778 5,824 14,602
------- ------ ----- -------
Net Interest Income................... 12,869 3,308 16,177
Provision for loan losses....................... 525 141 666
------- ------ ----- -------
Net Interest Income After Provision
for Loan Losses..................... 12,344 3,167 15,511
------- ------ ----- -------
Non-interest Income
Service charges on deposit accounts........... 1,038 169 1,207
Net gains on asset sales
Real estate mortgage loans................. 1,248 283 1,531
Securities................................. 14 14
Other income.................................. 1,391 604 1,995
------- ------ ----- -------
Total Non-interest Income............. 3,691 1,056 4,747
------- ------ ----- -------
Non-interest Expense
Salaries and employee benefits................ 6,810 1,635 8,445
Occupancy, net................................ 870 317 1,187
Furniture and fixtures........................ 745 224 969
Other expenses................................ 3,721 1,270 4,991
------- ------ ----- -------
Total Non-interest Expense............ 12,146 3,446 15,592
------- ------ ----- -------
Income Before Federal Income Tax...... 3,889 777 4,666
Federal income tax expense...................... 1,124 $ 272(d) 1,396
------- ------ ----- -------
Net Income............................ $ 2,765 $ 777 $(272) $ 3,270
======= ====== ===== =======
Net income per common share
Basic......................................... $ 0.37 $ 0.18 $ 0.30
======= ====== =======
Diluted....................................... $ 0.37 $ 0.18 $ 0.30
======= ====== =======
Average shares outstanding...................... 7,411 4,290 10,843
ESOP shares not committed to be released........ (42) (33)
------- ------ -------
Shares outstanding -- Basic................ 7,411 4,248 10,810
Effect of dilutive securities -- stock
options....................................... 62 89 133
------- ------ -------
Shares outstanding -- Diluted.............. 7,473 4,337 10,943
------- ------ -------
</TABLE>
See notes to pro forma combined financial statements.
F-4
<PAGE> 75
INDEPENDENT BANK CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
INDEPENDENT BANK MUTUAL SAVINGS --------------------------
CORPORATION BANK ADJUSTMENTS COMBINED(E)
---------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans............ $77,167 $25,060 $102,227
Securities available for sale......... 6,599 3,907 10,506
Securities held to maturity
Taxable............................ 194 9,958 10,152
Tax-exempt......................... 1,082 1,082
Other investments..................... 1,031 910 1,941
------- ------- ----- --------
Total Interest Income......... 86,073 39,835 125,908
------- ------- ----- --------
Interest Expense
Deposits.............................. 25,097 18,107 43,204
Other borrowings...................... 11,743 9,720 21,463
------- ------- ----- --------
Total Interest Expense........ 36,840 27,827 64,667
------- ------- ----- --------
Net Interest Income........... 49,233 12,008 61,241
Provision for loan losses............... 3,043 585 3,628
------- ------- ----- --------
Net Interest Income After
Provision for Loan Losses... 46,190 11,423 57,613
------- ------- ----- --------
Non-interest Income
Service charges on deposit accounts... 3,959 636 4,595
Net gains on asset sales
Real estate mortgage loans......... 4,815 2,237 7,052
Securities......................... 267 267
Other income.......................... 4,804 2,400 7,204
------- ------- ----- --------
Total Non-interest Income..... 13,845 5,273 19,118
------- ------- ----- --------
Non-interest Expense
Salaries and employee benefits........ 25,974 6,375 32,349
Occupancy, net........................ 3,093 1,131 4,224
Furniture and fixtures................ 2,649 1,010 3,659
Other expenses........................ 13,972 5,522 19,494
------- ------- ----- --------
Total Non-interest Expense.... 45,688 14,038 59,726
------- ------- ----- --------
Income Before Federal
Income Tax.................. 14,347 2,658 17,005
------- ------- ----- --------
Federal income tax expense.............. 4,126 0 $ 930(d) 5,056
------- ------- ----- --------
Net Income.................... $10,221 $ 2,658 $(930) $ 11,949
======= ======= ===== ========
Net income per common share
Basic................................. $ 1.39 $ 0.63 $ 1.11
======= ======= ========
Diluted............................... $ 1.38 $ 0.61 $ 1.10
======= ======= ========
Average shares outstanding.............. 7,342 4,289 10,773
ESOP shares not committed to be
released.............................. (50) (40)
------- ------- --------
Shares outstanding -- Basic...... 7,342 4,239 10,733
Effect of dilutive securities -- stock
options............................... 84 87 154
------- ------- --------
Shares outstanding -- Diluted.... 7,426 4,326 10,887
======= ======= ========
</TABLE>
See notes to pro forma combined financial statements.
F-5
<PAGE> 76
INDEPENDENT BANK CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
INDEPENDENT BANK MUTUAL SAVINGS --------------------------
CORPORATION BANK ADJUSTMENTS COMBINED(E)
---------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans............ $65,830 $22,844 $ 88,674
Securities available for sale......... 9,023 4,801 13,824
Securities held to maturity
Taxable............................ 356 14,233 14,589
Tax-exempt......................... 1,206 1,206
Other investments..................... 999 619 1,618
------- ------- ------- --------
Total Interest Income......... 77,414 42,497 119,911
------- ------- ------- --------
Interest Expense
Deposits.............................. 22,614 18,045 40,659
Other borrowings...................... 12,161 13,198 25,359
------- ------- ------- --------
Total Interest Expense........ 34,775 31,243 66,018
------- ------- ------- --------
Net Interest Income........... 42,639 11,254 53,893
Provision for loan losses............... 1,750 225 1,975
------- ------- ------- --------
Net Interest Income After
Provision for Loan Losses... 40,889 11,029 51,918
------- ------- ------- --------
Non-interest Income
Settlement of class action lawsuit.... (9,650) (9,650)
Service charges on deposit accounts... 3,128 632 3,760
Net gains on asset sales
Real estate mortgage loans......... 2,270 629 2,899
Securities......................... 273 273
Other income.......................... 2,844 2,512 5,356
------- ------- ------- --------
Total Non-interest Income..... 8,515 (5,877) 2,638
------- ------- ------- --------
Non-interest Expense
Salaries and employee benefits........ 20,280 6,235 26,515
Occupancy, net........................ 2,786 1,150 3,936
Furniture and fixtures................ 2,245 1,109 3,354
Other expenses........................ 11,534 5,813 17,347
------- ------- ------- --------
Total Non-interest Expense.... 36,845 14,307 51,152
------- ------- ------- --------
Income (Loss) Before Federal
Income Tax.................. 12,559 (9,155) 3,404
Federal income tax expense (benefit).... 3,635 0 $(1,700)(d) 1,935
------- ------- ------- --------
Net Income (Loss)............. $ 8,924 $(9,155) $ 1,700 $ 1,469
======= ======= ======= ========
Net income (loss) per common share
Basic................................. $ 1.24 $ (2.17) $ 0.14
======= ======= ========
Diluted............................... $ 1.22 $ (2.17) $ 0.14
======= ======= ========
Average shares outstanding.............. 7,204 4,277 10,626
ESOP shares not committed to be
released.............................. (66) (53)
------- ------- --------
Shares outstanding -- Basic...... 7,204 4,211 10,573
Effect of dilutive securities -- stock
options............................... 83 83
------- ------- --------
Shares outstanding -- Diluted.... 7,287 4,211 10,656
======= ======= ========
</TABLE>
See notes to pro forma combined financial statements.
F-6
<PAGE> 77
INDEPENDENT BANK CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
INDEPENDENT BANK MUTUAL SAVINGS ---------------------------
CORPORATION BANK ADJUSTMENTS COMBINED(E)
---------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans............ $49,768 $17,907 $ 67,675
Securities available for sale......... 6,337 5,801 12,138
Securities held to maturity
Taxable............................ 1,209 17,919 19,128
Tax-exempt......................... 1,200 1,200
Other investments..................... 971 1,238 2,209
------- ------- ---- --------
Total Interest Income......... 59,485 42,865 102,350
------- ------- ---- --------
Interest Expense
Deposits.............................. 16,138 18,044 34,182
Other borrowings...................... 8,675 14,127 22,802
------- ------- ---- --------
Total Interest Expense........ 24,813 32,171 56,984
------- ------- ---- --------
Net Interest Income........... 34,672 10,694 45,366
Provision for loan losses............... 1,233 180 1,413
------- ------- ---- --------
Net Interest Income After
Provision for Loan Losses... 33,439 10,514 43,953
------- ------- ---- --------
Non-interest Income
Service charges on deposit accounts... 2,267 619 2,886
Net gains (losses) on asset sales
Real estate mortgage loans......... 1,871 609 2,480
Securities......................... (162) (670) (832)
Other income.......................... 1,576 3,320 4,896
------- ------- ---- --------
Total Non-interest Income..... 5,552 3,878 9,430
------- ------- ---- --------
Non-interest Expense
Salaries and employee benefits........ 15,685 5,946 21,631
Occupancy, net........................ 2,042 1,171 3,213
Furniture and fixtures................ 1,864 880 2,744
Other expenses........................ 8,270 6,507 14,777
------- ------- ---- --------
Total Non-interest Expense.... 27,861 14,504 42,365
------- ------- ---- --------
Income (Loss) Before Federal
Income Tax.................. 11,130 (112) 11,018
Federal income tax expense (benefit).... 3,278 $(39)(d) 3,239
------- ------- ---- --------
Net Income (Loss)............. $ 7,852 $ (112) $ 39 $ 7,779
======= ======= ==== ========
Net income (loss) per common share
Basic................................. $ 1.11 $ (0.03) $ 0.74
======= ======= ========
Diluted............................... $ 1.10 $ (0.03) $ 0.74
======= ======= ========
Average shares outstanding.............. 7,092 4,273 10,510
ESOP shares not committed to be
released.............................. (81) (65)
------- ------- --------
Shares outstanding -- Basic...... 7,092 4,192 10,446
Effect of dilutive securities -- stock
options............................... 62 62
Shares outstanding -- Diluted.... 7,154 4,192 10,508
======= ======= ========
</TABLE>
See notes to pro forma combined financial statements.
F-7
<PAGE> 78
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) Reflects the expected sales of certain mortgage-backed securities and 15
year fixed-rate real estate mortgage loans of MSB. The proceeds from these
sales will be deployed in securities available for sale. Such sales are
expected to generate a loss of approximately $500 thousand and is reflected
in note (b). These actions will be undertaken to help maintain IBC's
interest rate risk position.
(b) Reflects management's estimate of nonrecurring charges resulting in an
after-tax adjustment to retained earnings of $3.6 million. The nonrecurring
charges will be recognized upon consummation of the merger or shortly
thereafter and are expected to consist of the following (shown pre-tax):
<TABLE>
<S> <C> <C>
Data processing termination and conversion costs............ $1,200
Legal and professional...................................... 1,100
Severance................................................... 950
Write-down of fixed assets.................................. 800
Loss on sale of securities and loans........................ 500
Other....................................................... 450
------
$5,000
======
</TABLE>
The write-down of fixed assets consists primarily of signage and
duplicative data processing hardware and software.
These nonrecurring charges are preliminary estimates and are subject to
revision as economic conditions, including interest rates, change or as
more information is made available. Such charges do not give effect to a
possible charge for a remaining MSB shareholder lawsuit.
(c) Each outstanding share of MSB common stock, par value $0.01, will be
converted into 0.80 shares of IBC common stock, par value $1.00.
(d) Management believes that the tax benefits associated with MSB's deferred
tax assets will more likely than not be realized, and therefore, no
valuation allowance is considered necessary. As a result, the adjustment to
federal income tax expense reflects the estimated tax benefit or expense
that would have been recognized by MSB if no valuation allowance had been
recognized during the periods presented.
In determining the tax benefit for 1997, approximately $4.3 million of
expenses related to the settlement of a shareholder lawsuit against MSB
were estimated to be non-deductible, resulting in an effective tax rate
significantly higher than the statutory tax rate.
The pro forma combined statement of condition has been adjusted to include
the net deferred tax asset and the related impact on retained earnings and
accumulated other comprehensive income as if no valuation allowance had
been recognized.
(e) The pro forma combined statements of operations do not give effect to
anticipated nonrecurring charges as described in note (b) or the estimated
benefit of revenue enhancements and expense savings associated with the
consolidation of the operations of IBC and MSB.
Earnings per common share for IBC and MSB are based on the historical
average number of common shares outstanding for each company during the
period. For purposes of the pro forma earnings per share computation, the
common shares of MSB have been adjusted to the equivalent shares of IBC.
F-8
<PAGE> 79
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
INDEPENDENT BANK CORPORATION
AND
MUTUAL SAVINGS BANK, F.S.B.
<PAGE> 80
TABLE OF CONTENTS
<TABLE>
PAGE
----
<S> <C>
RECITALS........................................................................................................A-1
ARTICLE I
CONSOLIDATION..........................................................................................A-1
1.1 Formation of New Bank.........................................................................A-1
1.2 Execution of Consolidation Agreement..........................................................A-1
1.3 Name of Consolidated Bank.....................................................................A-2
1.4 Business of Consolidated Bank.................................................................A-2
1.5 The Closing...................................................................................A-2
1.6 Conversion of Shares..........................................................................A-2
1.7 IBC Common Stock..............................................................................A-5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF IBC..................................................................A-5
2.1 Organization and Good Standing................................................................A-5
2.2 Subsidiaries..................................................................................A-5
2.3 Capitalization................................................................................A-5
2.4 Authorizations................................................................................A-6
2.5 Financial Statements..........................................................................A-6
2.6 Absence of Undisclosed Liabilities............................................................A-7
2.7 Loan Guarantees and Loss Reserves.............................................................A-7
2.8 Title to Properties...........................................................................A-7
2.9 Governmental Regulation.......................................................................A-7
2.10 Absence of Litigation.........................................................................A-7
2.11 Reports and SEC Documents.....................................................................A-8
2.12 Tax Matters...................................................................................A-9
2.13 Conduct.......................................................................................A-10
2.14 Compliance with Laws..........................................................................A-10
2.15 Brokerage Fees................................................................................A-11
2.16 Contracts.....................................................................................A-11
2.17 Duties as Fiduciary...........................................................................A-12
2.18 Insurance.....................................................................................A-12
2.19 Books and Records.............................................................................A-12
2.20 Employee Benefit Plans and Other Employee Matters.............................................A-12
2.21 Environmental Liability.......................................................................A-14
2.22 Community Reinvestment Act Compliance.........................................................A-15
2.23 Statements True and Correct...................................................................A-15
2.24 Tax, Regulatory, and Pooling Matters..........................................................A-15
2.25 Year 2000.....................................................................................A-16
</TABLE>
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<TABLE>
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2.26 "Material" Defined............................................................................A-16
------------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MSB..................................................................A-16
3.1 Organization and Good Standing................................................................A-16
3.2 Subsidiaries..................................................................................A-16
3.3 Capitalization................................................................................A-17
3.4 Authorizations................................................................................A-17
3.5 Financial Statements..........................................................................A-17
3.6 Absence of Undisclosed Liabilities............................................................A-18
3.7 Loan Guarantees and Loss Reserves.............................................................A-18
3.8 Title to Properties...........................................................................A-18
3.9 Governmental Regulation.......................................................................A-18
3.10 Absence of Litigation.........................................................................A-19
3.11 Reports and Securities Documents..............................................................A-19
3.12 Tax Matters...................................................................................A-20
3.13 Conduct.......................................................................................A-21
3.14 Compliance with Laws..........................................................................A-22
3.15 Brokerage Fees................................................................................A-22
3.16 Contracts.....................................................................................A-23
3.17 Duties as Fiduciary...........................................................................A-23
3.18 Insurance.....................................................................................A-23
3.19 Books and Records.............................................................................A-23
3.20 Employee Benefit Plans and Other Employee Matters.............................................A-24
3.21 Environmental Liability.......................................................................A-26
3.22 Community Reinvestment Act Compliance.........................................................A-26
3.23 Statements True and Correct...................................................................A-26
3.24 Tax, Regulatory, and Pooling Matters..........................................................A-27
3.25 Year 2000.....................................................................................A-27
3.26 "Material" Defined............................................................................A-27
3.27 Stock Transactions............................................................................A-27
3.28 Disclosure of Deeds, Leases, Agreements, Etc..................................................A-28
3.29 Takeover Laws.................................................................................A-28
3.30 Charter Provisions............................................................................A-28
3.31 Indemnification...............................................................................A-29
ARTICLE IV
CERTAIN COVENANTS......................................................................................A-29
4.1 Material Adverse Changes......................................................................A-29
4.2 Reports.......................................................................................A-29
4.3 Registration Statement; Proxy Statement/Prospectus; Shareholder Approvals.....................A-29
4.4 Applications..................................................................................A-31
4.5 Agreement as to Efforts to Consummate.........................................................A-31
</TABLE>
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4.6 Investigation and Confidentiality.............................................................A-31
4.7 Press Releases................................................................................A-32
4.8 Tax and Accounting Treatment..................................................................A-32
4.9 Survival of Representations and Warranties....................................................A-32
4.10 Affirmative Covenants Regarding Conduct of MSB's Business
Pending Effective Time........................................................................A-32
4.11 Negative Covenants Regarding Conduct of MSB's Business
Pending Effective Time........................................................................A-33
4.12 Affiliate Agreements..........................................................................A-36
4.13 Certain Policies of MSB.......................................................................A-36
4.14 Employee Benefits and Contracts...............................................................A-36
4.15 Indemnification; Directors' and Officers' Insurance...........................................A-42
4.16 Listing of Shares.............................................................................A-44
ARTICLE V
CONDITIONS PRECEDENT TO THE CONSOLIDATION..............................................................A-44
5.1 Conditions Precedent to Obligations of Each Party.............................................A-44
5.2 Conditions Precedent to Obligations of IBC....................................................A-45
5.3. Conditions Precedent to Obligations of MSB....................................................A-46
ARTICLE VI
ABANDONMENT AND TERMINATION OF CONSOLIDATION...........................................................A-48
6.1 Termination...................................................................................A-48
ARTICLE VII
EXPENSES...............................................................................................A-50
7.1 IBC Expenses..................................................................................A-50
7.2 MSB Expenses..................................................................................A-50
7.3 Termination; Expenses.........................................................................A-51
7.4 Obligations Upon Breach.......................................................................A-52
ARTICLE VIII
AMENDMENT AND WAIVER...................................................................................A-52
8.1 Amendment.....................................................................................A-52
8.2 Waiver........................................................................................A-52
ARTICLE IX
CERTAIN DEFINITIONS....................................................................................A-53
9.1 Certain Definitions...........................................................................A-53
ARTICLE X
GENERAL................................................................................................A-55
10.1 Notices.......................................................................................A-55
</TABLE>
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<TABLE>
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10.2 Governing Law.................................................................................A-56
10.3 Benefit and Binding Effect....................................................................A-56
10.4 Entire Agreement..............................................................................A-56
10.5 Counterparts..................................................................................A-56
10.6 Reliance on Headings, Etc.....................................................................A-57
Exhibit A Consolidation Agreement
Exhibit B Warrant Purchase Agreement
Exhibit C Affiliate Agreement
Exhibit D Management Continuity Agreement
</TABLE>
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is entered
into by and between INDEPENDENT BANK CORPORATION, a Michigan corporation, with
its principal office at 230 West Main Street, Ionia, Michigan 48846 ("IBC") and
MUTUAL SAVINGS BANK, F.S.B., a federal savings bank, with its principal office
located at 623 Washington Avenue, Bay City, Michigan 48708 ("MSB"). IBC and MSB
are sometimes referred to as the "Parties" or individually as a "Party."
RECITALS
The Board of Directors of MSB and IBC have determined, subject to the
requisite approval of their respective shareholders, that it would be in the
best interest of the respective institutions for MSB to affiliate with IBC,
pursuant to which MSB will be consolidated with a new Michigan banking
corporation to be organized by IBC under the Michigan Banking Code of 1969, as
amended (the "Banking Code").
Concurrently with the execution and delivery of this Agreement, the
Parties are entering into a certain Warrant Purchase Agreement, in the form
attached as Exhibit B (the "Warrant Purchase Agreement"), and a certain Warrant,
in the form attached as Attachment A to the Warrant Purchase Agreement (the
"Warrant"). This Agreement, together with the Consolidation Agreement attached
as Exhibit A, the Warrant Purchase Agreement, and the Warrant are sometimes
collectively referred to as the "Merger Documents."
For purposes of the Merger Documents, certain capitalized terms have
been defined in Article IX of this Agreement.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
CONSOLIDATION
1.1 Formation of New Bank. IBC agrees to use its best efforts to
promptly cause a new Michigan banking corporation ("New Bank") to be organized,
pursuant to Section 130 of the Banking Code, for purposes of effecting the
Consolidation (defined in Section 1.2 below). IBC will acquire and own all the
outstanding capital shares of New Bank as of the date the organization of New
Bank becomes effective.
1.2 Execution of Consolidation Agreement. Promptly after New Bank has
been organized, unless this Agreement has been terminated, MSB and IBC shall,
and IBC shall cause New Bank to, execute and enter into a Consolidation
Agreement substantially in the form of Exhibit A
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attached to this Agreement (the "Consolidation Agreement"), providing for the
consolidation of MSB with and into New Bank under the charter of New Bank (the
"Consolidation"). The financial institution resulting from the Consolidation
("Consolidated Bank") shall be a wholly owned subsidiary of IBC.
1.3 Name of Consolidated Bank. The name of the Consolidated Bank shall
be "New MSB Bank" or such other name as the Board of Directors and shareholder
of the Consolidated Bank shall determine.
1.4 Business of Consolidated Bank. The business of the Consolidated
Bank shall be that of a Michigan banking corporation. The Consolidated Bank
shall conduct its business at its main office that shall be located at Bay City,
Michigan, and at its legally established branches.
1.5 The Closing. The consummation of the transactions contemplated by
this Agreement and the Consolidation Agreement shall take place at a closing
(the "Closing") to be held upon the satisfaction or waiver of all of the
conditions to the Consolidation set forth herein and in the Consolidation
Agreement, which Closing shall take place at 10:00 a.m., local time, at the
offices of Varnum, Riddering, Schmidt & HowlettLLP (or at such other place upon
which the parties may agree), on a date mutually agreeable to the parties
hereto, but in no event later than the last business day of the month in which
(a) all of the conditions to the Consolidation set forth herein and in the
Consolidation Agreement have been satisfied or waived, or (b) if both of the
conditions in Section 1.6(f)(i) and (ii) have been satisfied, five (5) days
following the expiration of the Determination Period (hereinafter referred to as
the "Closing Date").
1.6 Conversion of Shares. The manner of converting the shares of MSB
and New Bank shall be as follows:
(a) Shares of New Bank. At the Effective Time, as defined in
Article 2 of the Consolidation Agreement, each share of New Bank, par
value $100.00 per share, issued and outstanding shall remain
outstanding as a share of the Consolidated Bank, and the capital of New
Bank shall become capital of the Consolidated Bank.
(b) Conversion of MSB Common Stock. At the Effective Time,
subject to Article 5 of the Consolidation Agreement, by virtue of the
Consolidation and without any action on the part of MSB, or the holder
of any security of MSB, each share of common stock of MSB, par value
$0.01 per share ("MSB Common Stock"), issued and outstanding
immediately prior to the Effective Time, other than shares canceled
pursuant to Section 1.6(e), shall be converted into the right to
receive 0.8 fully paid and nonassessable shares (the "Conversion
Ratio") of IBC common stock, $1.00 par value per share (the "IBC Common
Stock"), subject to adjustment as provided in this Section 1.6. If the
sum of the number of shares of MSB Common Stock outstanding at the
Effective Time plus the number of shares of MSB Common Stock that are
subject to outstanding MSB Stock Options as of the Effective Time
differs from 4,598,780 shares, the Conversion Ratio shall
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be automatically adjusted by multiplying the original Conversion Ratio
by the quotient obtained by dividing 4,598,780 by the sum of the number
of shares of MSB Common Stock issued and outstanding at the Effective
Time plus the number of shares subject to the outstanding MSB Stock
Options at the Effective Time; provided, however, that, in performing
any such adjustment, the Conversion Ratio shall be rounded to the
nearest hundredth of a share of IBC Common Stock.
(c) No Fractional Shares. No fractional shares of IBC Common
Stock shall be issued. Each holder of MSB Common Stock who would
otherwise be entitled to receive a fractional part of a share of IBC
Common Stock pursuant to Section 1.6(b) shall instead be entitled to
receive cash in an amount equal to the product resulting from
multiplying such fraction (rounded to the nearest tenth when expressed
as an Arabic number) by the average closing sale price of IBC Common
Stock as reported on the Nasdaq Stock Market on the five trading days
immediately preceding the Effective Time.
(d) Recapitalization. In the event that either IBC or MSB
changes (or establishes a record date for changing) the number of
shares of IBC Common Stock or shares of MSB Common Stock issued and
outstanding as a result of a stock dividend, stock split,
recapitalization, reclassification, combination or similar transaction
with respect to the outstanding shares of IBC Common Stock or MSB
Common Stock, and the record date therefor shall be after the date of
this Agreement and prior to the Effective Time, then the Conversion
Ratio shall be appropriately and proportionately adjusted.
(e) Certain Owned Shares of MSB Common Stock. Any and all
shares of MSB Common Stock owned by MSB, IBC or any direct or indirect
majority-owned Subsidiary of either of them, in each case other than in
a fiduciary capacity that are beneficially owned by third parties or as
a result of debts previously contracted, shall be canceled and retired
at the Effective Time and no consideration shall be issued in exchange
therefor.
(f) MSB Termination Right; IBC Adjustment Right. The Board of
Directors of MSB may terminate this Agreement upon written notice to
IBC (the "Termination Notice"), at any time during the Determination
Period (as defined below), if both of the following conditions are
satisfied:
(i) the Average Closing Price shall be less than the
product of 0.85 and the Starting Price; and
(ii) (A) the quotient obtained by dividing the
Average Closing Price by the Starting Price (such number being
referred to herein as the "IBC Ratio") shall be less than (B)
the quotient obtained by dividing the Average Index Price by
the Index Price on the Starting Date and subtracting 0.15 from
the quotient in this clause (ii)(B) (such number being
referred to herein as the "Index Ratio");
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subject, however, to the following provisions. During the five (5) day
period commencing with IBC's receipt of MSB's Termination Notice, IBC
shall have the option to elect to increase the Conversion Ratio to
equal the lesser of (i) the quotient obtained by dividing (A) the
product of 0.85, the Starting Price and the Conversion Ratio by (B) the
Average Closing Price, or (ii) the quotient obtained by dividing (A)
the product of the Index Ratio and the Conversion Ratio by (B) the IBC
Ratio. If IBC makes such an election within such five (5) day period,
it shall give prompt written notice to MSB of such election and the
revised Conversion Ratio, whereupon no termination shall have occurred
pursuant to this Section 1.6(f) and this Agreement shall remain in
effect in accordance with its terms (except as the Conversion Ratio
shall have been so modified), and any references in this Agreement to
"Conversion Ratio" shall thereafter be deemed to refer to the
Conversion Ratio as adjusted pursuant to this Section 1.6(f).
For purposes of this Section 1.6(f), the following terms shall
have the meanings indicated:
"Average Closing Price" means the average of the daily last
sale prices of IBC Common Stock as reported on the Nasdaq Stock Market
("Nasdaq") (as reported in The Wall Street Journal or, if not reported
therein, in another mutually agreed upon authoritative source) for the
fifteen (15) consecutive full trading days in which such shares are
traded on the Nasdaq ending at the close of trading on the first day of
the Determination Period.
"Average Index Price" means the average of the Index Prices
for the fifteen (15) consecutive full Nasdaq trading days ending at the
close of trading on the first day of the Determination Period.
"Determination Period" means the fifteen (15) day period
commencing two (2) days after the date on which the last Requisite
Regulatory Approval required for consummation of the Consolidation
shall be received.
"Index Group" means the Nasdaq Bank Stock Index.
"Index Price" on a given date means the average of the closing
prices on such date of the companies comprising the Index Group.
"Starting Date" means the last full day on which the Nasdaq
was open for trading prior to the execution of this Agreement.
"Starting Price" shall mean the last sale price per share of
IBC Common Stock on the Starting Date, as reported by the Nasdaq (as
reported in The Wall Street Journal or, if not reported therein, in
another mutually agreed upon authoritative source).
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1.7 IBC Common Stock. All shares of IBC Common Stock that are issued
and outstanding immediately prior to the Effective Time shall continue to be
issued and outstanding shares of IBC Common Stock at and after the Effective
Time.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF IBC
Except as otherwise set forth in the IBC disclosure memorandum ("IBC
Disclosure Memorandum") previously delivered to MSB, IBC represents and warrants
to MSB that:
2.1 Organization and Good Standing. IBC is duly registered as a bank
holding company under the Bank Holding Company Act. Each of the IBC Companies is
duly organized, validly existing and in good standing under the laws of the
State of Michigan (except that IBC Capital Finance is a business trust organized
and in good standing under Delaware law) and has the corporate power to carry on
their respective businesses substantially as it is now being conducted. Each IBC
Company is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions where the failure to be so qualified or licensed is not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
IBC. The IBC Disclosure Memorandum contains true and complete copies of the
Articles of Incorporation and Bylaws of IBC.
2.2 Subsidiaries. Section 2.2 of the IBC Disclosure Memorandum contains
a true and complete list of all of the IBC Subsidiaries as of the date of this
Agreement. Except as disclosed in Section 2.2 of the IBC Disclosure Memorandum,
IBC or one of its Subsidiaries owns all of the issued and outstanding shares of
capital stock of each IBC Subsidiary. No equity securities of any IBC Subsidiary
are or may become required to be issued by reason of any Rights, and there are
no contracts by which any IBC Subsidiary is bound to issue additional shares of
its capital stock or Rights. There are no contracts relating to the rights of
any IBC Company to vote or to dispose of any shares of the capital stock of any
IBC Subsidiary. All of the shares of capital stock of each IBC Subsidiary held
by an IBC Company are fully paid and, except pursuant to Section 201 of the
Michigan Banking Code in the case of the IBC banks, are owned by the IBC Company
free and clear of any lien.
2.3 Capitalization.
(a) IBC has authorized capital of 14,000,000 shares of common
stock, par value $1.00 per share ("IBC Common Stock"), and 200,000
shares of preferred stock, without par value. As of March 23, 1999,
7,426,991shares of IBC Common Stock were issued and outstanding. No
shares of IBC preferred stock are issued or outstanding. All of the
issued and outstanding shares of IBC Common Stock are, and all of the
shares of IBC Common Stock to be issued in exchange for shares of IBC
Common Stock upon consumption of the Consolidation, when issued in
accordance with the terms of this Agreement and the
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<PAGE> 89
Consolidation Agreement, will be, 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 IBC
except as reflected in the notes to IBC's consolidated financial
statements for the year ended December 31, 1998, and as may be issued
or purchased subsequent to December 31, 1998, pursuant to IBC's
Dividend Reinvestment and Stock Purchase Plan and IBC's various
equity-based compensation plans. IBC has not established a record date
for any stock dividend, stock split, recapitalization,
reclassification, combination or similar transaction that has not
become effective prior to the date of this Agreement.
(b) Except as set forth in Section 2.3(a) of this Agreement or
as disclosed in Section 2.3 of the IBC Disclosure Memorandum, there are
no shares of capital stock or other equity securities of IBC
outstanding and no outstanding Rights relating to the capital stock of
IBC and there are no warrants, options, contracts or rights (including
preemptive rights or rights contained in convertible securities or any
other rights) outstanding for the purchase or acquisition of any
additional shares of IBC.
2.4 Authorizations. The execution, delivery and performance of this
Agreement have been duly and validly authorized by IBC and its Board of
Directors, and do not violate or conflict with IBC's Articles of Incorporation,
Bylaws or any court order or decree to which it or any of its Subsidiaries is a
party or subject, or by which IBC or any such Subsidiary is bound, subject to
the approval of this Agreement and the Consolidation Agreement by the
shareholders of IBC. The execution and performance of this Agreement and the
Consolidation Agreement 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 IBC or any of its
Subsidiaries is bound. The Merger Documents, when executed and delivered, will
be a valid, binding and enforceable obligation of IBC (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency,
receivership, reorganization, moratorium, or similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceeding may be brought).
2.5 Financial Statements. The consolidated statements of financial
condition of IBC as of December 31, 1998 and 1997, and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1998, as reported
by IBC's independent accountants, KPMG LLP, including all schedules and notes
relating thereto (the "IBC Financial Statements"), fairly present IBC's
financial condition and results of operations, on a consolidated basis, on the
dates and for the periods indicated in conformity with generally accepted
accounting principles applied consistently throughout the periods indicated
(except as otherwise noted in said financial statements). The IBC Financial
Statements referred to in this Section 2.5 do not, as of the date hereof,
include any material assets or omit to state any material liability or other
facts, the inclusion or omission of which renders such IBC Financial
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<PAGE> 90
Statements, in light of the circumstances under which they were made, misleading
in any material respect.
2.6 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the consolidated Statement of Financial
Condition of IBC as of December 31, 1998, and the notes thereto, IBC, on a
consolidated basis, has no material liabilities or obligations (whether accrued,
absolute, contingent or otherwise) of a nature and amount required to be
reflected in such statement, or the notes thereto, in accordance with GAAP.
2.7 Loan Guarantees and Loss Reserves. To the best of its knowledge,
all material guarantees of indebtedness owed to IBC Companies, including, but
not limited to, those of the Federal Housing Administration, the Small Business
Administration, the Farmers Home Administration, and other federal agencies, are
valid and enforceable in accordance with their respective terms. The IBC
Companies' allowance for loan losses reflected in IBC's December 31, 1998,
consolidated financial statements, pursuant to GAAP, was adequate to meet all
loan losses then reasonably anticipated based upon the facts and circumstances
known as of that date.
2.8 Title to Properties. The IBC Companies are the owner of all
material property and assets reflected in their audited Statement of Financial
Condition at December 31, 1998, free of any material liens and encumbrances,
except as noted therein, and except for changes thereafter in the ordinary
course of business, which changes are not in the aggregate material to IBC's
business. The IBC Companies have good and marketable title to all material
properties and assets acquired after December 31, 1998, free of liens and
encumbrances, except assets disposed of or encumbered in the ordinary course of
business. All material leases to which an IBC Company is a party are valid and
enforceable in accordance with their respective terms. Each material lease is
specifically identified in the IBC Disclosure Memorandum. The IBC Companies have
not received notice of any material violation of any applicable zoning
regulation, ordinance or other law, order, regulation or requirement relating to
their operations or properties.
2.9 Governmental Regulation. The IBC Companies hold all material
licenses, certificates, permits, franchises and rights from all appropriate
federal, state or other public authorities necessary for the conduct of their
business. To the best of IBC's knowledge, the IBC Companies have conducted their
business so as to comply in all material respects with all applicable federal,
state and local statutes, regulations, ordinances or 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.
2.10 Absence of Litigation. Except as disclosed in Section 2.10 of the
IBC Disclosure Memorandum, there is no Litigation instituted or pending or, to
the knowledge of IBC, threatened (or unasserted but considered probable of
assertion and which, if asserted, would have at least a
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reasonable probability of an unfavorable outcome) against any IBC Company, or
against any asset, interest, or right of any of them, that seeks to enjoin,
delay, or prevent the execution, delivery, or performance of the Merger
Documents or the completion of the transactions contemplated therein or herein,
or that, if a judgment adverse to a IBC Company were to be rendered in such
Litigation, would have, individually or in the aggregate, a Material Adverse
Effect on IBC, nor are there any orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any IBC Company
that would have, individually, or in the aggregate, a Material Adverse Effect on
IBC. Section 2.10 of the IBC Disclosure Memorandum contains a copy of each audit
letter response received by IBC from attorneys for any IBC Company in connection
with the preparation of the financial statements of IBC or otherwise since
December 31, 1997, relating to any Litigation pending as of the date of this
Agreement to which any IBC Company is a party and which names any IBC Company as
a defendant or cross-defendant, and a brief summary report of any such
litigation that is not discussed in such audit letter responses.
2.11 Reports and SEC Documents.
(a) Reports. IBC and each of the IBC Subsidiaries have timely
filed all reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were
required to file since January 1, 1995 with the Regulatory Authorities,
and all other reports and statements required to be filed by them since
January 1, 1995, including, without limitation, any report or statement
required to be filed pursuant to the laws, rules or regulations of the
United States, any state, or any Regulatory Authority, and have paid
all fees and assessments due and payable in connection therewith,
except where the failure to file such report, registration or statement
or to pay such fees and assessments, either individually or in the
aggregate, will not have a Material Adverse Effect on IBC. Except for
normal examinations conducted by Regulatory Authorities in the regular
course of the business of IBC or the IBC Subsidiaries, no Regulatory
Authority has initiated any proceeding or, to the best knowledge of
IBC, investigation into the business or operations of IBC or any of IBC
Subsidiaries since January 1, 1995. There is no unresolved written
violation, written criticism, or written exception by any Regulatory
Authority with respect to any report or statement relating to any
examinations of IBC or any of the IBC Subsidiaries, which is likely,
either individually or in the aggregate, to have a Material Adverse
Effect on IBC.
(b) SEC Documents. IBC has made available to MSB a true and
complete copy of each report, schedule, registration statement and
definitive proxy statement filed by IBC with the SEC (other than
reports filed pursuant to Section 13(d) or 13(g) of the Exchange Act)
since January 1, 1995 (as such documents have since the time of their
filing been amended, the "IBC SEC Documents"), which are all the
documents (other than preliminary material and reports required
pursuant to Section 13(d) or 13(g) of the Exchange Act) that IBC was
required to file with the SEC since such date. As of their respective
dates of filing with the SEC, the IBC SEC Documents complied in all
material respects with the requirements of the Securities Act of 1933,
as amended (the "Securities Act"), or the
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Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such IBC SEC Documents, and did not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of IBC included in the
IBC SEC Documents complied as to form, as of their respective dates of
filing with the SEC, in all material respects with applicable
accounting requirements and with the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by
Form 10-Q of the SEC) and fairly present in all material respects the
consolidated financial position of IBC and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of
operations, changes in shareholders' equity and cash flows of such
companies for the periods then ended. All material agreements,
contracts and other documents required to be filed as exhibits to any
of the IBC SEC Documents have been so filed.
2.12 Tax Matters. Except as may be disclosed in Section 2.12 of
the IBC Disclosure Memorandum:
(a) All tax returns required to be filed by or on behalf of
any of the IBC Companies have been timely filed or requests for
extensions have been timely filed, granted, and have not expired for
periods ended on or before December 31, 1998, and on or before the date
of the most recent fiscal year end immediately preceding the Effective
Time and all returns filed are complete and accurate, except for
failures, if any, which, taken together, would not have a Material
Adverse Effect on IBC. All Taxes shown on filed returns have been paid
or adequate provision therefor has been made in the IBC Financial
Statements. As of the date of this Agreement, there is no audit
examination, deficiency, or refund Litigation with respect to any Taxes
that is reasonably likely to result in a determination that would have,
individually or in the aggregate, a Material Adverse Effect on IBC,
except as reserved against in the IBC Financial Statements delivered
prior to the date of this Agreement or as disclosed in Section 2.12 of
the IBC Disclosure Memorandum. All Taxes and other liabilities due with
respect to completed and settled Tax examinations or concluded Tax
Litigation have been paid or adequate provision therefor has been made
in the IBC financial statements.
(b) None of the IBC Companies has executed an extension or
waiver of any statute of limitations on the assessment or collection of
any Tax due (excluding such statutes that relate to years currently
under examination by the Internal Revenue Service or other applicable
taxing authorities) that is currently in effect.
(c) Adequate provision for any Taxes due or to become due for
any of the IBC Companies for the period or periods through and
including the date of the respective IBC
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financial statements has been made and is reflected on such IBC
financial statements in accordance with GAAP.
(d) Deferred Taxes of the IBC Companies have been provided for
in accordance with GAAP.
(e) Each of the IBC Companies is in material compliance with,
and its records contain all information and documents (including
properly completed IRS Forms W-9) necessary to comply with, all
applicable information reporting and Tax withholding requirements under
federal, state, and local Tax Laws, and such records identify with
specificity all accounts subject to backup withholding under Section
3406 of the Internal Revenue Code.
(f) Except as disclosed in Section 2.12 of the IBC Disclosure
Memorandum, IBC has not received any notification of an audit of its
federal income tax returns for any tax years since 1988.
2.13 Conduct. Since December 31, 1998, neither IBC nor any of its
Subsidiaries has: (a) experienced any material adverse change in financial
condition, assets, liabilities or business; (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 and except for
any branch or bank acquisition agreements that IBC or its Subsidiaries may enter
into prior to the Effective Time as to which notice of such is provided to MSB
by IBC; (c) to the best of IBC's knowledge, suffered any union organizational
efforts or any labor trouble, or any event or condition of any character
materially and adversely affecting its business or prospects not generally
affecting banks in 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 IBC 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 of its material assets, or sold or transferred any such
material assets, except in the ordinary course of business; (f) learned of any
basis for the institution of any action, suit, proceeding or governmental
investigation against it with respect to its business, properties, assets or
goodwill, that might have a Material Adverse Effect on IBC or any of its
Subsidiaries; or (g) made or permitted any amendment or termination of any
material contract to which it is a party except for the expiration of contracts
at the end of their term and termination of contracts which are terminable by
the other party without any fault or omission on the part of IBC or a Subsidiary
of IBC.
2.14 Compliance with Laws. Each IBC Company has in effect all permits
necessary for it to own, lease, or operate its material assets and to carry on
its business as now conducted, except for those permits, the absence of which
are not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on IBC, and there has occurred no default under any such permit,
other than defaults which are not reasonably likely to have, individually or in
the aggregate,
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a Material Adverse Effect on IBC. Except as disclosed in Section 2.14 of the IBC
Disclosure Memorandum, no IBC Company:
(a) Is in default under its governing documents;
(b) Is in violation of any laws, orders, or permits applicable
to its business or employees conducting its business, except for
violations which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on IBC;
(c) Has received any notification or communication from any
agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any such
entity is not in compliance with any of the laws or orders which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have a Material Adverse Effect on
IBC, (ii) threatening to revoke any permits, the revocation of which is
reasonably likely to have a Material Adverse Effect on IBC, or (iii)
requiring any such entity to enter into or consent to the issuance of a
cease and desist order, supervisory letter, formal agreement,
directive, commitment, or memorandum of understanding, or to adopt any
resolution of the Board of Directors of such entity or similar
undertaking, which restricts materially the conduct of its business, or
in any manner relates to its capital adequacy, its credit or reserve
policies, its management, or the payment of dividends, and is subject
to any such agreement under, letter of understanding; or
(d) Directly or indirectly engages in any material activity
prohibited to be conducted by any such entity, or owns any material
assets prohibited to be held by such entity.
2.15 Brokerage Fees. IBC has not employed any broker or finder in
connection with the transactions contemplated by this Agreement and has no
express or implied agreement with any Person or company relative to commissions
or finder's fees as to such transactions.
2.16 Contracts. Except as to contracts and agreements listed or
described in Section 2.16 of the IBC Disclosure Memorandum, as of the date of
this Agreement no IBC Company is 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 IBC knows or should know is not terminable by the IBC Company 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, hospi talization,
insurance or other similar plan providing for benefits for its employees; (d)
lease, installment purchase agreement or other contract with respect to any
property (real, personal or mixed) used or proposed to be used in the IBC
Company's operation; (e) contract or agreement for the purchase or disposition
of material, supplies, equipment or services; (f) instrument evidencing or
relating to indebtedness for money borrowed or money to be borrowed or creating
any lien or
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security interest in any real or personal property excluding such instruments
with customers relating to 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 Agreement; (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; (j) any lease,
indenture, note or other contract under which any IBC Company is in material
default; (k) any contract, except ordinary and customary banking relationships
and employment agreements, with any executive officer, director, or holder of
more than 5% of the outstanding stock of IBC; (l) any deferred compensation or
severance pay agreement; or (m) any other material agreement not made in the
ordinary course of the IBC Company's business. True and correct copies of all
contracts and agreements listed or described in IBC Disclosure Memorandum are
attached to the IBC Disclosure Memorandum or are described therein. As of the
date of this Agreement, each IBC Company has in all material respects performed
all material obligations required to be performed by it to date and is not in
default under, and no event has occurred that, with the lapse of time or action
by a third party, could result in a default under any outstanding indenture,
mortgage, contract, lease or other agreement to which any IBC Company is a party
or by which any IBC Company is bound or under any provision of its Articles of
Incorporation or Bylaws.
2.17 Duties as Fiduciary. As of the date of this Agreement, each IBC
Company, in its capacity as trustee, escrow agent, executor, administrator,
custodian, guardian, receiver or other fiduciary, has, to the best of its
knowledge, performed all of its material duties in accordance with all legal
standards applicable to such duties whether imposed by contract, statute or
common law.
2.18 Insurance. As of the date of this Agreement, the IBC Companies
have in effect insurance coverage on their assets, properties, premises,
operations and personnel in such amounts and against such risks and losses as
they reasonably believe to be adequate and customary for the business conducted
by the IBC Companies.
2.19 Books and Records. To the best of IBC's knowledge, IBC's minute
books accurately reflect all actions taken by its shareholders, directors, and
committees of directors, and such books, accounts and records of IBC have been
maintained in a regular manner and in compliance with all applicable laws.
2.20 Employee Benefit Plans and Other Employee Matters.
(a) The IBC Disclosure Memorandum includes a list of (1) 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, as amended ["ERISA"]), and (2) all other bonus,
deferred compensation, pension, retirement, profit sharing, thrift
savings, employee stock ownership, stock bonus, stock purchase,
restricted stock and stock option plans or programs, all employment or
severance contracts, and any applicable "change in control" or similar
provisions in any plan, program, policy, contract or arrangement,
maintained by, or to which IBC or any ERISA Affiliate has made payments
or contributions,
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with respect to its employees (the "IBC Employee Benefit Plans"),
together with a list of any such plans terminated since January 1,
1993, or merged into or consolidated with any of the current IBC
Employee Benefit Plans. The IBC Disclosure Memorandum includes true and
complete copies of all IBC Employee Benefit Plans, and such contracts
or arrangements, including but not limited to, any trust instruments
and/or insurance and investment contracts, if any, forming a part of
any such IBC Employee Benefit Plan, and all amendments thereto,
including but not limited to (i) the actuarial report for each IBC
Employee Benefit Plan, if applicable, and the annual report (Form 5500
series), for each of the last three plan years, (ii) the current
summary plan description (if applicable) for each IBC Employee Benefit
Plan, and (iii) the most recent determination letter from the Internal
Revenue Service (if applicable) for each IBC Employee Benefit Plan. No
reportable event as defined by Section 4043 of ERISA or the regulations
thereunder for which the 30 day reporting requirement has not been
waived has occurred with respect to any IBC Employee Benefit Plan
subject to ERISA. No such IBC Employee Benefit Plan has been terminated
since January 1, 1993. IBC has not sought or obtained from the Internal
Revenue Service any waiver of standard funding requirements under any
IBC Employee Benefit Plan during the past five years. IBC's policies
concerning hours worked by, and payments made to, employees of IBC have
not been in violation of the Fair Labor Standards Act or any other
applicable laws dealing with such matters. All payments due from IBC on
account of each IBC Employee Benefit Plan have been paid or accrued as
a liability on the books of IBC, 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 IBC, except as set
forth in Section 2.20 of the IBC Disclosure Memorandum.
(b) Each IBC Employee Benefit Plan has been administered in
substantial compliance with its terms and with all applicable
provisions of ERISA, the Code and all other applicable laws and
regulations. Each IBC Employee Benefit Plan, that is an employee
pension benefit plan within the meaning of Section 3(2) of ERISA, and
which is intended to be qualified under Section 401(a) of the Code, has
received or applied for a favorable determination letter from the IRS,
and IBC is not aware of any circumstances likely to result in the
revocation of any such favorable determination letter.
(c) There is no material pending or threatened litigation or
government investigation relating to any of the IBC Employee Benefit
Plans. Neither IBC or any of its ERISA Affiliates has engaged in a
transaction with respect to any IBC Employee Benefit Plan that could
subject IBC or any of its ERISA Affiliates or any other party to a tax
or penalty imposed by Section 4975 of the Code, or Sections 502(i) or
502(l) of ERISA in an amount that would be material.
(d) No liability under Title IV of ERISA has been, or is
expected to be, incurred by IBC or any of its ERISA Affiliates, with
respect to any ongoing, frozen or terminated "single-employer plan"
within the meaning of Section 4001(a)(15) of ERISA, currently or
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formerly maintained by any of them, or a single-employer plan of any
entity which is considered one employer with IBC or any of its ERISA
Affiliates.
(e) Neither IBC nor any of its ERISA Affiliates has incurred
or expects to incur any withdrawal liability with respect to a
Multiemployer Plan (as defined in Sections 3(37) and 40001(a)(3) of
ERISA) under Subtitle E of Title IV of ERISA. No IBC Employee Benefit
Plan has an accumulated funding deficiency (whether or not waived)
within the meaning of Section 412 of the Code or Section 302 of ERISA.
Neither IBC nor any of its ERISA Affiliates has provided or is required
to provide security to any IBC Employee Benefit Plan pursuant to
Section 401(a)(29) of the Code. Neither IBC nor any of its ERISA
Affiliates presently contributes to, or is currently a party to, any
Multi-Employer Plan or any plan that is or was subject to Title IV of
ERISA.
(f) Except as set forth in the IBC Disclosure Memorandum, or
as required pursuant to Section 4980B of the Code and Sections 601
through 609 of ERISA, neither IBC nor any of its ERISA Affiliates has
any obligations for retiree health and life benefits under any IBC
Employee Benefit Plan.
(g) Except as set forth in the IBC Disclosure Memorandum, the
consummation of the transactions contemplated by this Agreement will
not, either alone or in combination with another event, (i) entitle any
current or former employee, officer or director of IBC or an ERISA
Affiliate to severance pay, unemployment compensation or other payment
except as expressly provided in this Agreement, or (ii) accelerate the
time of payment or vesting, or increase the amount, of compensation due
any such employee, officer or director. No IBC Employee Benefit Plan
provides for payment of any amount which, considered in the aggregate
with amounts payable pursuant to all other IBC Employee Benefit Plans,
would exceed the amount deductible for federal income tax purposes by
virtue of Section 280G of the Code.
(h) For purposes of this Section, the term ERISA Affiliate
includes each entity that is (i) a member of a controlled group of
corporations with IBC, (ii) under common control with IBC, or (iii) a
member of an affiliated service group with IBC, within the meaning of
Sections 414(b), (c), (m) and (o) of the Code.
2.21 Environmental Liability. There are no material actions, suits,
investigations, liabilities, inquiries or other proceedings, rules, orders or
citations involving any IBC Company, or any of its material assets, pending or
threatened as a result of any failure of any IBC Company, or any predecessor
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, to the knowledge of IBC, any factual basis for any of
the foregoing. None of the property owned or leased by any IBC Company, to the
knowledge of IBC, is contaminated with any waste or hazardous substances. To the
knowledge of IBC after reasonable investigation, no IBC Company is or may be
deemed to be an
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"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. ss. 9601 et. seq.
2.22 Community Reinvestment Act Compliance. No IBC Company has received
any notice of non-compliance with the applicable provisions of the CRA and the
regulations promulgated thereunder, and IBC has received a CRA rating of
satisfactory or better from the FDIC. IBC knows of no fact or circumstance or
set of facts or circumstances which would cause any IBC Company to fail to
comply with such provisions or to cause the CRA rating of any IBC Company to
fall below satisfactory.
2.23 Statements True and Correct. None of the information supplied or
to be supplied by any IBC Company or any Affiliate thereof for inclusion in the
Registration Statement to be filed by IBC with the SEC will, when the
Registration Statement becomes effective, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any IBC Company or any Affiliate thereof for inclusion in the Proxy
Statement/Prospectus to be mailed to IBC's shareholders in connection with the
IBC Shareholders' Meeting or the Proxy Statement/Prospectus to be mailed to
MSB's shareholders in connection with the MSB Shareholder's Meeting, and any
other documents to be filed by IBC or any Affiliate thereof with the SEC or any
other Regulatory Authority in connection with the transactions contemplated by
the Merger Documents, will, at the respective time such documents are filed, and
with respect to the Proxy Statement/Prospectus, when first mailed to the
respective shareholders of MSB and IBC, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or, in the case of the Proxy Statement/Prospectus or any
amendment thereof or supplement thereto, at the time of the IBC or MSB
Shareholders' Meeting, as applicable, be false or misleading with respect to any
material fact, or omit to state any material facts necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the MSB or IBC Shareholders' Meeting. All documents that any IBC
Company or any Affiliate thereof is responsible for filing with any Regulatory
Authority in connection with the transactions contemplated by the Merger
Documents will comply as to form in all material respects with the provisions of
applicable Law. Neither this Agreement nor any schedule, statement, list,
certificate or other written information furnished or to be furnished by IBC in
connection with this Agreement 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 are made, not misleading.
2.24 Tax, Regulatory, and Pooling Matters. No IBC Company nor, to the
knowledge of IBC, any Affiliate thereof, has taken any action or has any
knowledge of any fact or circumstance that is reasonably likely to (i) prevent
the transactions contemplated by the Merger Documents, including the
Consolidation, from qualifying as a reorganization within the meaning of Section
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368(a) of the Internal Revenue Code, (ii) impede or materially delay receipt of
any consents of Regulatory Authorities referred to in Section 5.1(b) of this
Agreement, or (iii) prevent IBC from accounting for the Consolidation as a
pooling of interests in accordance with GAAP and applicable SEC regulations.
2.25 Year 2000. Each IBC Company's computers, data processing systems
and other equipment are Year 2000 compliant in all material respects, or are
reasonably expected to be Year 2000 compliant prior to December 31, 1999. The
IBC Companies have implemented Year 2000 compliance procedures appropriate for
the banking industry with respect to their loan customers and vendors.
2.26 "Material" Defined. Except where the context otherwise indicates,
the term "material" as applied to IBC and its Subsidiaries refers to IBC and its
Subsidiaries on a consolidated basis, considering IBC and its Subsidiaries and
their assets and businesses as a whole.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MSB
Except as otherwise set forth in the MSB disclosure memorandum ("MSB
Disclosure Memorandum") previously delivered to IBC, MSB represents and warrants
to IBC that:
3.1 Organization and Good Standing. MSB is a federally chartered stock
savings bank. Each of the MSB Companies is duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation and has the
corporate power to carry on their respective businesses substantially as it is
now being conducted. Each MSB Company is duly qualified or licensed to transact
business as a foreign corporation in good standing in the States of the United
States and foreign jurisdictions where the character of its assets or the nature
or conduct of its business requires it to be so qualified or licensed, except
for such jurisdictions where the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on MSB. The MSB Disclosure Memorandum contains true and complete copies
of the Charter and Bylaws of MSB.
3.2 Subsidiaries. Section 3.2 of the MSB Disclosure Memorandum contains
a true and complete list of all of the MSB Subsidiaries as of the date of this
Agreement. Except as disclosed in Section 3.2 of the MSB Disclosure Memorandum,
MSB or one of its Subsidiaries own all of the issued and outstanding shares of
capital stock of each MSB Subsidiary. No equity securities of any MSB Subsidiary
are or may become required to be issued by reason of any Rights, and there are
no contracts by which any MSB Subsidiary is bound to issue additional shares of
its capital stock or Rights. There are no contracts relating to the rights of
any MSB Company to vote or to dispose of any shares of the capital stock of any
MSB Subsidiary. All of the shares of capital stock of each MSB Subsidiary held
by an MSB Company are fully paid and are owned by the MSB Company free and clear
of any lien.
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3.3 Capitalization.
(a) MSB has authorized capital of 20,000,000 shares of common
stock, par value $0.01 per share ("MSB Common Stock"), and 5,000,000
shares of preferred stock, par value $0.01 per share. As of March 23,
1999, 4,290,414 shares of MSB Common Stock were issued and outstanding.
No shares of MSB Preferred Stock are issued or outstanding. All of the
issued and outstanding shares of MSB Common Stock are validly issued,
fully paid and not subject to assessment. MSB has reserved 333,196
shares of MSB Common Stock for issuance under MSB stock option plans,
pursuant to which options to purchase not more than 308,366 shares of
MSB Common stock are outstanding. MSB has not established a record date
for any stock dividend, stock split, recapitalization,
reclassification, combination or similar transaction that has not
become effective prior to the date of this Agreement.
(b) Except for the Warrant and the Warrant Purchase Agreement,
and except as set forth in Section 3.3(a) of this Agreement or as
disclosed in Section 3.3 of the MSB Disclosure Memorandum, there are no
shares of capital stock or other equity securities of MSB outstanding
and no outstanding Rights relating to the capital stock of MSB and
there are no warrants, options, contracts or rights (including
preemptive rights or rights contained in convertible securities or any
other rights) outstanding for the purchase or acquisition of any
additional shares of MSB.
3.4 Authorizations. The execution, delivery and performance of this
Agreement have been duly and validly authorized by MSB and its Board of
Directors, and does not violate or conflict with MSB's Charter, Bylaws or any
court order or decree to which it or any of its Subsidiaries is a party or
subject, or by which MSB or any such Subsidiary is bound, subject to the
approval of this Agreement and the Consolidation Agreement by the shareholders
of MSB. The execution and performance of this Agreement and the Consolidation
Agreement 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 MSB or any of its Subsidiaries
is bound. The Merger Documents, when executed and delivered, will be a valid,
binding and enforceable obligation of MSB (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
receivership, reorganization, moratorium, or similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceeding may be brought).
3.5 Financial Statements. The consolidated statements of financial
condition of MSB as of December 31, 1998 and 1997, and the related consolidated
statements of operations, changes in shareholder's equity, and cash flows for
each of the years in the three-year period ended December 31, 1998, as reported
by MSB's independent accountants, KPMG LLP, including all schedules and notes
relating thereto (the "MSB Financial Statements"), fairly present MSB's
financial condition and results of operations, on a consolidated basis, on the
dates and for the periods indicated, in conformity with generally accepted
accounting principles applied consistently throughout the periods
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indicated (except as otherwise noted in said financial statements). The MSB
Financial Statements referred to in this Section 3.5 do not, as of the date
hereof, include any material assets or omit to state any material liability or
other facts, the inclusion or omission of which renders such MSB Financial
Statements, in light of the circumstances under which they were made, misleading
in any material respect. The consolidated reports of condition and income ("Call
Reports") of MSB for each of the five years ended December 31, 1998, and MSB's
statement of condition and statement of income, as of December 31, 1998,
including all schedules and notes relating thereto, are correct and complete in
all material respects, and fairly present MSB's financial condition and results
of operations for the dates and the periods indicated, and the Call Reports have
been prepared in accordance with the 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 consolidated Statement of Financial
Condition of MSB, as of December 31, 1998, and notes thereto, MSB, on a
consolidated basis, has no material liabilities or obligations of any nature,
(whether accrued, absolute, contingent or otherwise) of a nature and amount
required to be reflected in such statement, or the notes thereto, in accordance
with GAAP.
3.7 Loan Guarantees and Loss Reserves. To the best of its knowledge,
all material guarantees of indebtedness owed to the MSB Companies, including,
but not limited to, those of the Federal Housing Administration, the Small
Business Administration, the Farmers Home Administration, and other federal
agencies, are valid and enforceable in accordance with their respective terms.
MSB's allowance for loan losses reflected in MSB's Statement of Financial
Condition, pursuant to GAAP, was adequate to meet all loan losses then
reasonably anticipated, based upon the facts and circumstances known as of that
date.
3.8 Title to Properties. The MSB Companies are the owner of all
material property and assets reflected in their audited Statement of Financial
Condition at December 31, 1998, free of any material liens and encumbrances,
except as noted therein, and except for changes thereafter in the ordinary
course of business, which changes are not in the aggregate material to MSB's
business. The MSB Companies have good and marketable title to all material
properties and assets acquired after December 31, 1998, free of liens and
encumbrances, except assets disposed of or encumbered in the ordinary course of
business. All material leases to which a MSB Company is a party are valid and
enforceable in accordance with their respective terms. Each material lease is
specifically identified in MSB's Disclosure Memorandum. The MSB Companies have
not received notice of any material violation of any applicable zoning
regulation, ordinance or other law, order, regulation or requirement relating to
its operations or properties.
3.9 Governmental Regulation. The MSB Companies hold all material
licenses, certi ficates, permits, franchises and rights from all appropriate
federal, state or other public authorities necessary for the conduct of their
business. To the best of MSB's knowledge, the MSB Companies have conducted their
business so as to comply in all material respects with all applicable federal,
state and local statutes, regulations, ordinances or rules, particularly, but
not by way of limitation, applicable banking laws, federal and state securities
laws, and laws and regulations concerning truth-
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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.
3.10 Absence of Litigation. Except as disclosed in Section 3.10 of the
MSB Disclosure Memorandum, there is no Litigation instituted or pending or, to
the knowledge of MSB, threatened (or unasserted but considered probable of
assertion and which, if asserted, would have at least a reasonable probability
of an unfavorable outcome) against any MSB Company, or against any asset,
interest, or right of any of them, that seeks to enjoin, delay, or prevent the
execution, delivery, or performance of the Merger Documents or the completion of
the transactions contemplated therein or herein, or that, if a judgment adverse
to a MSB Company were to be rendered in such Litigation, would have,
individually or in the aggregate, a Material Adverse Effect on MSB, nor are
there any orders of any Regulatory Authorities, other governmental authorities,
or arbitrators outstanding against any MSB Company that would have,
individually, or in the aggregate, a Material Adverse Effect on MSB. Section
3.10 of the MSB Disclosure Memorandum contains a copy of each audit letter
response received by MSB from attorneys for any MSB Company in connection with
the preparation of the MSB financial statements or otherwise since December 31,
1997, relating to any Litigation pending as of the date of this Agreement to
which any MSB Company is a party and which names any MSB Company as a defendant
or cross-defendant, and a brief summary report of any such litigation that is
not discussed in such audit letter responses.
3.11 Reports and Securities Documents.
(a) Reports. MSB and each of the MSB Subsidiaries have timely
filed all reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were
required to file since January 1, 1995 with the Regulatory Authorities,
and all other reports and statements required to be filed by them since
January 1, 1995, including, without limitation, any report or statement
required to be filed pursuant to the laws, rules or regulations of the
United States, any state, or any Regulatory Authority, and have paid
all fees and assessments due and payable in connection therewith,
except where the failure to file such report, registration or statement
or to pay such fees and assessments, either individually or in the
aggregate, will not have a Material Adverse Effect on MSB. Except for
normal examinations conducted by Regulatory Authorities in the regular
course of the business of MSB or the MSB Subsidiaries, no Regulatory
Authority has initiated any proceeding or, to the best knowledge of
MSB, investigation into the business or operations of MSB or any of MSB
Subsidiaries since January 1, 1995. Except as provided in the MSB
Disclosure Memorandum, there is no unresolved written violation,
written criticism, or written exception by any Regulatory Authority
with respect to any report or statement relating to any examinations of
MSB or any of the MSB Subsidiaries, which is likely, either
individually or in the aggregate, to have a Material Adverse Effect on
MSB.
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(b) Securities Documents. MSB has made available to IBC a true
and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by MSB with the Office of Thrift
Supervision ("OTS") (other than reports filed pursuant to Section 13(d)
or 13(g) of the Exchange Act) since January 1, 1995 (as such documents
have since the time of their filing been amended, the "MSB Securities
Documents"), which are all the documents (other than preliminary
material and reports required pursuant to Section 13(d) or 13(g) of the
Exchange Act) that MSB was required to file with the OTS since such
date under the Exchange Act. As of their respective dates of filing
with the OTS, the MSB Securities Documents complied in all material
respects with the requirements of the Exchange Act, and the rules and
regulations of the SEC thereunder applicable to such MSB Securities
Documents, and did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of
MSB included in the MSB Securities Documents complied as to form, as of
their respective dates of filing with the OTS, in all material respects
with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly present in
all material respects the consolidated financial position of MSB and
its consolidated Subsidiaries as of the dates thereof and the
consolidated results of operations, changes in shareholders' equity and
cash flows of such companies for the periods then ended. All material
agreements, contracts and other documents required to be filed as
exhibits to any of the MSB Securities Documents have been so filed.
3.12 Tax Matters. Except as may be disclosed in Section 3.12 of
the MSB Disclosure Memorandum:
(a) All tax returns required to be filed by or on behalf of
any of the MSB Companies have been timely filed or requests for
extensions have been timely filed, granted, and have not expired for
periods ended on or before December 31, 1998, and on or before the date
of the most recent fiscal year end immediately preceding the Effective
Time and all returns filed are complete and accurate, except for
failures, if any, which, taken together, would not have a Material
Adverse Effect on MSB. All Taxes shown on filed returns have been paid
or adequate provision therefor has been made in the MSB Financial
Statements. As of the date of this Agreement, there is no audit
examination, deficiency, or refund Litigation with respect to any Taxes
that is reasonably likely to result in a determination that would have,
individually or in the aggregate, a Material Adverse Effect on MSB,
except as reserved against in the MSB Financial Statements delivered
prior to the date of this Agreement or as disclosed in Section 3.12 of
the MSB Disclosure Memorandum. All Taxes and other liabilities due with
respect to completed and settled Tax examinations or concluded
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Tax Litigation have been paid or adequate provision therefor has been
made in the MSB financial statements.
(b) None of the MSB Companies has executed an extension or
waiver of any statute of limitations on the assessment or collection of
any Tax due (excluding such statutes that relate to years currently
under examination by the Internal Revenue Service or other applicable
taxing authorities) that is currently in effect.
(c) Adequate provision for any Taxes due or to become due for
any of the MSB Companies for the period or periods through and
including the date of the respective MSB financial statements has been
made and is reflected on such MSB financial statements in accordance
with GAAP.
(d) Deferred Taxes of the MSB Companies have been provided for
in accordance with GAAP.
(e) Each of the MSB Companies is in material compliance with,
and its records contain all information and documents (including
properly completed IRS Forms W-9) necessary to comply with, all
applicable information reporting and Tax withholding requirements under
federal, state, and local Tax Laws, and such records identify with
specificity all accounts subject to backup withholding under Section
3406 of the Internal Revenue Code.
(f) Except as disclosed in Section 3.12 of the MSB Disclosure
Memorandum, MSB has not received any notification of an audit of its
federal income tax returns for any tax years since 1990.
3.13 Conduct. Since December 31, 1998, neither MSB nor any of its
Subsidiaries has: (a) experienced any material adverse change in financial
condition, assets, liabilities or business; (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) to the best
of MSB's knowledge, 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 or thrifts in 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 MSB 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 of its 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 it is a party except for the expiration of contracts
at the end of their term and termination of contracts which are terminable by
the other party without any fault or omission on the part of MSB or a Subsidiary
of MSB; (g) issued or sold any of its bonds, debentures or other similar
corporate capital debt obligations; (h) declared
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or set aside or paid any dividend or other distribution in respect to its
capital shares or, directly or indirectly, purchased, redeemed or otherwise
acquired any such shares; or (i) except for pay increases which have been
consistent with established past practice, granted any increase in the salary or
bonus payable, or to be payable, to any officer, director or holder of 5% or
more of the outstanding Bank Shares, or any spouse, child, parent or sibling of
any such Person, or to any employee whose annual rate of salary and bonus at
December 31, 1998, exceeded $50,000.
3.14 Compliance with Laws. Each MSB Company has in effect all permits
necessary for it to own, lease, or operate its material assets and to carry on
its business as now conducted, except for those permits, the absence of which
are not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on MSB, and there has occurred no default under any such permit,
other than defaults which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on MSB. Except as disclosed in Section
3.17 of the MSB Disclosure Memorandum, no MSB Company:
(a) Is in default under its governing documents;
(b) Is in violation of any laws, orders, or permits applicable to
its business or employees conducting its business, except for
violations which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on MSB;
(c) Has received any notification or communication from any agency
or department of federal, state, or local government or any Regulatory
Authority or the staff thereof (i) asserting that any such entity is
not in compliance with any of the laws or orders which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have a Material Adverse Effect on
MSB, (ii) threatening to revoke any permits, the revocation of which is
reasonably likely to have a Material Adverse Effect on MSB, or (iii)
requiring any such entity to enter into or consent to the issuance of a
cease and desist order, supervisory letter, formal agreement,
directive, commitment, or memorandum of understanding, or to adopt any
resolution of the Board of Directors of such entity or similar
undertaking, which restricts materially the conduct of its business, or
in any manner relates to its capital adequacy, its credit or reserve
policies, its management, or the payment of dividends, and is subject
to any such agreement under, letter of understanding; or
(d) Directly or indirectly engages in any material activity
prohibited to be conducted by any such entity, or owns any material
assets prohibited to be held by such entity.
3.15 Brokerage Fees. MSB has not employed any broker or finder in
connection with the transactions contemplated by this Agreement and has no
express or implied agreement with any Person or company relative to commissions
or finder's fees as to such transactions, except for fees
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and commissions payable or to be payable to McConnell, Budd & Downes, Inc. as
described in Section 3.20 of the MSB Disclosure Memorandum.
3.16 Contracts. Except as to contracts and agreements listed or
described in Section 3.16 of the MSB Disclosure Memorandum, as of the date of
this Agreement no MSB Company is 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 MSB knows or should know is not terminable by the MSB Company 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 for benefits for its employees; (d)
lease, installment purchase agreement or other contract with respect to any
property (real, personal or mixed) used or proposed to be used in the MSB
Company's operation; (e) contract or agreement for the purchase or disposition
of material, supplies, equipment or services; (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 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 Agreement; (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; (j)
any lease, indenture, note or other contract under which any MSB Company is in
material default; (k) any contract, except ordinary and customary banking
relationships and employment agreements, with any executive officer, director,
or holder of more than 5% of the outstanding stock of MSB; (l) any deferred
compensation or severance pay agreement; or (m) any other material agreement not
made in the ordinary course of the MSB Company's business. True and correct
copies of all contracts and agreements listed or described in MSB Disclosure
Memorandum are attached to the MSB Disclosure Memorandum except to the extent
described therein. As of the date of this Agreement, each MSB Company has in all
material respects performed all material obligations required to be performed by
it to date and is not in default under, and no event has occurred that, with the
lapse of time or action by a third party, could result in a default under any
outstanding indenture, mortgage, contract, lease or other agreement to which any
MSB Company is a party or by which any MSB Company is bound or under any
provision of its Articles of Incorporation or Bylaws.
3.17 Duties as Fiduciary. As of the date of this Agreement, each MSB
Company does not exercise fiduciary powers, except as a document custodian for
FHLMC.
3.18 Insurance. As of the date of this Agreement, the MSB Companies
have in effect insurance coverage on their assets, properties, premises,
operations and personnel in such amounts and against such risks and losses as
they reasonably believe to be adequate and customary for the business conducted
by the MSB Companies.
3.19 Books and Records. To the best of MSB's knowledge, MSB's minute
books accurately reflect all actions taken by its shareholders, directors, and
committees of directors, and
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such books, accounts and records of MSB have been maintained in a regular manner
and in compliance with all applicable laws.
3.20 Employee Benefit Plans and Other Employee Matters.
(a) The MSB Disclosure Memorandum includes a list of (1) 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, as amended ["ERISA"]), and (2) all other bonus,
deferred compensation, pension, retirement, profit sharing, thrift
savings, employee stock ownership, stock bonus, stock purchase,
restricted stock and stock option plans or programs, all employment or
severance contracts, and any applicable "change in control" or similar
provisions in any plan, program, policy, contract or arrangement,
maintained by, or to which any MSB or any ERISA Affiliate has made
payments or contributions, with respect to its employees (the "MSB
Employee Benefit Plans"), together with a list of any such plans
terminated since January 1, 1993, or merged into or consolidated with
any of the current MSB Employee Benefit Plans. The MSB Disclosure
Memorandum includes true and complete copies of all MSB Employee
Benefit Plans, and such contracts or arrangements, including but not
limited to, any trust instruments and/or insurance and investment
contracts, if any, forming a part of any such MSB Employee Benefit
Plan, and all amendments thereto, including but not limited to (i) the
actuarial report for each MSB Employee Benefit Plan, if applicable, and
the annual report (Form 5500 series), for each of the last three plan
years, (ii) the current summary plan description (if applicable) for
each MSB Employee Benefit Plan, and (iii) the most recent determination
letter from the Internal Revenue Service (if applicable) for each MSB
Employee Benefit Plan. No reportable event as defined by Section 4043
of ERISA or the regulations thereunder for which the 30 day reporting
requirement has not been waived has occurred with respect to any MSB
Employee Benefit Plan subject to ERISA. Except as set forth in the MSB
Disclosure Memorandum, no MSB Employee Benefit Plan has been terminated
since January 1, 1993. MSB has not sought or obtained from the Internal
Revenue Service any waiver of standard funding requirements under any
MSB Employee Benefit Plan during the past five years. MSB's policies
concerning hours worked by, and payments made to, employees of MSB have
not been in violation of the Fair Labor Standards Act or any other
applicable laws dealing with such matters. All payments due from MSB on
account of each MSB Employee Benefit Plan have been paid or accrued as
a liability on the books of MSB, 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 MSB, except as set
forth in Section 3.20 of the MSB Disclosure Memorandum.
(b) Each MSB Employee Benefit Plan has been administered in
substantial compliance with its terms and with all applicable
provisions of ERISA, the Code and all other applicable laws and
regulations. Each MSB Employee Benefit Plan, that is an employee
pension benefit plan within the meaning of Section 3(2) of ERISA, and
which is intended to be qualified under Section 401(a) of the Code, has
received or applied for a
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favorable determination letter from the IRS, and MSB is not aware of
any circumstances likely to result in the revocation of any such
favorable determination letter. MSB's Employee Stock Ownership Plan
satisfies the requirements for an employee stock ownership plan under
Section 4975(e)(7) of the Code.
(c) There is no material pending or threatened litigation or
government investigation relating to any of the MSB Employee Benefit
Plans. Neither MSB or any of its ERISA Affiliates has engaged in a
transaction with respect to any MSB Employee Benefit Plan that could
subject MSB or any of its ERISA Affiliates or any other party to a tax
or penalty imposed by Section 4975 of the Code, or Sections 502(i) or
502(l) of ERISA in an amount that would be material.
(d) No liability under Title IV of ERISA has been, or is expected
to be, incurred by MSB or any of its ERISA Affiliates, with respect to
any ongoing, frozen or terminated "single-employer plan" within the
meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or a single-employer plan of any entity
which is considered one employer with MSB or any of its ERISA
Affiliates.
(e) Neither MSB nor any of its ERISA Affiliates has incurred or
expects to incur any withdrawal liability with respect to a
Multiemployer Plan (as defined in Sections 3(37) and 40001(a)(3) of
ERISA) under Subtitle E of Title IV of ERISA. No MSB Employee Benefit
Plan has an accumulated funding deficiency (whether or not waived)
within the meaning of Section 412 of the Code or Section 302 of ERISA.
Except as set forth in the MSB Disclosure Memorandum, neither MSB nor
any of its ERISA Affiliates has provided or is required to provide
security to any MSB Employee Benefit Plan pursuant to Section
401(a)(29) of the Code. Neither MSB nor any of its ERISA Affiliates
presently contributes to, or is currently a party to, any
Multi-Employer Plan or any plan that is or was subject to Title IV of
ERISA.
(f) Except as set forth in the MSB Disclosure Memorandum, or as
required pursuant to Section 4980B of the Code and Sections 601 through
609 of ERISA, neither MSB nor any of its ERISA Affiliates has any
obligations for retiree health and life benefits under any MSB Employee
Benefit Plan.
(g) Except as set forth in the MSB Disclosure Memorandum or as
provided for in this Agreement, the consummation of the transactions
contemplated by this Agreement will not, either alone or in combination
with another event, (i) entitle any current or former employee, officer
or director of MSB or an ERISA Affiliate to severance pay, unemployment
compensation or other payment except as expressly provided in this
Agreement, or (ii) accelerate the time of payment or vesting, or
increase the amount, of compensation due any such employee, officer or
director. No MSB Employee Benefit Plan provides for payment of any
amount which, considered in the aggregate with amounts payable pursuant
to all other
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MSB Employee Benefit Plans, would exceed the amount deductible for
federal income tax purposes by virtue of Section 280G of the Code.
(h) For purposes of this Section, the term ERISA Affiliate
includes each entity that is (i) a member of a controlled group of
corporations with MSB, (ii) under common control with MSB, or (iii) a
member of an affiliated service group with MSB, within the meaning of
Sections 414(b), (c), (m) and (o) of the Code.
3.21 Environmental Liability. There are no material actions, suits,
investigations, liabilities, inquiries or other proceedings, rules, orders or
citations involving any MSB Company, or any of its material assets, pending or
threatened as a result of any failure of any MSB Company, or any predecessor
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, to the knowledge of MSB, any factual basis for any of
the foregoing. None of the property owned or leased by any MSB Company is, to
the knowledge of MSB, contaminated with any waste or hazardous substances except
as disclosed in a baseline environmental assessment, dated December 12, 1997,
pertaining to the Landmark Plaza Building in Bay City, Michigan. To the
knowledge of MSB after reasonable investigation, no MSB Company is or may be
deemed to be 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. ss. 9601 et. seq.
3.22 Community Reinvestment Act Compliance. No MSB Company has received
any notice of non-compliance with the applicable provisions of the CRA and the
regulations promulgated thereunder, and MSB has received a CRA rating of
satisfactory or better from the OTS. MSB knows of no fact or circumstance or set
of facts or circumstances which would cause any MSB Company to fail to comply
with such provisions or to cause the CRA rating of any MSB Company to fall below
satisfactory.
3.23 Statements True and Correct. None of the information supplied or
to be supplied by any MSB Company or any Affiliate thereof for inclusion in the
Registration Statement to be filed by IBC with the SEC will, when the
Registration Statement becomes effective, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any MSB Company or any Affiliate thereof for inclusion in the Proxy
Statement/Prospectus to be mailed to MSB's shareholders in connection with the
MSB Shareholders' Meeting or the Proxy Statement/Prospectus to be mailed to
IBC's shareholders in connection with the IBC Shareholder's Meeting, and any
other documents to be filed by MSB or any Affiliate thereof with the SEC, the
OTS or any other Regulatory Authority in connection with the transactions
contemplated by the Merger Documents, will, at the respective time such
documents are filed, and with respect to the Proxy Statement/Prospectus, when
first mailed to the respective shareholders of MSB and IBC, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to make
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the statements therein, in light of the circumstances under which they were
made, not misleading, or, in the case of the Proxy Statement/Prospectus or any
amendment thereof or supplement thereto, at the time of the MSB or IBC
Shareholders' Meeting, as applicable, be false or misleading with respect to any
material fact, or omit to state any material facts necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the MSB or IBC Shareholders' Meeting. All documents that any MSB
Company or any Affiliate thereof is responsible for filing with any Regulatory
Authority in connection with the transactions contemplated by the Merger
Documents will comply as to form in all material respects with the provisions of
applicable law. Neither this Agreement nor any schedule, statement, list,
certificate or other written information furnished or to be furnished by MSB in
connection with this Agreement contains or will contain any untrue statement of
a material fact or omits or will omit to state a mate rial fact necessary to
make the statements contained herein or therein, in light of the circumstances
in which they are made, not misleading.
3.24 Tax, Regulatory, and Pooling Matters. No MSB Company nor, to the
knowledge of MSB, any Affiliate thereof, has taken any action or has any
knowledge of any fact or circumstance that is reasonably likely to (i) prevent
the transactions contemplated by the Merger Documents, including the
Consolidation, from qualifying as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code, (ii) impede or materially delay receipt of
any consents of Regulatory Authorities referred to in Section 5.1(b) of this
Agreement, or (iii) prevent IBC from accounting for the Consolidation as a
pooling of interests in accordance with GAAP and applicable SEC regulations.
3.25 Year 2000. Each MSB Company's computers, data processing systems
and other equipment are Year 2000 compliant in all material respects, or are
reasonably expected to be Year 2000 compliant prior to December 31, 1999. The
MSB Companies have implemented Year 2000 compliance procedures appropriate for
the banking industry with respect to their loan customers and vendors.
3.26 "Material" Defined. Except where the context otherwise indicates,
the term "material" as applied to MSB and its Subsidiaries refers to MSB and its
Subsidiaries on a consolidated basis, considering MSB and its Subsidiaries and
their assets and businesses as a whole.
3.27 Stock Transactions. Except for the transactions described in MSB
Disclosure Memorandum, to the knowledge of MSB after reasonable investigation,
no executive officer or director of MSB, and no Person related to any such
officer or director by blood or marriage and residing in the same household, has
since December 31, 1998, purchased or sold or caused to be purchased or sold any
shares of MSB of which such officer, director or related Person is a record or
beneficial owner as determined under Regulation 13d-3 under the Securities
Exchange Act of 1934, as amended.
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3.28 Disclosure of Deeds, Leases, Agreements, Etc. MSB has furnished to
IBC and specifically identified in Section 3.28 of the MSB Disclosure
Memorandum, true copies of the following documents:
(a) Deeds and Titles. Deeds or other relevant title documents
relating to all real estate actively utilized by any MSB Company in the
conduct of its business and a complete and correct list of all items of
personal property which had a net after depreciation book value in
excess of $20,000 as of December 31, 1998, reflected in the books and
records of MSB as being owned (including those reflected in the balance
sheet of MSB as of December 31, 1998, except as since disposed of in
the ordinary course of business).
(b) Lease Agreements. All leases pursuant to which any MSB Company
as lessee leases real or personal property, excepting leases as to
personal property under which the aggregate lease payments do not
exceed $10,000 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 any
MSB Company which obligate any MSB Company to make aggregate annual
payments in excess of $10,000 or are not terminable at least annually
without penalty; (ii) all material data processing agreements, service
agreements, consulting agreements, or any similar arrangements not
terminable by the MSB Company upon 30 days or less notice without
penalties; (iii) all contracts or agree ments for the purchase or
disposition of material, equipment, supplies, or other personal
property or the purchase of services which obligate any MSB Company to
make aggregate payments in excess of $10,000 or are not terminable at
least annually without penalty.
(d) Insurance Policies. All material policies of insurance
maintained by any MSB Company with respect to assets, properties,
premises, operations and personnel, and copies of the most recent
insurance audit, review or report, if any.
(e) Charter Documents and Bylaws. The Charter of MSB and the
Articles or Certificate of Incorporation of its Subsidiaries, together
with the Bylaws of MSB and its Subsidiaries, including all amendments
to date.
3.29 Takeover Laws. Each MSB Company has taken all necessary steps to
exempt the transactions contemplated by this Agreement and the Consolidation
Agreement from any applicable state or federal takeover law.
3.30 Charter Provisions. MSB has taken all action so that the entering
into of the Merger Documents and the consummation of the Consolidation and the
other transactions contemplated by the Merger Documents do not and will not
result in the grant of any rights to any Person under the governing documents of
any MSB Company or restrict or impair the ability of IBC or any of its
Subsidiaries to vote, or otherwise to exercise the rights of a shareholder with
respect to, shares of MSB that may be directly or indirectly acquired or
controlled by IBC or any of its Subsidiaries.
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3.31 Indemnification. Except as provided in the Charter and in the
Bylaws of MSB and its Subsidiaries, neither MSB nor any of its Subsidiaries is a
party to any indemnification agreement with any of its present or future
directors, officers, employees, agents or other persons who serve or served in
any other capacity with any other enterprise at the request of MSB or a
Subsidiary of MSB (a "Covered Person"), and except for existing indemnification
obligations to certain current and former officers and directors of MSB relating
to the Pending Litigation, to the best knowledge of MSB, there are no claims for
which any Covered Person would be entitled to indemnification under Section 4.16
if such provisions were deemed to be in effect.
ARTICLE IV
CERTAIN COVENANTS
4.1 Material Adverse Changes. Each Party agrees to give written notice
promptly to the other Party upon becoming aware of any change or any condition,
event or circumstance, fact or occurrence (other than general economic or
competitive conditions), other than as provided in this Agreement, that may
reasonably be expected to result in a material adverse change in the business,
properties, financial condition, loan portfolio, operations or prospects
relating to it or any of its Subsidiaries, taken as a whole, or which would
cause or constitute a material breach of any of its representations, warranties,
or covenants contained herein, and to use its reasonable efforts to prevent or
promptly to cure the same.
4.2 Reports. Each Party and its Subsidiaries shall file all reports
required to be filed by it with Regulatory Authorities between the date of this
Agreement and the Effective Time and shall deliver to the other Party copies of
all such reports promptly after the same are filed. If financial statements are
contained in any such reports filed pursuant to the Securities Exchange Act of
1934 (the "1934 Act") with the SEC (in the case of IBC) or the OTS (in the case
of MSB), such financial statements will fairly present the consolidated
financial position of the entity filing such statements as of the dates
indicated and the consolidated results of operations, changes in shareholders'
equity, and cash flows for the periods then ended in accordance with GAAP
(subject in the case of interim financial statements to normal recurring
year-end and audit adjustments that are not material). As of their respective
dates, such reports filed pursuant to the 1934 Act with the SEC (in the case of
IBC) or the OTS (in the case of MSB) will comply in all material respects with
the applicable securities laws and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Any financial statements contained
in any other reports to another regulatory authority shall be prepared in
accordance with the laws, rules and regulations applicable to such reports.
4.3 Registration Statement; Proxy Statement/Prospectus; Shareholder
Approvals.
(a) As soon as practicable after execution of this Agreement, IBC
shall file a Registration Statement with the SEC on an appropriate form
under the Securities Act of 1933, as amended (the "1933 Act"), and
shall use its reasonable efforts to cause the
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Registration Statement to become effective under the 1933 Act, and
thereafter, until the Effective Time or termination of this Agreement,
to keep same effective and, if necessary, amend and supplement same and
take any action required to be taken under the applicable state Blue
Sky or securities laws in connection with the issuance of the shares of
IBC Common Stock upon consummation of the Consolidation. Such
Registration Statement and any amendments and supplements thereto are
referred to herein as the "Registration Statement." The Registration
Statement shall include a Proxy Statement/Prospectus thereto reasonably
acceptable to IBC and MSB, prepared by IBC and MSB for use in
connection with the meetings of their respective shareholders, all in
accordance with the rules and regulations of the SEC. MSB shall furnish
all information concerning it and the holders of its capital stock as
IBC may reasonably request in connection with such action.
(b) Promptly following filing of the Registration Statement with
the SEC, MSB shall file the Proxy Statement/Prospectus with the OTS and
shall use its reasonable efforts to cause the Proxy
Statement/Prospectus to be cleared by the OTS for mailing to MSB's
shareholders. In advance of filing the Registration Statement, IBC
shall provide MSB and its counsel with a copy of the Registration
Statement and provide an opportunity to comment thereon, and thereafter
shall promptly advise MSB and its counsel of any material communication
received by IBC or its counsel from the SEC with respect to the
Registration Statement. None of the information furnished by IBC or MSB
for inclusion in the Registration Statement, Proxy Statement/Prospectus
or any other document filed with the SEC, the OTS, or any state
securities commission in connection with the transactions contemplated
by this Agreement, at the respective times at which such documents are
filed with the SEC or such state securities commission, or, in the case
of the Registration Statement, when it becomes effective, or in the
case of the Proxy Statement/Prospectus, when mailed or at the time of
the IBC and MSB meetings of shareholders, shall be false or misleading
with respect to any material fact or shall omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(c) MSB and IBC shall each call shareholders' meetings, to be held
as soon as reasonably practicable after the Registration Statement is
declared effective by the SEC and the Proxy Statement/Prospectus is
cleared for mailing by the OTS, for the purpose of voting upon approval
of this Agreement, the Consolidation Agreement, the Consolidation, and
such other related matters as each deems appropriate. In connection
with the shareholders' meetings, (i) MSB and IBC shall mail the Proxy
Statement/Prospectus to their respective shareholders after the SEC
declares the Registration Statement effective and the OTS clears the
Proxy Statement/Prospectus and related proxy materials for mailing,
(ii) the Parties shall furnish to each other all information concerning
them that they may reasonably request in connection with the Proxy
Statement/Prospectus, (iii) the respective Boards of Directors of MSB
and IBC shall recommend (subject to compliance with their fiduciary
duties as advised by counsel) to MSB's shareholders and IBC's
shareholders respectively, the approval of this Agreement, the
Consolidation Agreement, and the Consolidation, and (iv) the respective
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Boards of Directors and officers of MSB and IBC shall (subject to
compliance with their fiduciary duties as advised by counsel) use their
reasonable efforts to obtain such shareholders' approval.
4.4 Applications. IBC shall promptly prepare and file, and MSB shall
cooperate in the preparation and, where appropriate, the filing of, applications
with any Regulatory Authorities having jurisdiction over the transactions
contemplated by this Agreement and the Consolidation Agreement, seeking the
requisite approvals and consents necessary to consummate the transactions
contemplated by this Agreement and the Consolidation Agreement (such approvals
and consents are hereinafter referred to as "Requisite Regulatory Approval").
Notwithstanding the preceding sentence, IBC shall proceed immediately with the
filing of the following regulatory applications necessary to organize New Bank:
IBC shall file or cause to be filed (i) with the Michigan Financial Institutions
Bureau an application to form New Bank pursuant to Section 130 of the Banking
Code, (ii) the appropriate application with the Board of Governors of the
Federal Reserve System for permission for IBC to acquire New Bank, if necessary,
and (iii) the appropriate application with the FDIC, which applications shall be
filed no later than 30 days after the date of this Agreement. In advance of
filing the regulatory applications, IBC shall provide MSB and its counsel with a
copy of the applications and provide an opportunity to comment thereon, and
thereafter shall promptly advise MSB and its counsel of any material
communication received by IBC or its counsel from the Regulatory Authorities
with respect to the applications. IBC shall use its reasonable efforts to obtain
the Requisite Regulatory Approval referred to in this Section 4.4.
4.5 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its 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 to consummate and make effective, as soon as
practicable after the date of this Agreement, the transactions contemplated by
this Agreement and the Consolidation Agreement, and to cause to be satisfied the
conditions precedent to consummation of the Consolidation; provided, that
nothing herein shall preclude either Party from exercising its rights under this
Agreement. Each Party shall use, and shall cause each of its Subsidiaries to
use, its reasonable efforts to obtain all consents necessary or desirable for
the consummation of the transactions contemplated by this Agreement and the
Consolidation Agreement. The Parties shall deliver to each other, copies of all
filings, correspondence, and orders to and from all Regulatory Authorities in
connection with the transactions contemplated by this Agreement and the
Consolidation Agreement.
4.6 Investigation and Confidentiality.
(a) Prior to the Effective Time, each Party shall keep the other
Party advised of all material developments relevant to its business and
to consummation of the Consolidation and shall permit the other Party
to make or cause to be made such investigation of the business and
properties of it and its Subsidiaries and of their respective financial
and legal conditions as the other Party reasonably requests, provided
that such investigation shall be
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made after reasonable prior notice and during regular business hours,
shall be reasonably related to the transactions contemplated by this
Agreement and the Consolidation Agreement, and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall
affect the representations and warranties of the other Party.
(b) Each Party shall, and shall cause its advisers and agents to,
maintain the confidentiality of all information (other than such
information as shall be in the public domain or otherwise ascertainable
from public or outside sources) furnished to it by or on behalf of the
other Party pursuant to Section 4.6(a) concerning its and its
Subsidiaries' businesses, operations, and financial positions and shall
not use such information for any purpose except in furtherance of the
transactions contemplated by this Agreement and the Consolidation
Agreement. If this Agreement is terminated prior to the Effective Time,
each Party shall promptly return or certify the destruction of all
documents and copies thereof, and all work papers containing
information (other than such information as shall be in the public
domain or otherwise ascertainable from public or outside sources)
received from the other Party.
(c) Each Party agrees to give the other Party notice as soon as
practicable after any determination by it of any fact or occurrence
relating to the other Party which it has discovered through the course
of its investigation and which represents, or is reasonably likely to
represent, either a material breach of any representation, warranty,
covenant or agreement of the other Party or which has had or is
reasonably likely to have a Material Adverse Effect on the other Party.
4.7 Press Releases. Prior to the Effective Time, MSB and IBC shall
consult with each other as to the form and substance of any press release or
other public disclosure related to this Agreement and the Consolidation
Agreement or any transaction contemplated thereby; provided, that nothing in
this Section 4.7 shall be deemed to prohibit any Party from making any
disclosure it believes is required by law.
4.8 Tax and Accounting Treatment. Each of the Parties undertakes and
agrees to use its reasonable efforts to cause the Consolidation, and to take no
action which would cause the Consolidation not to qualify for treatment as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code for federal income tax purposes and to be accounted for as a "pooling of
interests" for financial statement reporting purposes.
4.9 Survival of Representations and Warranties. None of the
representations and warranties of the parties in this Agreement or the
Consolidation Agreement shall survive the Effective Time.
4.10 Affirmative Covenants Regarding Conduct of MSB's Business Pending
Effective Time. From the date hereof until the Effective Time, MSB agrees that,
except as consented to by IBC in writing, MSB shall:
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(a) Use its best efforts to maintain its real and personal
properties in their present state of repair, order and condition,
reasonable wear and tear excepted;
(b) Maintain its books, accounts and records in a manner
consistent with past practice and, where applicable, in accordance with
generally accepted accounting principles or regulatory standards, as
applicable;
(c) Comply with all laws applicable to the conduct of its
business;
(d) Conduct its business only in the usual, regular and ordinary
course consistent with past practice;
(e) Make no change in its Charter or Bylaws;
(f) Use its best efforts to maintain and keep in full force and
effect all fire and other insurance on property and assets, all of the
liability and other casualty insurance, and all bonds on personnel,
presently carried by it; and
(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.
4.11 Negative Covenants Regarding Conduct of MSB's Business Pending
Effective Time. From the date hereof until the Effective Time, MSB agrees that,
except as consented to by IBC in writing, MSB shall not:
(a) (i) solicit, encourage or authorize any individual,
corporation or other entity to solicit from any third party any
inquires or proposals relating to or which may be reasonably expected
to lead to an Acquisition Transaction (as hereinafter defined), except
pursuant to a written direction from a Regulatory Authority, or (ii)
negotiate with or entertain any proposals from any other person for any
such Acquisition Transaction, except pursuant to a written direction
from any Regulatory Authority or upon the receipt of an unsolicited
offer from a third party where the Board of Directors of MSB reasonably
believes, upon the written opinion of counsel, that its fiduciary
duties require it to enter into discussions with such party.
Furthermore, except to the extent necessary to comply with the
fiduciary duties of MSB's Board of Directors, as advised by counsel,
neither MSB nor any Affiliate or representative thereof shall furnish
any non-public information that it is not legally obligated to furnish
in connection with, or enter into any contract with respect to, any
Acquisition Transaction, but MSB may communicate and disclose
information about such a proposal to engage in an Acquisition
Transaction to its shareholders if and to the extent that it is
required to do so in order to comply with its legal obligations as
advised by counsel. MSB will immediately cease and cause to be
terminated any existing activities, discussions, or negotiations with
any parties previously conducted with respect to any of the foregoing
and
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agrees to enforce its rights under any confidentiality agreements to
which it or any of its Subsidiaries is a party. MSB shall promptly
notify IBC of all of the relevant details relating to all inquiries and
proposals that it may receive relating to any Acquisition Transaction
and shall keep IBC informed of the status and details of any such
inquiry or proposal, and shall give IBC five days' advance notice of
any agreement to be entered into with, or any information to be
supplied to, any person making such inquiry or proposal. Nothing
contained in this Section 4.11(a) shall prohibit MSB from disclosing to
its shareholders a position contemplated by Rule 14e-2(a) under the
Exchange Act with respect to a tender offer for MSB's Common Stock.
(b) Sell, mortgage, pledge, encumber or otherwise dispose of any
of its material property and assets otherwise than in the ordinary
course of business except as to dispositions that MSB is compelled to
make or over which it has no control, which it will use its best
efforts to prevent;
(c) Repurchase, redeem, or otherwise acquire or exchange (other
than purchases or exchanges in the ordinary course under employee
benefit plans), directly or indirectly, any shares, or securities
convertible into any shares, of the capital stock of MSB;
(d) Declare or pay any dividends, or make any other distribution
in respect of its capital stock, in liquidation or otherwise;
(e) Except for purchases of U.S. Treasury securities or U.S.
Government agency securities, which in either case have maturities of
three years or less, or commercial paper, agreements to repurchase or
federal funds, which in all cases shall have maturities of ninety (90)
days or less, purchase any securities or make any material investment,
either by purchase of stock or securities, contributions to capital,
asset transfers, or purchase of any assets, in any Person other than a
wholly owned MSB Subsidiary, or otherwise acquire direct or indirect
control over any Person, other than in connection with (i) foreclosures
in the ordinary course of business, (ii) acquisitions of control by a
depository institution Subsidiary in its fiduciary capacity, or (iii)
the creation of new wholly owned subsidiaries organized to conduct and
continue activities otherwise permitted by this Agreement;
(f) (i) grant any increase in compensation or benefits to the
employees or officers of any MSB Company, except as made in the
ordinary course of business and not inconsistent with past practices or
as required by law; (ii) pay any severance or termination pay or any
bonus other than pursuant to written policies or written contracts in
effect on the date of this Agreement, except as disclosed in Section
4.11(f) of the MSB Disclosure Memorandum; (iii) enter into or amend any
severance agreements with officers of MSB; (iv) grant any increase in
fees or other increases in compensation or other benefits to the
directors of MSB; (v) voluntarily accelerate the vesting of any
employee benefits, other than pursuant to written policies or written
contracts in effect on the date of this Agreement; (vi) grant any stock
appreciation rights, cash awards, or any rights to acquire MSB
securities under any
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MSB stock option plan; or (vii) enter into or amend any employment
contract between MSB and any Person (unless such amendment is required
by law) that is not terminable on 30 days' notice or less without
penalty or obligation (beyond the notice period of 30 days or less);
(g) Adopt or agree to adopt 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 or directors, or make any
material change in or to, any existing MSB Employee Benefit Plan,
except as may be necessary to comply with applicable laws or
regulations, or as permitted by this Agreement, or make any
distributions from or contribution payment to such MSB Employee Benefit
Plan except as required by law or the terms of such plans and
consistent with MSB's past practice or as permitted by this Agreement;
(h) Pay, agree to pay, or incur aggregate liabilities in excess of
$30,000 in any single transaction for the purchase or lease of real
property, fixtures, equipment or other capital assets except normal
replacements, or except as provided in the MSB Disclosure Memorandum;
(i) Enter into or commit to enter into any agreement to purchase
trust, consulting, professional, data processing or other material
non-employee services which is not terminable by MSB without cost or
penalty upon thirty days' notice;
(j) Terminate (excluding failure to exercise a renewal option) or
amend any material lease or other material agreement except for the
expiration of contracts at the end of their term and termination of
contracts which are terminable by the other party without any fault or
omission on the part of MSB;
(k) Except as disclosed in the MSB Disclosure Memorandum, open or
materially enlarge or remodel any of MSB's facilities;
(l) Lease, purchase, or otherwise acquire any real property for
use as a branch bank;
(m) Apply for regulatory approval of any new branch banking
facility;
(n) Make any change in the number of its capital shares issued and
outstanding, except pursuant to the exercise of the MSB Stock Options
or under the terms of the Warrant Purchase Agreement and Warrant;
(o) Do or fail to do anything that would cause a breach of, or a
default under, any contract, commitment, obligation, plan, trust or
other arrangement as to which MSB or any MSB Company is a party, or by
which MSB or any MSB Company is bound;
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(p) Make any borrowings except in the ordinary course of business;
(q) Make any significant change in any tax or accounting methods
or systems of internal accounting controls, except as may be
appropriate to conform to changes in tax laws or regulatory accounting
requirements or GAAP or as provided by this Agreement; or
(r) Commence any Litigation other than in the ordinary course of
business in accordance with past practice, or settle any Litigation
involving any liability of MSB for material money damages or
restrictions upon the operations of MSB or any of its Subsidiaries.
4.12 Affiliate Agreements. MSB shall deliver to IBC not later than 30
days prior to the Effective Time, a written agreement, in a form attached hereto
as Exhibit C, from each director and executive officer of MSB and from those
Persons whom MSB reasonably believes to be an "affiliate" of MSB for purposes of
Rule 145 under the 1933 Act or the comparable OTS regulation or within the
meaning of SEC Staff Accounting Bulletin No. 65 (interpreting certain
requirements for treating a business combination as a pooling of interests).
4.13 Certain Policies of MSB. At the request of IBC, MSB shall use its
best efforts to modify and change its loan, litigation, and real estate
valuation policies and practices (including loan classifications and levels of
reserves) prior to or at the Effective Time so as to be consistent on a mutually
satisfactory basis with those of IBC and GAAP. MSB's representations,
warranties, covenants and agreements provided in this Agreement and the
Consolidation Agreement shall not be deemed untrue or breached in any respect as
a consequence of any modifications or changes undertaken solely on account of
this Section 4.13. Furthermore, MSB shall not be required to take any action
required by this Section 4.13 more than five (5) days prior to the Effective
Time, unless IBC agrees in writing that all conditions to closing set forth in
Article V have been satisfied or waived, or, in any event, before the
shareholders of MSB approve the Consolidation.
4.14 Employee Benefits and Contracts.
(a) ESOP. The following provisions will apply with respect to the
Mutual Savings Bank Employee Stock Ownership Plan and Trust ("MSB
ESOP"):
(i) All cash currently held in the MSB ESOP Suspense Account
and attributable to certain securities litigation settlement
proceeds received by the MSB ESOP (the "Litigation Proceeds"),
shall be allocated to accounts of participants in the MSB ESOP as
of the Effective Time ("MSB ESOP Participants") and former MSB
ESOP Participants. Such allocation shall be made (a) pursuant to
the terms of the MSB ESOP in effect as of the Effective Time, and
(b) as soon as practicable after the receipt of a Private Letter
Ruling requested from the Internal Revenue Service ("IRS") with
respect to the treatment of the Litigation Proceeds pursuant to
Section 415 of the Code.
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(ii) All cash allocated to the accounts of MSB ESOP
Participants and former MSB ESOP Participants as applicable, as
set forth in Section 4.14(a)(i) above, and all remaining cash to
be allocated to the MSB ESOP Participant Accounts and attributable
to the Litigation Proceeds, will be distributed to, or rolled over
by, MSB ESOP Participants and former MSB ESOP Participants as
applicable, at their election, pursuant to the terms of the MSB
ESOP in effect at the Effective Time. Such distributions or
rollovers shall be made as soon as practicable after the later to
occur of the Effective Time or the date of receipt of the
aforementioned IRS Private Letter Ruling.
(iii) From and after the date of this Agreement and
in anticipation of the aforementioned allocations,
distributions and rollovers from the MSB ESOP, IBC, MSB and
their respective representatives prior to the Effective Time,
and IBC and its representatives after the Effective Time,
shall use their best efforts to obtain such Private Letter
Ruling from the IRS. In the event that IBC, MSB and their
respective representatives prior to the Effective Time, and
IBC and its representatives after the Effective Time,
reasonably determine that the MSB ESOP cannot obtain the
Private Letter Ruling, or that amounts attributable to the
Litigation Proceeds cannot be so applied, allocated,
distributed or rolled over without causing the MSB ESOP to
lose its tax-qualified status or to exceed the limitations set
forth in Section 415 of the Code, MSB prior to the Effective
Time and IBC after the Effective Time, and their respective
representatives, shall take such action as they may reasonably
determine with respect to the allocation, distribution and
rollover of the Litigation Proceeds to MSB ESOP Participants
and former MSB ESOP Participants pursuant to the terms of the
MSB ESOP in effect as of the Effective Time, provided that the
Litigation Proceeds shall be held or paid only for the benefit
of MSB ESOP Participants and former MSB ESOP Participants, and
provided further that in no event shall any portion of such
amounts held in the MSB ESOP revert directly or indirectly to
MSB or any Affiliate thereof, or to IBC or any Affiliate
thereof.
(iv) The MSB ESOP shall be merged with and into the
Independent Bank Corporation Employee Stock Ownership Plan and
Trust ("IBC ESOP") as soon as practicable after the later to occur
of (a) the completion of the cash allocations, distributions, and
rollovers described in Sections 4.14(a)(i) through (iii) above, or
(b) the Effective Time.
(v) As of the effective date of the merger of the MSB ESOP and
the IBC ESOP, remaining account balances of MSB ESOP Participants
who are not then employed by IBC or an Affiliate thereof shall be
distributed to, or rolled over by, such MSB ESOP Participants
based upon the vesting schedule set forth in the MSB ESOP as of
the Effective Time.
(vi) Remaining account balances of MSB ESOP Participants who
are employed by IBC or an Affiliate thereof on the effective date
of the merger of the MSB ESOP and the
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IBC ESOP, will be maintained for their benefit in separate
accounts established under the IBC ESOP and will vest in such MSB
ESOP Participants' accounts according to the MSB ESOP vesting
schedule in effect as of the Effective Time.
(vii) Each MSB employee who becomes an employee of IBC or an
Affiliate thereof as of the Effective Time will participate in the
IBC ESOP as of the later to occur of (a) the Effective Time, or
(b) the date such MSB ESOP Participant satisfies the eligibility
requirements of the IBC ESOP. Former MSB employees shall receive
credit for eligibility and vesting purposes under the IBC ESOP for
all services rendered to MSB or an Affiliate thereof prior to the
Effective Time.
(viii) Employees hired by the Consolidated Bank from and after
the Effective Time will become eligible to participate in the IBC
ESOP in the same manner as newly- hired IBC employees.
(ix) IBC shall maintain and operate the MSB ESOP and IBC ESOP
in accordance with their respective terms and the applicable
provisions of ERISA and the Code, and to the extent that there
exist, as of the date of this Agreement, material differences
between the rights of MSB ESOP Participants with respect to the
balances of their MSB ESOP accounts and the rights of IBC ESOP
Participants with respect to the balances of their IBC ESOP
accounts, respectively, and any such differences are adverse to
the MSB ESOP Participants (other than the prevailing differences
in the vesting of account balances, which provisions of the MSB
ESOP shall in no event be modified as it applies to MSB ESOP
account balances at the time of merger of the MSB ESOP with the
IBC ESOP), IBC shall not amend the MSB ESOP or the IBC ESOP in a
way that would adversely affect the rights of MSB ESOP
Participants with respect to the balances of their MSB ESOP
accounts that are transferred to accounts for their benefit under
the IBC ESOP in connection with the merger of the MSB ESOP with
the IBC ESOP, except to the extent required to maintain the IBC
ESOP's tax qualified status under applicable provisions of the
Code.
(x) IBC, MSB and their respective Affiliates shall take all
actions necessary to accomplish the program described above with
respect to the MSB ESOP, including, without limitation, such
amendments to the MSB ESOP and the IBC ESOP as are appropriate or
necessary to complete such program.
(b) 401(k) Plan. IBC and MSB acknowledge and agree that all
participants ("MSB 401(k) Plan Participants") in the MSB 401(k) Profit
Sharing Plan ("MSB 401(k) Plan") shall be fully vested as of the
Effective Time in their accounts under the MSB 401(k) Plan. If IBC
maintains a defined contribution plan subject to a favorable IRS
determination letter as to its tax-qualified status under Sections
401(a) and 401(k) of the Code (the "IBC 401(k) Plan"), on or after the
Effective Time, the MSB 401(k) Plan may be merged with and into the IBC
401(k) Plan. If such merger occurs, or if MSB 401(k) Plan Participants
otherwise become eligible to participate in the IBC 401(k) Plan: (i)
all such MSB 401(k) Plan Participants shall become participants in the
IBC 401(k) Plan; and (ii) each MSB 401(k) Plan Participant's period of
employment with MSB or an Affiliate thereof shall be counted for all
purposes under the IBC 401(k) Plan, including without limitation, for
purposes of eligibility and vesting. In the event of a merger of the
MSB 401(k) Plan with the IBC 401(k) Plan, the compensation of each MSB
401(k) Plan Participant attributable to employment with MSB prior to
the Effective Time shall be counted for all purposes under the IBC
401(k) Plan, including without limitation, for purposes of contribution
allocations. If the MSB 401(k) Plan is not merged with the IBC 401(k)
Plan within 18 months after the Effective Time, the MSB 401(k) Plan
shall be maintained as a separate 401(k) Plan solely for the benefit of
MSB 401(k) Plan Participants.
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(c) MSB Pension Plan. All amounts contributed by MSB to the MSB
Pension Plan prior to the Effective Time, and all earnings thereon,
shall be applied only to provide benefits to MSB employees who
participate in the MSB Pension Plan. As of the Effective Time, MSB's
participation in the MSB Pension Plan shall terminate. From and after
the date of this Agreement, in anticipation of such termination, MSB
and its representatives shall take such action and shall make such
decisions, as they shall deem appropriate with respect to the
termination of MSB's participation in the MSB Pension Plan and to the
application of all amounts contributed by MSB to the MSB Pension Plan
and all earnings thereon only to provide benefits to MSB Pension Plan
participants.
(d) Benefit Plans. At the Effective Time, each employee of MSB
shall become immediately entitled to participate in each of the IBC
Employee Benefit Plans described in Section 2.20, including without
limitation, group hospitalization, medical, life and disability
insurance plans, severance plans, tax-qualified retirement, ESOP,
savings and profit sharing plans, and stock option and management
recognition plans, in which similarly situated employees of IBC and its
Affiliates participate and to the same extent as such employees of IBC
and its Affiliates. The period of employment and compensation of each
employee of MSB and its Affiliates with MSB and its Affiliates prior to
the Effective Time shall be counted for all purposes of the IBC
Employee Benefit Plans (except for purposes of benefit accrual),
including without limitation for purposes of vesting and eligibility.
Any expenses incurred by an employee of MSB or its Affiliates under any
MSB Welfare Plans (as defined in Section 3(1) of ERISA), such as
deductibles or co-payments, shall be counted for all purposes under the
applicable IBC Employee Benefit Plans. IBC and the IBC Employee Benefit
Plans shall waive any pre-existing condition exclusions for conditions
existing at the Effective Time, and actively at work requirements for
periods ending at the Effective Time contained in the IBC Employee
Benefit Plans, as they apply to employees and former employees of MSB
and its Affiliates and their dependents, provided that such waiver of
pre-existing conditions shall not extend to any condition that has
prevented coverage of an MSB employee or former employee or a dependent
thereof under comparable MSB Welfare Plans. Notwithstanding anything to
the contrary in this paragraph, IBC after the Effective Time shall have
sole discretion with respect to the determination whether to terminate,
merge or continue any MSB Employee Benefit Plan, other than the ESOP,
or the MSB Pension Plan provided that IBC shall continue to maintain
MSB Employee Benefit Plans until MSB employees are permitted to
participate in similar IBC Employee Benefit Plans. At the Effective
Time, IBC or an Affiliate thereof shall be substituted for MSB as the
sponsoring employer under those MSB Employee Benefit Plans with respect
to which MSB or an Affiliate is the sponsoring employer immediately
prior to the Effective Time, and which Plan is assumed by IBC pursuant
to the terms of this Agreement, and IBC or an Affiliate thereof shall
assume and be vested with all of the powers, rights, duties,
obligations and liabilities previously vested in MSB or an Affiliate
thereof with respect to each such Plan.
(e) Stock Options. Each unexercised MSB Stock Option that is
outstanding immediately prior to the Effective Time shall become fully
exercisable at the Effective Time
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and shall be converted automatically at the Effective Time into an
option to purchase shares of IBC Common Stock under the IBC Employee
Stock Option Plan ("IBC Stock Option"), with the number of shares of
IBC Common Stock to be subject to a particular IBC Stock Option to
equal the Conversion Ratio multiplied by the number of shares of MSB
Common Stock subject to a particular MSB Stock Option, provided that
any fractional share shall be rounded down to the nearest whole share;
and with the exercise price for each share of IBC Common Stock subject
to a particular IBC Stock Option to be equal to the exercise price of
an MSB Common Share under the MSB Stock Option divided by the
Conversion Ratio. Notwithstanding the preceding sentence, in the case
of any MSB Stock Option to which Section 421 of the Internal Revenue
Code of 1986, as amended ("the "Code") applies by reason of its
qualification under Section 422 of the Code, the terms of the IBC Stock
Option into which such MSB Stock Option is to be converted, including
the exercise price, the number of shares of IBC Common Stock
purchasable pursuant to such Option, and the terms and conditions of
exercise of such Option, shall be determined so as to comply with
Sections 422 and 424(a) of the Code. A cash payment shall be made for
any fractional share of MSB Common Stock that is not represented by the
IBC Stock Option, based upon the average closing sale price of shares
of IBC Common Stock on the five trading days immediately preceding the
Effective Time, as reported on the Nasdaq Stock Market. Upon such
conversion, all rights under each such MSB Stock Option and under the
related stock option plan previously adopted by MSB ("MSB Stock Option
Plan") shall terminate; provided, however, that the terms, benefits,
rights and features of such MSB Stock Option and the agreement
evidencing the grant of such MSB Stock Option, as in existence
immediately prior to the Effective Time shall, to the extent
inconsistent with the terms of the IBC Stock Option Plan or any similar
IBC Plan, and favorable to the interests of the holder of the IBC Stock
Option, continue to apply to such IBC Stock Option from and after the
Effective Time.
As soon as practicable after the Effective Time, IBC shall deliver
to the holder of each IBC Stock Option appropriate notices setting
forth such holder's rights pursuant to the IBC Stock Option Plan, the
agreement evidencing such IBC Stock Option and the original grant of
such converted MSB Stock Option shall continue in effect on the same
terms and conditions (after giving effect to the Consolidation pursuant
to the Agreement and the conversion as set forth above). As of the
Effective Time, IBC shall amend the IBC Stock Option Plan to the extent
necessary to conform to, and implement, the provisions of this Section
4.14(e), including, without limitation, amendments necessary to
preserve those provisions of the converted MSB Stock Options that are
more favorable to the holders of IBC Stock Options than would otherwise
be the case pursuant to the terms of the IBC Stock Option Plan.
(f) Retiree Medical Coverage. From and after the Effective Time,
former and current officers and employees of MSB and its Affiliates and
their dependents who satisfy conditions for coverage under IBC's
program of post retirement medical and health insurance coverage (the
"IBC Program") shall be entitled to participate in the IBC Program,
under the
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terms and conditions of the IBC Program and all at the expense of the
IBC Program participants.
(g) Severance Agreements and Arrangements.
(i) IBC agrees to honor the provisions of the present
Severance Pay Plan, adopted by the MSB Compensation Committee of
the Board of Directors on September 24, 1996, in effect for
certain of MSB officers, as described in the MSB Disclosure
Memorandum, including without limitation, those provisions that
relate to a termination of employment following a change in
control of MSB.
(ii) IBC will provide severance payments to employees of MSB
and its Affiliates (other than those employees whose severance
benefits are provided for in written severance agreements as
described in subparagraph (i) above). Such severance benefits
shall be provided to the following categories of employees:
(A) Employees of MSB and its Affiliates immediately prior
to the Effective Time who are not offered comparable
employment by IBC or an Affiliate thereof immediately
following the Effective Time; and
(B) Employees of MSB or its Affiliates immediately prior
to the Effective Time who are offered and accept comparable
employment with IBC or an Affiliate immediately following the
Effective Time and who are subsequently terminated by IBC or
an Affiliate within 12 months after the Effective Time for any
reason other than cause (as shall be reasonably determined by
IBC or its Affiliate).
The severance payments to be provided pursuant to the subparagraph
(ii) shall be computed as follows:
(i) Non-officer - one week of current base salary for each
full year of service with MSB, IBC and their respective
Affiliates, subject to a maximum of twenty-six weeks and a minimum
of three weeks current base salary; and
(ii) Officer (as defined in the MSB Disclosure Memorandum) -
two weeks of current base salary for each full year of service
with MSB, IBC and their respective Affiliates, subject to a
maximum of twenty-six weeks and a minimum of six weeks current
base salary.
In computing such severance payments for each regular part-time
employee, such employee's per week base salary shall be based on
1/52 of the actual number of hours worked by such employee for MSB
or an Affiliate in the year ended December 31, 1998.
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(h) COBRA. Until the Effective Time, MSB shall be liable for all
obligations for continued health coverage pursuant to Section 4980B of
the Code and Section 601 through 609 of ERISA ("COBRA") with respect to
each qualified beneficiary (as defined in COBRA) of MSB who incurs a
qualifying event (as defined in COBRA) prior to the Effective Time. IBC
shall be liable for (i) all obligations for continued health coverage
under COBRA with respect to each MSB qualified beneficiary (as defined
in COBRA) who incurs a qualifying event (as defined in COBRA) from and
after the Effective Time, and (2) for continued health coverage under
COBRA from and after the Effective Time for each MSB qualified
beneficiary who incurs a qualifying event before the Effective Time.
4.15 Indemnification; Directors' and Officers' Insurance.
(a) For a period of six years after the Effective Time (or the
period of the applicable statute of limitations, if longer), in the
event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative, including,
without limitation, any such claim, action, suit, proceeding or
investigation in which any individual who is now, or has been at any
time prior to the date of this Agreement, or who becomes prior to the
Effective Time, a director, officer, or employee of MSB or the MSB
Subsidiaries (the "Indemnified Parties"), is, or is threatened to be,
made a party based in whole or in part on, or arising in whole or in
part out of, or pertaining to (i) the fact that he or she is or was a
director, officer or employee of MSB or the MSB Subsidiaries or any of
their respective predecessors, or (ii) this Agreement or the
Consolidation Agreement or any of the transactions contemplated hereby
or thereby, whether in any case asserted or arising before or after the
Effective Time, IBC agrees to cooperate and use reasonable efforts to
defend against and respond thereto. It is understood and agreed that
for a period of six years after the Effective Time (or the period of
the applicable statute of limitations, if longer), IBC shall (and shall
cause the Consolidated Bank to) defend, indemnify and hold harmless, as
and to the fullest extent permitted by law, each such Indemnified Party
against any losses, claims, damages, liabilities, costs, expenses
(including payment of reasonable attorney's fees and expenses and other
costs in advance of the final disposition of any claim, suit,
proceeding or investigation incurred by each Indemnified Party to the
fullest extent permitted by law upon receipt of any undertaking
required by applicable law), judgments, fines and amounts paid in
settlement in connection with any such threatened or actual claim,
action, suit, proceeding or investigation, and in the event of any such
threatened or actual claim, action, suit, proceeding or investigation
(whether asserted or arising before or after the Effective Time), the
Indemnified Parties may retain counsel reasonably satisfactory to them
after consultation
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with IBC; provided, further, that (A) IBC shall have the right to
assume the defense thereof and upon such assumption IBC shall not be
liable to any Indemnified Party for any legal expenses of other counsel
or any other expenses subsequently incurred by any Indemnified Party in
connection with the defense thereof, except that if IBC elects not to
assume such defense or counsel for the Indemnified Parties reasonably
advises the Indemnified Parties that there are issues that raise
conflicts of interest between IBC and the Indemnified Parties, the
Indemnified Parties may retain counsel reasonably satisfactory to them
after consultation with IBC, and IBC shall pay the reasonable fees and
expenses of such counsel for the Indemnified Parties; provided,
however, that if IBC assumes the defense thereof, IBC shall not settle
any claim, action, suit, proceeding or investigation or consent to any
legal judgment without first obtaining the consent of the Indemnified
Parties, (B) IBC shall be obligated pursuant to this paragraph to pay
for only one firm of counsel for all Indemnified Parties, unless an
Indemnified Party shall have reasonably concluded, based on the advice
of counsel, that there is a material conflict of interest between the
interests of such Indemnified Party and the interests of one or more
other Indemnified Parties and that the interests of such Indemnified
Party will not be adequately represented unless separate counsel is
retained, in which case, IBC shall be obligated to pay such separate
counsel, (C) IBC shall not be liable for any settlement effected
without its prior written consent (which consent shall not be
unreasonably withheld) and (D) IBC shall have no obligation hereunder
to any Indemnified Party when and if a court of competent jurisdiction
shall ultimately determine, and such determination shall have become
final and nonappealable, that indemnification of such Indemnified Party
in the manner contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim Indemnification under this Section
4.15 upon learning of any such claim, action, suit, proceeding or
investigation, shall notify IBC thereof, provided that the failure to
so notify shall not affect the obligations of IBC under this Section
4.15 except to the extent such failure to notify materially prejudices
IBC.
(b) IBC shall use its reasonable efforts to cause the Consolidated
Bank (i) to obtain, after the Effective Time, directors' and officers'
liability insurance coverage for the officers and directors of the
Consolidated Bank, and (ii) either (A) to cause the individuals serving
as officers and directors of MSB or the MSB Subsidiaries immediately
prior to the Effective Time to be covered for a period of three years
from the Effective Time by the directors' and officers' liability
insurance policies maintained by the Consolidated Bank, or IBC, as the
case may be, or to (B) substitute therefor policies of at least the
same coverage and amounts containing terms and conditions that are not
less advantageous than the policies previously maintained by MSB and
the MSB Subsidiaries, respectively, with respect to acts or omissions
occurring prior to the Effective Time that were committed by such
officers and directors in their capacity as such; provided, however,
that such policies will specifically exclude liabilities with respect
to the Pending Litigation; provided, further, that in no event will IBC
and its Subsidiaries be required to expend more than twice the
aggregate premiums paid by MSB for directors' and officers' liability
insurance for the year ended December 31, 1998, to procure and maintain
such insurance, and provided, further, that such officers and directors
may be required to make application and provide customary
representations and warranties to IBC's insurance carrier for the
purpose of obtaining such insurance.
4.16 Listing of Shares. IBC shall use all reasonable efforts to cause
the shares of IBC Common Stock issuable in the Merger to be approved for listing
on the Nasdaq Stock Market.
ARTICLE V
CONDITIONS PRECEDENT TO THE CONSOLIDATION
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5.1 Conditions Precedent to Obligations of Each Party. The respective
obligations of each Party to perform this Agreement and to consummate the
Consolidation are subject to the satisfaction of each of the following
conditions precedent, unless waived by both Parties:
(a) Shareholder Approval. This Agreement and the Consolidation
Agreement shall have been adopted by the affirmative vote of the
shareholders of MSB, IBC, and New Bank owning (i) at least two thirds
(2/3) of the capital shares outstanding of each of MSB and New Bank,
and (ii) shares representing at least a majority of the votes cast at
the IBC shareholders' meeting to approve the Consolidation.
(b) Governmental Approvals. The parties to this Agreement shall
have received the Requisite Regulatory Approvals and such approvals
shall have become final and shall not be the subject of any formal
administrative review proceeding or appeal, and the Consolidation may
be consummated pursuant to the terms of such approvals.
(c) Challenge in Legal Proceedings. No proceeding shall be pending
or overtly threatened before any court or other governmental agency by
the federal or any state government in which it is or will be sought to
restrain or prohibit the consummation of the Consolidation.
(d) Securities Laws. The Registration Statement shall be effective
under the 1933 Act, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit,
proceeding or investigation by the SEC to suspend the effectiveness
thereof shall have been initiated and be continuing, and all necessary
approvals under state securities laws or the 1933 Act or the 1934 Act,
as amended, relating to the issuance or trading of the shares of IBC
Common Stock issuable pursuant to the Consolidation shall have been
received.
(e) Tax Matters. Each party shall have received a written opinion
of counsel or its independent public accounting firm, in form
reasonably satisfactory to such parties (the "Tax Opinion"), to the
effect that (i) the Consolidation will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, (ii)
the exchange in the Consolidation of shares of MSB Common Stock for
shares of IBC Common Stock will not give rise to gain or loss to the
shareholders of MSB with respect to such exchange (except to the extent
of any cash received), and (iii) neither MSB nor IBC will recognize
gain or loss as a consequence of the Consolidation. In rendering such
Tax Opinion, such counsel or accounting firm shall be entitled to rely
upon representations of MSB's officers, directors, and shareholders
holding in excess of five percent (5%) of the outstanding shares of MSB
Common Stock and representations of officers of IBC in each case
reasonably satisfactory in form and substance to such counsel or
accounting firm.
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(f) MESC Form 1027. MSB shall have furnished to IBC a complete,
accurate and executed copy of MESC Form 1027, Business Transferor's
Notice of Unemployment Tax Liability and Rate.
5.2 Conditions Precedent to Obligations of IBC. The obligations of IBC
to perform this Agreement and to consummate the Consolidation are subject to the
satisfaction of each of the following conditions, unless waived by IBC:
(a) Compliance with Representations and Warranties. There shall
have been no material breach by MSB of any of the representations or
warranties of MSB pursuant to this Agreement as of the date of this
Agreement or as of the Effective Time.
(b) Opinion of Legal Counsel. MSB shall have delivered to IBC an
opinion of counsel, dated the Effective Time, in form and substance
reasonably satisfactory to IBC and its counsel, to the effect that: (i)
MSB is a validly existing savings association under the laws of the
United States of America; (ii) the authorized capitalization of MSB
consists of 20,000,000 shares of common stock, $.01 par value per
share, and 5,000,000 shares of preferred stock, $.01 par value per
share; (iii) except as set forth in such opinion, to the best of
counsel's knowledge, such party is not a party to or affected by any
material adverse pending litigation, proceeding or investigation before
any court or by or before any federal, state, municipal or other
governmental department, commission, board or agency nor has any such
litigation, proceeding or investigation been expressly threatened
against MSB; and (iv) this Agreement and the Consolidation Agreement
have been duly and validly authorized, executed and delivered by such
party and are binding and enforceable according to their terms. In
rendering such opinions, counsel may rely as to certain factual matters
on certificates of one or more officers of MSB and of public officials.
(c) Officer Certifications. The Chief Executive Officer and
Secretary of MSB shall have given to IBC their respective certificates,
dated as of the Effective Time, that the representations and warranties
of MSB contained in this Agreement and the Consolidation Agreement,
subject to disclosures contained in MSB's Disclosure Memorandum and the
MSB Updated Memorandum, have not, to the best of their knowledge and
belief, been breached, all representations and warranties, subject to
the MSB Disclosure Memorandum and the MSB Updated Memorandum are, to
the best of their knowledge and belief, true as of the Effective Time
and all conditions to the obligations of IBC as set forth in this
Agreement and required to be fulfilled by MSB have been fulfilled on or
before the Closing Date.
(d) Accountant's Letter. IBC shall have received from KPMG LLP an
opinion letter to the effect that the Consolidation will be accounted
for as a pooling of interests if consummated in accordance with this
Agreement and the Consolidation Agreement.
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(e) Fairness Opinion. IBC shall have received from Stifel,
Nicolaus & Company Incorporated, an update to its previously delivered
fairness opinion, not more than five days prior to the date of the
Proxy Statement/Prospectus, as to the fairness of the Consolidation to
the shareholders of IBC from a financial point of view.
(f) No Material Adverse Changes. Between the date of this
Agreement and the Effective Time, there shall not have occurred any
change or any condition, event, circumstance, fact or occurrence (other
than general economic or competitive conditions), other than as
provided in this Agreement, that may reasonably be expected to result
in a material adverse change in the business, properties, financial
condition, loan portfolio, operations or prospects of MSB or its
Subsidiaries, taken as a whole.
(g) Updated Disclosure Memorandum. MSB shall have provided to
IBC any information necessary to make the representations and
warranties set forth in Article III of this Agreement true and correct
as of the Closing Date (the "MSB Updated Memorandum") and such MSB
Updated Memorandum shall not reflect a material adverse change from the
MSB representations and warranties made as of the date of this
Agreement.
(h) Due Diligence. Prior to the Effective Time, MSB shall not have
been required in accordance with GAAP, to record an accrual in excess
of $1,800,000 relating to the Pending Litigation because a loss from
such Pending Litigation has become reasonably probable and such loss
can be reasonably estimated.
5.3. Conditions Precedent to Obligations of MSB. The obligations of MSB
to perform this Agreement and to consummate the Consolidation are subject to the
satisfaction of each of the following conditions, unless waived by MSB:
(a) Compliance with Representations and Warranties. There shall
have been no material breach by IBC of any of the representations and
warranties of IBC pursuant to this Agreement or as of the date of this
Agreement or as of the Effective Time.
(b) Opinion of Legal Counsel. IBC shall deliver to MSB an opinion
of counsel, dated the Effective Time, in form and substance reasonably
satisfactory to MSB and its counsel, to the effect that: (i) IBC and
New Bank are duly organized or incorporated, are validly existing and
in good standing according to the laws under which they were created;
(ii) the number of authorized and issued and outstanding capital shares
of IBC is as represented in, or permitted by, this Agreement and the
Consolidation Agreement; (iii) the shares of IBC Common Stock
deliverable pursuant to this Agreement will be duly authorized and,
upon issuance and delivery in accordance with the terms hereof and
thereof, will be validly issued, fully paid and nonassessable; (iv) the
IBC Common Stock to be issued in the Consolidation shall have been
qualified or exempted under all applicable state securities or blue sky
laws, and shall have been approved for listing on the Nasdaq Stock
Market, subject to official notice thereof; (v) except as set forth in
such opinion, to the best of counsel's knowledge, IBC is not a party to
or affected by any material adverse pending litigation,
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proceeding or investigation before any court or by or before any
federal, state, municipal or other governmental department, commission,
board or agency nor has any such litigation, proceeding or
investigation been expressly threatened against IBC; (vi) this
Agreement and the Consolidation Agreement have been duly and validly
authorized, executed and delivered by such party and are binding and
enforceable according to their terms; and (vii) no consents or
approvals of, or filings or registrations with, any governmental entity
are necessary in connection with the execution and delivery by IBC or
New Bank of this Agreement and the Consolidation Agreement and the
consummation by IBC and New Bank of the transactions contemplated
thereby that have not been received or obtained as of the date hereof,
except where the failure to obtain such consent or approval or to make
such filing or registration will not have or be reasonably likely to
have a Material Adverse Effect on IBC. In rendering such opinions,
counsel may rely as to certain factual matters on certificates of one
or more officers of IBC and of public officials.
(c) Officer Certifications. The President and Secretary of IBC
shall have given to MSB their respective certificates, dated as of the
Effective Time, that the representations and warranties of IBC
contained in this Agreement and the Consolidation Agreement, subject to
disclosure contained in IBC's Disclosure Memorandum and the IBC Updated
Memorandum, have not, to the best of their knowledge and belief, been
breached, all representations and warranties, subject to the IBC
Disclosure Memorandum and the IBC Updated Memorandum are, to the best
of their knowledge and belief, true as of the Effective Time and all
conditions to the obligations of MSB as set forth in this Agreement and
required to be fulfilled by IBC have been fulfilled on or before the
Closing Date.
(d) Accountant's Letter. IBC shall have received from KPMG LLP an
opinion letter to the effect that the Consolidation will qualify for
pooling of interests accounting treatment if consummated in accordance
with this Agreement and the Consolidation Agreement.
(e) Fairness Opinion. MSB shall have received from McConnell, Budd
& Downes, Inc., or such other investment banking firm retained by MSB,
an opinion letter dated not more than five business days prior to the
date of the Proxy Statement/Prospectus to the effect that the
consideration to be received by shareholders of MSB pursuant to this
Agreement is fair from a financial point of view.
(f) No Material Adverse Changes. Between the date of this
Agreement and the Effective Time, there shall not have occurred any
change or any condition, event, circumstance, fact or occurrence (other
than general economic or competitive conditions), other than as
provided in this Agreement, that may reasonably be expected to result
in a material adverse change in the business, properties, financial
condition, loan portfolio, operations or prospects of IBC or its
Subsidiaries, taken as a whole.
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(g) Updated Disclosure Memorandum. IBC shall have provided to
MSB any information necessary to make the representations and
warranties set forth in Article II of this Agreement true and correct
as of the Closing Date (the "IBC Updated Memorandum") and such IBC
Updated Memorandum shall not reflect a material adverse change from the
IBC representations and warranties made as of the date of this
Agreement.
(h) Management Continuity Agreement. Effective as of the
Effective Time, IBC shall have entered into a Management Continuity
Agreement with the Chief Executive Officer of MSB in the form of
attached Exhibit D.
ARTICLE VI
ABANDONMENT AND TERMINATION OF CONSOLIDATION
6.1 Termination. This Agreement may be terminated at any time before
the Effective Time, whether before or after any shareholder action, in
accordance with the following:
(a) Mutual Consent. By mutual written consent of MSB and IBC
if the Boards of Directors of each so determines.
(b) Effective Time. By either IBC or MSB if the terminating
party has used its best reasonable efforts to consummate the
Consolidation and if the Effective Time shall not have occurred on or
before November 30, 1999.
(c) Material Adverse Changes. By either IBC or MSB if there
has occurred any change or any condition, event, circumstance, fact or
occurrence (other than general economic or competitive conditions),
other than as provided in this Agreement, that may reasonably be
expected to result in a material adverse change in the business,
financial condition, loan portfolio, operations or prospects of the
other party, considered as a whole.
(d) Litigation. By either MSB or IBC if any Litigation, other
than the Pending Litigation, shall be pending or overtly threatened (i)
against or affecting the other party or any of its respective assets,
loan portfolio, operation or prospects that would reasonably be
expected to have a Material Adverse Effect on the other party, or (ii)
before any court or other governmental agency by the federal or any
state government in which it is or will be sought to restrain or
prohibit the consummation of the Consolidation.
(e) Misrepresentations. By either MSB or IBC if the other
party breaches any warranty or representation in this Agreement or in
the Consolidation Agreement which breaches individually or in the
aggregate have or, insofar as reasonably can be foreseen, would have, a
Material Adverse Effect on the breaching party and such breaches shall
not have been cured within thirty (30) days after receipt by the
breaching party of notice in writing from the nonbreaching party
specifying the nature of such breaches and requesting that they be
cured.
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(f) Breach of Covenants. By either MSB or IBC if the other
party breaches, in any material respect, any covenant of this Agreement
or the Consolidation Agreement and such breaches shall not have been
cured within thirty (30) days after receipt by the breaching party of
notice in writing from the nonbreaching party specifying the nature of
such breaches and requesting that they be cured.
(g) Regulatory Approvals. By either MSB or IBC if any
Regulatory Authority that must grant a Requisite Regulatory Approval
(A) has denied approval of the Consolidation and such denial has become
final and nonappealable or (B) any Regulatory Authority of competent
jurisdiction shall have issued a final nonappealable order permanently
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement.
(h) Shareholder Approvals. By either MSB or IBC if the
approval of shareholders required for the consummation of the
Consolidation shall not have been obtained by reason of the failure to
obtain the required vote at a duly held meeting of shareholders or at
any adjournment or postponement thereof.
(i) Third-Party Business Combination Proposal. By MSB, upon
two (2) days' prior notice to IBC, if, as a result of a Tender Offer by
a party other than IBC or its Affiliates or any written offer or
proposal with respect to an Acquisition Transaction, the Board of
Directors of MSB determines in good faith that its fiduciary
obligations under applicable law require that such Tender Offer or
other written offer or proposal be accepted; provided, however, that
(I) the Board of Directors of MSB shall have been
advised in a written opinion of outside counsel that
notwithstanding a binding commitment to consummate an
agreement of the nature of this Agreement entered into in the
proper exercise of its applicable fiduciary duties, and
notwithstanding all concessions that may be offered by IBC in
negotiations entered into pursuant to clause (II) below, such
fiduciary duties would require the directors to reconsider
such commitment as a result of such Tender Offer or other
written offer or proposal, and
(II) prior to any such termination, MSB shall, and
shall cause its financial and legal advisers to, negotiate
with IBC to make such adjustments in the terms and conditions
of this Agreement as would enable MSB to proceed with the
transactions contemplated herein on such adjusted terms.
By IBC if MSB shall approve or recommend to its shareholders
any Acquisition Transaction involving MSB other than the Consolidation.
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(j) Withdrawal by MSB of Shareholder Recommendation. By IBC,
if the Board of Directors of MSB or any committee thereof (i) shall
withdraw or modify in any manner adverse to IBC its approval or
recommendation of this Agreement or the Consolidation Agreement, (ii)
shall fail to reaffirm such approval or recommendation upon IBC's
request, (iii) shall not include its recommendation of this Agreement,
the Consolidation Agreement or the Consolidation in the Proxy
Statement/Prospectus (as defined in Section 4.3 hereof) or (iv) shall
resolve to take any of the actions specified in clauses (i), (ii) or
(iii) of this subparagraph (j).
(k) IBC Stock Price. By MSB under and subject to the terms and
conditions of Section 1.6(f) of this Agreement.
Termination pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(e), 6.1(f), 6.1(g),
6.1(h), 6.1(i), or 6.1(j), may be effected at any time prior to the Effective
Time, by written notice by either party to the other, as the case may be,
authorized and approved by a resolution adopted by the Board of Directors of the
party giving such notice. Termination pursuant to Section 6.1(k) shall be
subject to the terms and conditions contained in Section 1.6(f). In the event of
the termination and abandonment of this Agreement and the Consolidation
Agreement pursuant to this Section 6.1, this Agreement and the Consolidation
Agreement shall become null and void and of no effect, without liability on the
part of MSB, New Bank, IBC or their respective shareholders, directors or
officers in any respect hereof, except to the extent provided in Sections 4.6
and 7.3 of this Agreement.
ARTICLE VII
EXPENSES
The costs and expenses (out-of-pocket and otherwise) incurred by the
parties in connection with the transactions contemplated by this Agreement shall
be borne as follows:
7.1 IBC Expenses. IBC 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 Agreement and the Consolidation Agreement, its examination
of MSB, the preparation, filing and prosecution of all applications for
regulatory approval, and any appeals therefrom. IBC shall bear and pay all of
the filing fees payable in connection with the Registration Statement and the
Proxy Statement/Prospectus and printing costs incurred in connection with the
printing of the Registration Statement and Proxy Statement/Prospectus.
7.2 MSB Expenses. MSB 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 Agreement and the Consolidation Agreement, its examination
of IBC, and the calling and holding of a meeting of its shareholders to consider
and act upon the Consolidation, and the furnishing of information or other
cooperation to IBC in connection with the preparation of information and
regulatory applications, and any appeals therefrom.
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7.3 Termination; Expenses.
(a) If any of the following events (a "Triggering Event") occurs:
(i) any material, willful, and intentional breach of
the Merger Documents by MSB that would permit IBC to terminate
the Merger Documents (A) occurring after the receipt by MSB of
a proposal to engage in an Acquisition Transaction, (B)
occurring after the announcement by any other Person of an
intention to engage in an Acquisition Transaction, or (c) in
anticipation and for the purpose of engaging in an Acquisition
Transaction;
(ii) (A) a proposal to engage in an Acquisition
Transaction is submitted to and approved by the shareholders
of MSB at any time prior to December 31, 2000, unless this
Agreement is earlier terminated by MSB, pursuant to its right
to terminate this Agreement, under the conditions of Section
6.1 of this Agreement, or (B) a Tender Offer is commenced and
the transactions contemplated in the Tender Offer are
completed in such a manner that the Person making the Tender
Offer acquired beneficial ownership of more than 20 percent of
the capital stock or any other class of voting securities of
MSB, and the Consolidation is not consummated prior to
December 31, 2000; or
(iii) (A) a proposal to engage in an Acquisition
Transaction is received by MSB or a Tender Offer is made
directly to the shareholders of MSB or the intention of making
an Acquisition Transaction or Tender Offer is announced at any
time prior to the holding of the MSB Shareholders' Meeting;
and (B) the Board of Directors of MSB (1) fails to recommend
to the shareholders of MSB that they vote their shares of MSB
Common Stock in favor of the approval of the Consolidation,
(2) withdraws such recommendation previously made, (3) fails
to solicit proxies of shareholders of MSB to approve the
Consolidation, or (4) fails to hold the MSB Shareholders'
Meeting.
MSB shall pay to IBC an amount in cash equal to the direct
costs and expenses or portion thereof referred to in Section 7.1,
incurred by or on behalf of IBC in connection with the transactions
contemplated by the Merger Documents, but in no event to exceed
$250,000 in the aggregate. The amount shall be an obligation of MSB and
shall be paid by MSB promptly upon notice to MSB by IBC.
(b) Notwithstanding the foregoing, no amount shall be due IBC
pursuant to Section 7.3(a) in the event of the failure to consummate
the Consolidation as a result of any of the following: (i) the failure
of the shareholders of IBC to approve the Consolidation; or (ii) the
failure of any Regulatory Authority to provide any required consent to
the Consolidation, which failure was not the result of the existence of
a proposal to engage in
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an Acquisition Transaction or a breach by MSB of any of its obligations
under any of the Merger Documents.
(c) Nothing contained in this Section 7.3 shall constitute or
shall be deemed to constitute liquidated damages for the willful breach
by a Party of the terms of this Agreement or otherwise limit the rights
of the nonbreaching Party.
7.4 Obligations Upon Breach. Except as otherwise provided in Section
7.3, in the event that this Agreement shall terminate prior to the Effective
Time pursuant to Sections 6.1(e) or 6.1(f), then the breaching party shall
promptly (but in no event later than five (5) business days after receipt of
notice from the non-breaching party) pay the non-breaching party in cash an
amount equal to all out-of-pocket expenses incurred in connection with the
transactions contemplated by this Agreement and the Consolidation Agreement, but
in no event to exceed $250,000 in the aggregate; provided, however, that if this
Agreement is terminated by a Party as a result of a willful breach by the other
Party, the non-breaching Party may pursue any remedies available to it at law or
in equity and shall, in addition to its out-of-pocket expenses (which shall be
paid as specified above and shall not be limited to $250,000), be entitled to
recover such additional amounts as such non-breaching Party may be entitled to
receive at law or in equity.
ARTICLE VIII
AMENDMENT AND WAIVER
8.1 Amendment. MSB and IBC, by mutual consent of a majority of their
respective Boards of Directors, may amend, modify or supplement this Agreement
and, with New Bank's written consent, the Consolidation Agreement, in whole or
in part, and in such manner as may be agreed upon by them in writing, provided
that any such amendment, modification, or supplement subsequent to the adoption
of this Agreement and the Consolidation Agreement by MSB's or IBC's shareholders
may be effected only if the Board of Directors of MSB and IBC determine that
such amendment, modification, or supplement does not and will not have a
Material Adverse Effect on the shareholders of the Party whose shareholders have
previously approved this Agreement and the Consolidation Agreement.
8.2 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. No waiver by any party of any condition or
of the breach of any term, covenant, representation or warranty contained in
this Agreement or the Consolidation Agreement, 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 Agreement or the Consolidation Agreement.
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ARTICLE IX
CERTAIN DEFINITIONS
9.1 Certain Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
"Acquisition Transaction" shall mean a transaction between MSB
and any Person other than IBC or any Affiliate of IBC involving (A) the
sale or other disposition of more than 20% of the shares of the capital
stock or any other class of voting securities of MSB, including, but
not limited to, a Tender Offer, (B) the sale or other disposition of
15% or more of the consolidated assets or deposits of MSB, or (c) a
merger or consolidation involving MSB other than a transaction pursuant
to which MSB will be the surviving corporation and the current
shareholders of MSB will be the owners of a majority of the stock of
the surviving corporation following the transaction.
"Affiliate" of a person shall mean (i) any other person
directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such person;
(ii) any officer, director, partner, employer, or direct or indirect
beneficial owner of any 10% or greater equity or voting interest of
such person, or (iii) any other person for which a person described in
clause (ii) acts in any such capacity.
"GAAP" shall mean generally accepted accounting principles.
"IBC Companies" shall mean, collectively, IBC and all IBC
Subsidiaries.
"Litigation" shall mean any action, arbitration, cause of
action, claim, complaint, criminal prosecution, governmental or other
examination or investigation, hearing, inquiry, administrative or other
proceeding, by any Person alleging potential liability, but shall not
include regular, periodic examinations of depository institutions by
Regulatory Authorities.
"Material Adverse Effect" shall mean, with respect to IBC or
MSB, as the case may be, a material adverse effect (i) on the business,
assets, properties, results of operations, financial condition, or
(insofar as they can reasonably be foreseen) prospects of such party
and its Subsidiaries, taken as a whole, or (ii) on the consummation of
the Consolidation.
"MSB Companies" shall mean, collectively, MSB and all MSB
Subsidiaries.
"MSB Stock Options" shall mean all outstanding stock options
granted by MSB to its employees, directors or other Persons.
"Pending Litigation" shall mean that lawsuit filed on behalf
of 14 plaintiffs, in 1995, against MSB and four of its present and
former officers relating to shares of MSB Common Stock allegedly
acquired by plaintiffs in 1992, 1993, and 1994.
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"Person" shall mean a natural person or any legal, commercial
or governmental entity, such as, but not limited to, a corporation,
general partnership, joint venture, limited partnership, limited
liability company, trust, business association, group acting in
concert, or any person acting in a representative capacity.
"Proxy Statement/Prospectus" shall mean the proxy statement
used by MSB or IBC respectively to solicit the approval of its
shareholders of the transactions contemplated by this Agreement and the
Consolidation Agreement which, in the case of MSB, shall include the
prospectus of IBC relating to the issuance of shares of IBC Common
Stock to holders of shares of MSB Common Stock.
"Registration Statement" shall mean the Registration Statement
on Form S-4, or other appropriate form, including any pre-effective or
post-effective amendments or supplements thereto, filed with the SEC by
IBC under the 1933 Act with respect to the shares of IBC Common Stock
to be issued to the shareholders of MSB in the Consolidation.
"Regulatory Authorities" shall mean, collectively, the United
States Department of Justice, the Board of the Governors of the Federal
Reserve System, the FDIC, the Office of Thrift Supervision, and the
Michigan Financial Institutions Bureau.
"Rights" shall mean all arrangements, calls, commitments,
contracts, options, rights to subscribe to, scrip, understandings,
warrants, or other binding obligations of any character whatsoever
relating to, or securities or rights convertible into or exchangeable
for, shares of the capital stock of a Person or by which a Person is or
may be bound to issue additional shares of its capital stock or other
Rights.
"SEC" shall mean the United States Securities and Exchange
Commission.
"Subsidiaries" of a Party shall mean all those corporations,
banks, associations, or other entities of which the Party owns or
controls 50% or more of the outstanding equity securities either
directly or through an unbroken chain of entities as to each of which
50% or more of the outstanding equity securities is owned directly or
indirectly by its parent; provided, there shall not be included any
such entity acquired through foreclosure or any such entity the equity
securities of which are owned or controlled in a fiduciary capacity.
"Tax" or "Taxes" shall mean any federal, state, county, local,
or foreign income, profits, franchise, gross receipts, payroll, sales,
employment, use, property, withholding, excise, occupancy, and other
taxes, assessments, charges, fares, or impositions, including interest,
penalties, and additions imposed thereon or with respect thereto.
"Tender Offer" shall mean a tender or exchange offer made by
any person other than IBC or an Affiliate of IBC to acquire equity
securities of MSB if, upon completion of the transactions proposed in
such offer, such person would own or have the right to acquire
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beneficial ownership of more than 20 percent of the capital stock or
other class of voting securities of MSB.
ARTICLE X
GENERAL
10.1 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed, registered or certified mail, postage prepaid, to the
persons at the addresses set forth below and shall be deemed to have been
delivered as of the date so delivered:
(a) If to MSB:
Robert N. Shuster
Chief Executive Officer
Mutual Savings Bank, f.s.b.
623 Washington Avenue
Bay City, Michigan 48708
Telephone: (517) 892-0731
Fax: (517) 892-8892
with a copy to:
Christopher J. Zinski, Esq.
Schiff Hardin & Waite
6600 Sears Tower
Chicago, Illinois 60606
Telephone: (312) 258-5548
Fax: (312) 258-5600
(b) If to IBC:
William R. Kohls
Chief Financial Officer
Independent Bank Corporation
230 West Main Street
Ionia, Michigan 48846
Telephone: (616) 527-2400 Ext. 1257
Fax: (616) 527-5834
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with a copy to:
Michael G. Wooldridge, Esquire
Varnum, Riddering, Schmidt & HowlettLLP
Bridgewater Place
P.O. Box 352
Grand Rapids, Michigan 49501-0352
Telephone: (616) 336-6000
Fax: (616) 336-7000
or to such other address as the parties hereto may designate in writing as
aforesaid.
10.2 Governing Law. This Agreement shall be construed and interpreted
according to the laws of Michigan, without regard to any applicable conflict of
laws, except to the extent that the laws, rules and regulations of the United
States govern certain aspects of the Consolidation as it relates to MSB.
10.3 Benefit and Binding Effect. This Agreement, the Consolidation
Agreement, the Warrant Purchase Agreement and the Warrant shall be binding upon
and inure to the benefit of the parties named herein and their respective
successors and assigns, provided that neither this Agreement, the Consolidation
Agreement nor any of the parties' rights, interests or obligations hereunder
shall be assigned by any of the parties without the prior written consent of the
other party hereto.
10.4 Entire Agreement. This Agreement, the Consolidation Agreement and
the Warrant Purchase Agreement to be entered into pursuant to this Agreement,
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 understandings related to the subject matter hereof.
10.5 Counterparts. This Agreement 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.
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10.6 Reliance on Headings, Etc. The cover page, table of contents,
article headings and section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement and Plan of Reorganization to be duly executed as of the 24th day of
March, 1999.
MUTUAL SAVINGS BANK, F.S.B.
("MSB")
ATTEST: /s/ Gary W. Wilds By /s/ Robert N. Shuster
-------------------------- ------------------------------------
Robert N. Shuster,
Chief Executive Officer
INDEPENDENT BANK CORPORATION
("IBC")
ATTEST: /s/ Charles E. McCuistion By /s/ Charles C. Van Loan
--------------------------- -------------------------------------
Charles C. Van Loan, President and
Chief Executive Officer
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EXHIBIT A
CONSOLIDATION AGREEMENT
This Consolidation Agreement, dated as of , 1999, is entered into by
and between MUTUAL SAVINGS BANK, F.S.B., a federally chartered stock savings
bank ("MSB") and _______________ BANK, a Michigan banking corporation ("New
Bank"), and is joined in by INDEPENDENT BANK CORPORATION, a Michigan corporation
("IBC").
RECITALS
MSB is a federally chartered stock savings bank with its principal
office in Bay City, Michigan, with authorized capital of 20,000,000 shares of
common stock, par value $0.01 per share, of which [4,290,414] shares are issued
and outstanding as of ______________, 1999. An additional __________ shares of
MSB Common Stock are subject to outstanding stock options previously granted
(collectively, the "MSB Stock Options").
New Bank is a Michigan banking corporation, organized under the
provisions of Section 130 of the Michigan Banking Code of 1969, as amended (the
"Banking Code"), for the sole purpose of effecting the Consolidation, with
authorized capital of $100, consisting of one (1) share of common stock, par
value $100.00 per share, which share is, or will at the time of the
Consolidation be, issued and outstanding and owned beneficially by IBC.
This Consolidation Agreement has been executed and delivered pursuant
to an Agreement and Plan of Reorganization, dated , 1999, between MSB and IBC
(the "Agreement") and fulfills all the requirements of Section 1.2 of the
Agreement.
A majority of the entire Board of Directors of MSB and New Bank have,
respectively, approved, made and executed this Consolidation Agreement and
authorized its execution by MSB and New Bank, and a majority of the entire Board
of Directors of IBC has approved this Consolidation Agreement and the
undertakings of IBC herein set forth, and has authorized IBC, by execution
hereof, to join in and be bound hereby.
At the time the Consolidation becomes effective, and as and when
required by the provisions of this Consolidation Agreement, IBC will issue its
IBC Common Stock as defined in the Agreement, and tender cash payments in lieu
of fractional shares, to the shareholders of MSB in accordance with the terms of
this Consolidation Agreement.
NOW, THEREFORE, the parties agree as follows:
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ARTICLE 1
THE CONSOLIDATION
Subject to the terms and conditions hereof, and the terms contained in
the Agreement, at the "Effective Time" (as such term is defined in Article 2
hereof), MSB and New Bank shall be consolidated into a single bank under the
charter of New Bank, in accordance with Chapter 130 of the Banking Code and
Section 5(d) of the Home Owners' Loan Act and 12 C.F.R. ss. 552.13 and ss.
563.22. The consolidated organization is hereinafter referred to as the
"Consolidated Bank."
ARTICLE 2
EFFECTIVE TIME
The Consolidation shall be effective at 11:59 p.m., local Michigan time
(the "Effective Time") on the date which shall be the latest of (i) the day on
which a Certificate of Consolidation with respect to the Consolidation has been
filed with the Financial Institutions Bureau, in accordance with the
requirements of the laws of the State of Michigan, (ii) the day on which a
Certificate of Consolidation with respect to the Consolidation has been filed
with the Office of Thrift Supervision, in accordance with the laws of the United
States, or (iii) such later date as may be specified in such Certificate of
Consolidation. Unless the parties shall hereafter agree otherwise in writing,
the Effective Time shall be on the Closing Date, as such term is defined in the
Agreement.
ARTICLE 3
EFFECT OF THE CONSOLIDATION
3.1 Name. The name of the Consolidated Bank shall be "New MSB Bank" or
such other name as the Board of Directors and shareholder of the Consolidated
Bank shall determine.
3.2 Charter. The charter of the Consolidated Bank shall be the charter
of New Bank, with such changes and amendments as may be made by this
Consolidation Agreement or as may be required in order to conform such charter
with the provisions of the Agreement or this Consolidation Agreement.
3.3 Bylaws. The Bylaws of the Consolidated Bank shall be the Bylaws of
New Bank in effect immediately prior to the Effective Time.
3.4. Effect of Consolidation. At the Effective Time, the corporate
existence of MSB and New Bank shall be merged into and continue in the
Consolidated Bank, which shall be deemed to be the same corporation as each of
the consolidating banks, possessing all the rights, interests, privileges,
powers and franchises and being subject to all the restrictions, disabilities,
obligations, liabilities and duties of each of the consolidating banks. All
rights, interests, privileges and franchises of each of the consolidating banks
and all property, real, personal and mixed, and all debts and obligations owing
by or due to either of the consolidating banks on whatever account,
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shall be transferred to, become the obligation of and be vested in the
Consolidated Bank without any deed or other transfer and without any order or
other action on the part of any court or otherwise. All property, rights,
privileges, powers, franchises and interests and each and every other interest
shall be thereafter as effectually the property of the Consolidated Bank as they
were of each of the consolidating banks. The title to any real estate, whether
by deed or otherwise, vested in either MSB or New Bank, shall not revert or be
in any way impaired by reason of the Consolidation. The Consolidated Bank, by
virtue of the Consolidation, and without any order or other action on the part
of any court or otherwise, shall hold and enjoy the same and all rights of
property, franchises and interests, including appointments, designations and
nominations and all other rights and interests as trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates, assignee,
receiver, guardian of mentally incompetent persons and in every other fiduciary
capacity, in the same manner and to the same extent as such rights, franchises
and interests were held or enjoyed by each consolidating bank at the Effective
Time.
3.5. Principal Office and Branches. The principal office of the
Consolidated Bank shall be the principal banking office occupied by MSB in Bay
City, Michigan, as of the date of this Consolidation Agreement, and the branches
of the Consolidated Bank shall be all of the branches of MSB in operation at the
Effective Time and such other branches as may be duly authorized and established
from time to time.
3.6 Capital. The authorized capital of the Consolidated Bank shall be
$__________, consisting of ________ shares of common stock, par value $100.00
per share.
3.7 Directors and Officers. The Board of Directors and the officers of
the Consolidated Bank shall be the same persons, holding the same offices, as
the directors and officers of MSB immediately prior to the Effective Time,
provided that the following persons shall be additional directors of the
Consolidated Bank: .
ARTICLE 4
CONVERSION OF SHARES
4.1 Conversion of Shares. The manner of converting the shares of MSB
and New Bank shall be as follows:
(a) Shares of New Bank. At the Effective Time, each share of
New Bank, par value $100.00 per share, issued and outstanding shall
remain outstanding as a share of the Consolidated Bank, and the capital
of New Bank shall become capital of the Consolidated Bank.
(b) Conversion of MSB Common Stock. At the Effective Time,
subject to Article 5 hereof, by virtue of the Consolidation and without
any action on the part of MSB, or the holder of any security of MSB,
each share of common stock of MSB, par value $0.01 per share, issued
and outstanding immediately prior to the Effective Time, other
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than shares canceled pursuant to Section 4.1(e) hereof, shall be
converted into the right to receive 0.8 fully paid and nonassessable
shares (the "Conversion Ratio"), of IBC common stock, $1.00 par value
per share (the "IBC Common Stock"), subject to adjustment as provided
in this Section 4.1. If the sum of the number of shares of MSB Common
Stock outstanding at the Effective Time plus the number of shares of
MSB Common Stock that are subject to outstanding MSB Stock Options as
of the Effective Time differs from 4,598,780 shares, the Conversion
Ratio shall be automatically adjusted by multiplying the original
Conversion Ratio by the quotient obtained by dividing 4,598,780 by the
sum of the number of shares of MSB Common Stock issued and outstanding
at the Effective Time plus the number of shares subject to the
outstanding MSB Stock Options at the Effective Time; provided, however,
that, in performing any such adjustment, the Conversion Ratio shall be
rounded to the nearest hundredth of a share of IBC Common Stock.
(c) No Fractional Shares. No fractional shares of IBC Common
Stock shall be issued. Each holder of MSB Common Stock who would
otherwise be entitled to receive a fractional part of a share of IBC
Common Stock pursuant to Section 4.1(b) shall instead be entitled to
receive cash in an amount equal to the product resulting from
multiplying such fraction by the average closing sale price of IBC
Common Stock as reported on the Nasdaq Stock Market on the five trading
days immediately preceding the Effective Time.
(d) Recapitalization. In the event that either IBC or MSB
changes (or establishes a record date for changing) the number of
shares of IBC Common Stock or shares of MSB Common Stock issued and
outstanding as a result of a stock dividend, stock split,
recapitalization, reclassification, combination, or similar transaction
with respect to the outstanding shares of IBC Common Stock or MSB
Common Stock, and the record date therefor shall be after the date of
this Agreement and prior to the Effective Time, then the Conversion
Ratio shall be appropriately and proportionately adjusted.
(e) Certain Owned Shares of MSB Common Stock. Any and all
shares of MSB Common Stock owned by MSB, IBC, or any direct or indirect
majority-owned Subsidiary of either of them, in each case other than in
a fiduciary capacity that are beneficially owned by third parties or as
a result of debts previously contracted, shall be canceled and retired
at the Effective Time and no consideration shall be issued in exchange
therefor.
(f) MSB Termination Right; IBC Adjustment Right. The Board of
Directors of MSB may terminate this Consolidation Agreement upon
written notice to IBC (the "Termination Notice"), at any time during
the Determination Period (as defined below), if both of the following
conditions are satisfied:
(i) the Average Closing Price shall be less than
the product of 0.85 and the Starting Price; and
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(ii) (A) the quotient obtained by dividing the
Average Closing Price by the Starting Price (such number being
referred to herein as the "IBC Ratio") shall be
less than (B) the quotient obtained by dividing the Average
Index Price by the Index Price on the Starting Date and
subtracting 0.15 from the quotient in this clause (ii)(B)
(such number being referred to herein as the "Index Ratio");
subject, however, to the following provisions. During the five (5) day
period commencing with IBC's receipt of MSB's Termination Notice, IBC
shall have the option to elect to increase the Conversion Ratio to
equal the lesser of (i) the quotient obtained by dividing (A) the
product of 0.85, the Starting Price and the Conversion Ratio by (B) the
Average Closing Price, or (ii) the quotient obtained by dividing (A)
the product of the Index Ratio and the Conversion Ratio by (B) the IBC
Ratio. If IBC makes such an election within such five (5) day period,
it shall give prompt written notice to MSB of such election and the
revised Conversion Ratio, whereupon no termination shall have occurred
pursuant to this Section 4.1(f) and this Consolidation Agreement shall
remain in effect in accordance with its terms (except as the Conversion
Ratio shall have been so modified), and any references in this
Consolidation Agreement to "Conversion Ratio" shall thereafter be
deemed to refer to the Conversion Ratio as adjusted pursuant to this
Section 4.1(f).
For purposes of this Section 4.1(f), the following terms shall
have the meanings indicated:
"Average Closing Price" means the average of the daily last
sale prices of IBC Common Stock as reported on the Nasdaq Stock Market
("Nasdaq") (as reported in The Wall Street Journal or, if not reported
therein, in another mutually agreed upon authoritative source) for the
fifteen (15) consecutive full trading days in which such shares are
traded on the Nasdaq ending at the close of trading on the first day of
the Determination Period.
"Average Index Price" means the average of the Index Prices
for the fifteen (15) consecutive full Nasdaq trading days ending at the
close of trading on the first day of the Determination Period.
"Determination Period" means the fifteen (15) day period
commencing two (2) days after the date on which the last Requisite
Regulatory Approval required for consummation of the Consolidation
shall be received.
"Index Group" means the Nasdaq Bank Stock Index.
"Index Price" on a given date means the average of the closing
prices on such date of the companies comprising the Index Group.
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"Starting Date" means the last full day on which the Nasdaq
was open for trading prior to the execution of this Agreement.
"Starting Price" shall mean the last sale price per share of
IBC Common Stock on the Starting Date, as reported by the Nasdaq (as
reported in The Wall Street Journal or, if not reported therein, in
another mutually agreed upon authoritative source).
4.2 IBC Common Stock. All shares of IBC Common Stock that are issued
and outstanding immediately prior to the Effective Time shall continue to be
issued and outstanding shares of IBC Common Stock at and after the Effective
Time.
ARTICLE 5
EXCHANGE OF STOCK CERTIFICATES
(a) At or prior to the Effective Time, IBC shall deposit, or shall
cause to be deposited, with State Street Bank & Trust (the "Exchange
Agent"), for the benefit of the holders of MSB Common Stock
Certificates, for exchange in accordance with this Article 5, IBC
Common Stock Certificates and cash in lieu of fractional shares of IBC
Common Stock (such cash and IBC Common Stock Certificates, together
with any dividends and distributions with respect thereto paid after
the Effective Time, being hereinafter referred to as the "Conversion
Fund") to be issued pursuant to Section 4.1(b) and (c) and paid
pursuant to Article 5, Subsection (b), in exchange for outstanding
shares of MSB Common Stock.
(b) As promptly as practicable after the Effective Time but not
later than five (5) business days after the Effective Time, IBC shall
cause the Exchange Agent to mail to each holder of record on the
Effective Time of any shares of MSB Common Stock a letter of
transmittal (in a form approved by IBC) containing instructions for the
surrender of all certificates for shares of IBC Common Stock and any
cash in lieu of fractional shares into which the shares of MSB
represented by such MSB Common Stock Certificates shall have been
converted pursuant to this Consolidation Agreement. Upon the proper
surrender by such holder of a certificate or certificates for shares of
MSB Common Stock standing in such holder's name to the Exchange Agent
in accordance with the instructions set forth in the letter of
transmittal, such holder shall be entitled to receive in exchange
therefor a certificate representing the number of whole shares of IBC
Common Stock into which the shares represented by the certificate or
certificates so surrendered shall have been converted and, if
applicable, a check payable to such holder in the amount necessary to
pay for any fractional shares of IBC Common Stock which such holder
would otherwise have been entitled to receive, in accordance with
subsection 4.1(c) hereof, and the MSB Common Stock Certificate so
surrendered shall forthwith be canceled. No interest shall be payable
with respect to either the whole shares of IBC Common Stock or the cash
payable in lieu of fractional shares. Immediately after the third
anniversary of the Effective Time, the Exchange Agent shall deliver to
IBC any unclaimed balance of cash owing with respect to
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fractional shares and such cash shall be retained by, and become the
property of IBC, free and clear of any claims whatsoever.
(c) Neither IBC nor the Exchange Agent shall be obligated to
deliver a certificate for IBC Common Stock or a check for cash in lieu
of fractional shares to a former shareholder of MSB until such former
shareholder surrenders the certificate or certificates representing
shares of MSB Common Stock standing in such former shareholder's name
or, if such former shareholder is unable to locate such certificate or
certificates, an appropriate affidavit of loss and indemnity agreement
and bond as may be required by IBC. Until so surrendered, each
outstanding certificate for shares of MSB Common Stock shall be deemed
for all corporate purposes (except the payment of dividends) to
evidence ownership of the number of whole shares of IBC Common Stock
into which the shares of MSB Common Stock represented thereby shall
have been converted.
(d) After the Effective Time, no dividends or distributions payable
to holders of record of IBC Common Stock shall be paid to any holder of
an outstanding certificate or certificates formerly representing shares
of MSB Common Stock until such certificate(s) are surrendered by such
holder in accordance with the terms of this Consolidation Agreement.
Promptly upon surrender of such outstanding certificate(s), there shall
be paid to such holder of the certificate or certificates for IBC
Common Stock issued in exchange therefor the amount of dividends and
other distributions, if any, which theretofore became payable with
respect to such full shares of IBC Common Stock, but which have not
theretofore been paid on such stock. No interest shall be payable with
respect to the payment of any dividends or other distributions. All
such dividends or other distributions unclaimed at the end of three
years from the Effective Time shall, to the extent such dividends have
been previously paid to the Exchange Agent, be repaid by the Exchange
Agent to IBC, and thereafter the holders of such outstanding
certificates for MSB Common Stock shall look, subject to applicable
escheat, unclaimed funds, and other laws, only to IBC as general
creditors for payment thereof.
(e) The stock transfer books of MSB shall be closed as of the close
of business on the business day immediately preceding the date of the
Effective Time. After such date, there shall be no further registration
on the records of MSB of transfers of outstanding certificates formerly
representing shares of MSB Common Stock.
ARTICLE 6
SHAREHOLDER APPROVAL
This Consolidation Agreement shall be submitted to the shareholders of
each of MSB, New Bank and IBC at separate meetings of such shareholders, each
duly called and held in accordance with the provisions of the Banking Code, the
Michigan Business Corporation Act, the laws of the United States, and other
applicable statutes, as the case may be. In order for the Consolidation to be
effective, this Consolidation Agreement and the Agreement must be adopted by the
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affirmative vote of the holders of not less than two thirds (2/3) of the issued
and outstanding common shares of MSB, not less than two thirds (2/3) of the
issued and outstanding common shares of New Bank, and not less than a majority
of the votes cast at the IBC shareholders' meeting to approve the Consolidation.
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 No Dissenters' Rights. Pursuant to 12 CFR ss. 552.14, holders of
MSB Common Stock shall not have dissenters' appraisal rights in the
Consolidation due to the fact that the shares of IBC Common Stock will be quoted
on the Nasdaq Stock Market.
7.2 Defined Terms. All capitalized terms not otherwise defined in this
Consolidation Agreement shall have the meanings ascribed to them in the
Agreement.
7.3 Termination. Notwithstanding anything herein to the contrary, in
the event the Agreement shall have been terminated pursuant to Article VI
thereof, this Consolidation Agreement shall automatically terminate.
7.4 Governing Law. This Consolidation Agreement shall be construed and
interpreted according to the laws of Michigan, without regard to any applicable
conflict of laws, except to the extent that the laws, rules and regulations of
the United States govern certain aspects of the Consolidation as it relates to
MSB.
7.5 Counterparts. This Consolidation Agreement 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.
7.6 Amendment. MSB and IBC, by mutual consent of a majority of their
respective Boards of Directors, may amend, modify or supplement this
Consolidation Agreement in whole or in part, and in such manner as may be agreed
upon by them in writing, provided that any such amendment, modification, or
supplement subsequent to the adoption of this Consolidation Agreement by MSB's
or IBC's shareholders may be effected only if the Board of Directors of MSB and
IBC determine that such amendment, modification, or supplement does not and will
not have
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a material adverse effect on the shareholders of the Party whose shareholders
have previously approved this Consolidation Agreement.
IN WITNESS WHEREOF, MSB and New Bank have caused this Consolidation
Agreement to be executed by their duly authorized officers and their corporate
seals to be hereunto affixed as of the date first written above, and directors
constituting a majority of the Board of Directors of each such bank have
hereunto subscribed their names.
MUTUAL SAVINGS BANK, F.S.B.
ATTEST: ____________________________ BY:_________________________________
ROBERT N. SHUSTER
CHIEF EXECUTIVE OFFICER
A MAJORITY OF THE DIRECTORS OF
MUTUAL SAVINGS BANK, F.S.B.
____________________________________ _________________________________
____________________________________ _________________________________
____________________________________ _________________________________
NEW MSB BANK
ATTEST: ____________________________ BY:_________________________________
CHARLES C. VAN LOAN, PRESIDENT
A MAJORITY OF DIRECTORS OF
NEW MSB BANK
____________________________________ _________________________________
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____________________________________ _________________________________
____________________________________ _________________________________
____________________________________ _________________________________
INDEPENDENT BANK CORPORATION hereby joins in the foregoing
Consolidation Agreement and undertakes that it will be bound thereby and that it
will do and perform all acts and things therein referred to or provided to be
done by it.
IN WITNESS WHEREOF, Independent Bank Corporation has caused this
undertaking to be executed by its duly authorized officer as of the date first
above written.
INDEPENDENT BANK CORPORATION
ATTEST: BY:____________________________________
CHARLES C. VAN LOAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
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EXHIBIT B
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT (this "Warrant Purchase Agreement") is
made as of March 24, 1999, between INDEPENDENT BANK CORPORATION, a Michigan
corporation ("IBC"), and MUTUAL SAVINGS BANK, f.s.b., a federally chartered
stock savings bank ("MSB").
RECITALS:
A. Concurrently herewith, IBC and MSB have entered into a certain
Agreement and Plan of Reorganization, dated as of the date hereof (the
"Agreement"), which provides for the consolidation of MSB into a wholly owned
subsidiary of IBC (the "Consolidation") pursuant to a Consolidation Agreement
containing certain additional terms and conditions relating to the Consolidation
(the "Consolidation Agreement"). (The Agreement and the Consolidation Agreement
are sometimes hereinafter collectively referred to as the "Merger Documents.")
All capitalized terms used herein and not otherwise defined herein shall have
the meanings ascribed to them in the Merger Documents.
B. As a condition to IBC's entering into the Agreement, and in
consideration therefor, MSB has agreed to issue to IBC a warrant or warrants
entitling IBC to purchase up to a total of 853,792 shares of MSB Common Stock,
on the terms and conditions set forth herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
SECTION 1. ISSUANCE, DELIVERY, AND EXERCISE OF THE WARRANT.
Concurrently with the execution of the Agreement and this Warrant Purchase
Agreement, MSB shall execute a warrant in favor of IBC in the form attached as
Attachment A hereto (the "Warrant") to purchase up to a total of 853,792 shares
of MSB Common Stock at a purchase price equal to $9.8125 per share (the
"Exercise Price"), subject to adjustments as provided in the Warrant. (The
holder of the Warrant from time to time is hereinafter referred to as the
"Holder.") The Warrant shall be exercisable in accordance with the terms and
conditions set forth therein.
SECTION 2. REGISTRATION RIGHTS. If, at any time after the Warrant
becomes exercisable in accordance with its terms, MSB shall receive a written
request therefor from the Holder, MSB shall prepare and file a registration
statement under the Securities Act of 1933, as amended, or under the applicable
federal laws and Office of Thrift Supervision regulations (the "Applicable
Securities Laws") covering such number of shares of MSB Common Stock as the
Holder shall specify in the request and shall use its best efforts to cause such
registration statement to become effective; provided, however, that the Holder
shall only have the right to request one such registration. Without the written
consent of the Holder, neither MSB nor any other holder of securities of MSB may
include any other securities in such registration.
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SECTION 3. "PIGGYBACK" RIGHTS. If, at any time after the Warrant
becomes exercisable in accordance with its terms, MSB shall determine to proceed
with the preparation and filing of a registration statement under the Applicable
Securities Laws in connection with the proposed offer and sale for money of any
of its securities (other than in connection with a dividend reinvestment,
employee stock purchase, stock option, or similar plan or a registration
statement on Form S-4) by it or any of its security holders, MSB shall give
written notice thereof to the Holder. Upon the written request of the Holder
given within ten days after receipt of any such notice from MSB, MSB shall,
except as herein provided, cause all shares of MSB Common Stock which the Holder
shall request be included in such registration statement to be so included;
provided, however, that nothing herein shall prevent MSB from abandoning or
delaying any registration at any time; and provided, further, that if MSB
decides not to proceed with a registration after the registration statement has
been filed with the United States Securities and Exchange Commission or the
Office of Thrift Supervision, as required by applicable law (the "Securities
Regulator") and MSB's decision not to proceed is primarily based upon the
anticipated public offering price of the securities to be sold by MSB, MSB shall
promptly complete the registration for the benefit of the Holder if the Holder
agrees to bear all additional and incremental expenses incurred by MSB as the
result of such registration after MSB has decided not to proceed. If any
registration pursuant to this Section shall be underwritten in whole or in part,
the Holder may require that any shares of MSB Common Stock requested for
inclusion pursuant to this Section be included in the underwriting on the same
terms and conditions as the securities otherwise being sold through the
underwriters. In the event that the shares of MSB Common Stock requested for
inclusion pursuant to this Section would constitute more than 25 percent of the
total number of shares to be included in a proposed underwritten public
offering, and if in the good faith judgment of the managing underwriter of such
public offering the inclusion of all of such shares would interfere with the
successful marketing of the shares being offered by MSB, the number of shares
otherwise to be included in the underwritten public offering hereunder may be
reduced; provided, however, that after any such required reduction, the shares
of MSB Common Stock to be included in such offering for the account of the
Holder shall constitute at least 25 percent of the total number of shares to be
included in such offering.
SECTION 4. OBLIGATIONS OF MSB IN CONNECTION WITH A REGISTRATION. If
and whenever MSB is required by the provisions of Sections 2 or 3 hereof to
effect the registration of any shares of MSB Common Stock under the Applicable
Securities Laws, MSB shall:
(a) prepare and file with the Securities Regulator a
registration statement with respect to such securities and use its best
efforts to cause such registration statement to become and remain
effective for such period as may be reasonably necessary to effect the
sale of such securities, not to exceed nine months;
(b) prepare and file with the Securities Regulator such
amendments to such registration statement and supplements to the
prospectus contained therein as may be necessary to keep such
registration statement effective for such period as may be reasonably
necessary to effect the sale of such securities, not to exceed nine
months;
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(c) furnish to the Holder and to the underwriters of the
securities being registered such reasonable number of copies of the
registration statement, amendments thereto, preliminary prospectus,
final prospectus, and such other documents as the Holder or such
underwriters may reasonably request in order to facilitate the public
offering of such securities;
(d) use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as the Holder or such underwriters
may reasonably request; provided that MSB shall not be required by
virtue hereof to submit to the general jurisdiction of any state;
(e) notify the Holder, promptly after MSB shall receive notice
thereof, of the time when such registration statement or any
post-effective amendment thereof has become effective or a supplement
to any prospectus forming a part of such registration statement has
been filed;
(f) notify the Holder promptly of any request by the
Securities Regulator for the amending or supplementing of such
registration statement or prospectus or for additional information;
(g) prepare and file with the Securities Regulator, promptly
upon the request of the Holder, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel
for the Holder (and concurred in by counsel for MSB), is required under
the Applicable Securities Laws or the rules and regulations promulgated
thereunder in connection with the distribution of the shares of MSB
Common Stock by the Holder;
(h) prepare and promptly file with the Securities Regulator
such amendment or supplement to such registration statement or
prospectus as may be necessary to correct any statements or omissions
if, at the time when a prospectus is required to be delivered under the
Applicable Securities Laws, any event shall have occurred as the result
of which such prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;
(i) advise the Holder, promptly after it shall receive notice
or obtain knowledge thereof, of the issuance of any stop order by the
Securities Regulator suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for that
purpose and promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such stop order should be
issued; and
(j) at the request of the Holder, furnish on the date or dates
provided for in the underwriting agreement: (i) an opinion or opinions
of the counsel representing MSB for the purposes of such registration,
addressed to the underwriters and to the Holder, covering such
matters as such underwriters and the Holder may reasonably request and
as are customarily
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covered by issuer's counsel at that time; and (ii) a letter or letters
from the independent certified public accountants of MSB, addressed to
the underwriters and to the Holder, covering such matters as such
underwriters or the Holder may reasonably request, in which letters
such accountants shall state (without limiting the generality of the
foregoing) that they are independent certified public accountants
within the meaning of the Applicable Securities Laws and that, in the
opinion of such accountants, the financial statements and other
financial data of MSB included in the registration statement or any
amendment or supplement thereto comply in all material respects with
the applicable accounting requirements of the Applicable Securities
Laws.
SECTION 5. EXPENSES OF REGISTRATION. With respect to a registration
requested pursuant to Section 2 hereof and with respect to each inclusion of
shares of MSB Common Stock in a registration statement pursuant to Section 3
hereof, MSB shall bear the following fees, costs, and expenses: all
registration, stock exchange listing, and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for MSB, fees and disbursements of
counsel for the underwriter or underwriters of such securities (if MSB and/or
the Holder are required to bear such fees and disbursements), and all legal fees
and disbursements and other expenses of complying with state securities or blue
sky laws of any jurisdictions in which the securities to be offered are to be
registered or qualified. Fees and disbursements of counsel and accountants for
the Holder, underwriting discounts and commissions and transfer taxes relating
to the MSB Common Stock being sold for the Holder, and any other expenses
incurred by the Holder not expressly included above shall be borne by the
Holder.
SECTION 6. INDEMNIFICATION.
(a) MSB shall indemnify and hold harmless the Holder, any
underwriter (as defined in the Applicable Securities Laws) for the
Holder, and each person, if any, who controls the Holder or such
underwriter within the meaning of the Applicable Securities Laws, from
and against any and all loss, damage, liability, cost, and expense to
which the Holder or any such underwriter or controlling person may
become subject under the Applicable Securities Laws or otherwise,
insofar as such losses, damages, liabilities, costs, or expenses are
caused by any untrue statement or alleged untrue statement of any
material fact contained in any registration statement filed pursuant to
Section 4 hereof, any prospectus or preliminary prospectus contained
therein, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they are made, not
misleading; provided, however, that MSB will not be liable in any such
case to the extent that any such loss, damage, liability, cost, or
expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity
with information furnished by the Holder, such underwriter, or such
controlling persons in writing specifically for use in the preparation
thereof.
(b) Promptly after receipt by an indemnified party pursuant to
the provisions of paragraph (a) of this Section 6 of notice of the
commencement of any action involving the
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subject matter of the foregoing indemnity provisions, such indemnified
party shall, if a claim thereof is to be made against MSB pursuant to
the provision of such paragraph (a), promptly notify MSB of the
commencement thereof; but the omission to so notify MSB will not
relieve it from any liability which it may have to any indemnified
party otherwise hereunder. In case such action is brought against any
indemnified party and such indemnified party notifies MSB of the
commencement thereof, MSB shall have the right to participate in and,
to the extent that it may wish to do so, to assume the defense thereof,
with counsel satisfactory to such indemnified party; provided, however,
if the defendants in any action include both the indemnified party and
MSB and there is a conflict of interest which would prevent counsel for
MSB from also representing the indemnified party, the indemnified party
or parties shall have the right to select one separate counsel to
participate in the defense of such action on behalf of such indemnified
party or parties. After notice from MSB to such indemnified party of
its election so to assume the defense of any such action, the
indemnified party shall have the right to participate in such action
and to retain its own counsel, but MSB shall not be required to
indemnify and hold harmless the indemnified party pursuant to the
provisions of such paragraph (a) for any legal fees or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation, unless
(i) the indemnified party shall have employed separate counsel in
accordance with the provisions of the preceding sentence of this
paragraph (b), (ii) MSB shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of the action, or
(iii) MSB has authorized the employment of counsel for the indemnified
party at the expense of MSB.
(c) If recovery is not available under the foregoing
indemnification provisions, for any reason other than as specified
therein, the parties entitled to indemnification by the terms thereof
shall be entitled to contribution to liabilities and expenses, except
to the extent that contribution is not permitted under Section 11(f) of
the Securities Act of 1933, as amended. In determining the amount of
contribution to which the respective parties are entitled, there shall
be considered the parties' relative knowledge and access to information
concerning the matter with respect to which the claim was asserted, the
opportunity to correct and prevent any statement or omission, and any
other equitable considerations appropriate under the circumstances.
SECTION 7. REPURCHASE RIGHTS.
(a) Immediately prior to the occurrence of a Repurchase Event
(as defined below), (i) following a request of the Holder, delivered
prior to an Exercise Termination Event, MSB (or any successor thereto)
shall repurchase the Warrant from the Holder at a price (the "Warrant
Repurchase Price") equal to the amount by which (A) the Market/Offer
Price (as defined below) exceeds (B) the Exercise Price, multiplied by
the number of shares for which the Warrant may then be exercised, and
(ii) at the request of the owner of shares of MSB Common Stock
purchased pursuant to an exercise of the Warrant ("Warrant Stock") from
time to time (the "Owner"), delivered within 90 days of such
occurrence, MSB shall repurchase such number of shares of the Warrant
Stock from the Owner as the Owner shall
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designate at a price (the "Warrant Stock Repurchase Price") equal to
the Market/Offer Price multiplied by the number of shares of Warrant
Stock so designated.
(b) For purposes of paragraph (a) of this Section 7, the
"Market/Offer Price" shall mean the highest of (i) the price per share
at which a tender offer or exchange offer for shares of MSB Common
Stock has been made, (ii) the price per share of MSB Common Stock to be
paid by any third party pursuant to an agreement with MSB, and (iii)
the highest closing price for shares of MSB Common Stock within the
4-month period immediately preceding the date the Holder gives notice
of the required repurchase of the Warrant or the Owner gives notice of
the required repurchase of Warrant Stock, as appropriate. In the event
that an exchange offer is made or an agreement is entered into for a
merger or consolidation involving consideration other than cash, the
value of the securities or other property issuable or deliverable in
exchange for MSB Common Stock shall be determined by a nationally
recognized investment banking firm mutually acceptable to the parties
hereto.
(c) The Holder and the Owner may exercise their respective
rights to require MSB to repurchase the Warrant or the Warrant Stock
pursuant to this Section 7 by surrendering for such purpose to MSB, at
its principal office, the Warrant or certificates for shares of Warrant
Stock, as the case may be, free and clear of any liens, claims,
encumbrances, or rights of third parties of any kind, accompanied by a
written notice or notices stating that the Holder or the Owner, as the
case may be, requests MSB to repurchase such Warrant or Warrant Stock
in accordance with the provisions of this Section 7. Subject to the
last proviso of Subsection 7(d) below, as promptly as practicable, and
in any event within five business days after the surrender of the
Warrant or certificates representing shares of Warrant Stock and the
receipt of such notice or notices relating thereto, MSB shall deliver
or cause to be delivered to the Holder or Owner the Warrant Repurchase
Price or the Warrant Stock Repurchase Price therefor, as applicable, or
the portion thereof which MSB is not then prohibited under applicable
law and regulation from so delivering.
(d) To the extent that MSB is prohibited under applicable law
or regulation, or as a result of administrative or judicial action,
from repurchasing the Warrant and/or the Warrant Stock in full at any
time that it may be required to do so hereunder, MSB shall immediately
so notify the Holder and/or the Owner and thereafter deliver or cause
to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Warrant Repurchase Price and the
Warrant Stock Repurchase Price, respectively, which it is no longer
prohibited from delivering, within five business days after the date on
which MSB is no longer so prohibited. Upon receipt of such notice from
MSB and for a period of 15 days thereafter, the Holder and/or Owner may
revoke its notice of repurchase of the Warrant and/or Warrant Stock by
written notice to MSB at its principal office stating that the Holder
and/or the Owner elects to revoke its election to exercise its right to
require MSB to repurchase the Warrant and/or Warrant Stock, whereupon
MSB will promptly deliver to the Holder and/or Owner the Warrant and/or
certificates representing shares of Warrant Stock surrendered to MSB
for purposes of such repurchase. Whether or not such election is
revoked, MSB hereby agrees to use its best efforts to obtain all
required legal and regulatory
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approvals necessary to permit MSB to repurchase the Warrant and/or the
Warrant Stock to the full extent and as promptly as practicable.
(e) For purposes of this Section 7, a Repurchase Event shall
be deemed to have occurred upon (i) the consummation of any merger,
consolidation or similar transaction involving MSB or any purchase,
lease or other acquisition of all or a substantial portion of the
assets of MSB, other than any such transaction which would not
constitute an Acquisition Transaction pursuant to the provisions of
Section 1(c) of the Warrant, or (ii) upon the acquisition by any person
of beneficial ownership of 50% or more of the then outstanding shares
of MSB Common Stock.
SECTION 8. ASSUMPTION OF OBLIGATIONS UNDER THIS AGREEMENT.
MSB will not enter into any transaction described in paragraph 5(a) of the
Warrant unless the "Acquiring Corporation" (as that term is defined in the
Warrant) assumes in writing all the obligations of MSB hereunder. Neither of the
parties hereto may assign any of its rights or obligations under this Agreement
or the Warrant created hereunder to any other person, without the express
written consent of the other party, except that in the event a Triggering Event
shall have occurred prior to an Exercise Termination Event, the Holder, subject
to the express provisions hereof, may assign in whole or in part its rights and
obligations hereunder within 90 days following such Triggering Event; provided,
however, that until the date 15 days following the date on which the Office of
Thrift Supervision approves an application by the Holder pursuant to applicable
laws and regulations to acquire the shares of MSB Common Stock subject to the
Warrant, IBC may not assign its rights under the Warrant except in (i) a widely
dispersed public distribution, (ii) a private placement in which no one party
acquires the right to purchase in excess of 2% of the voting shares of MSB,
(iii) an assignment to a single party (e.g., a broker or investment banker) for
the purpose of conducting a widely dispersed public distribution on the Holder's
behalf, or (iv) any other manner approved by the Office of Thrift Supervision.
SECTION 9. REMEDIES. Without limiting the foregoing or any remedies
available to the Holder, MSB specifically acknowledges that neither IBC nor any
successor holder of the Warrant would have an adequate remedy at law for any
breach of this Warrant Purchase Agreement and MSB hereby agrees that IBC and any
successor holder of the Warrant shall be entitled to specific performance of the
obligations of MSB hereunder and injunctive relief against actual or threatened
violations of the provisions hereof.
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SECTION 10. TERMINATION. This Warrant Purchase Agreement will
terminate upon a termination of the Warrant in accordance with Section 9
thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant
Purchase Agreement as of the day and year first above written.
INDEPENDENT BANK CORPORATION
By:
---------------------------------------
Charles Van Loan
Its: Chief Executive Officer
MUTUAL SAVINGS BANK, F.S.B.
By:
---------------------------------------
Robert N. Schuster
Its: Chief Executive Officer
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ATTACHMENT A TO WARRANT PURCHASE AGREEMENT
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR
QUALIFIED UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED WITHOUT BEING SO REGISTERED OR QUALIFIED UNLESS AN EXEMPTION OR
EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS ARE AVAILABLE.
WARRANT
TO PURCHASE 853,792 COMMON SHARES
OF
MUTUAL SAVINGS BANK, F.S.B.
This is to certify that, for value received, INDEPENDENT BANK
CORPORATION, a Michigan corporation ("IBC"), is entitled to purchase from MUTUAL
SAVINGS BANK, f.s.b., a federally chartered stock savings bank ("MSB"), at any
time within ninety days after the first occurrence of a Triggering Event and
prior to the occurrence of an Exercise Termination Event, an aggregate of up to
853,792 common shares, $0.01 par value per share, of MSB ("MSB Common Stock"),
at a price of $9.8125 per share (the "Exercise Price"), subject to the terms and
conditions of this Warrant and a certain Warrant Purchase Agreement, of even
date herewith, between IBC and MSB (the "Warrant Purchase Agreement"). The
number of shares of MSB Common Stock which may be received upon the exercise of
this Warrant and the Exercise Price are subject to adjustment from time to time
as hereinafter set forth. The terms and conditions set forth in this Warrant and
the Warrant Purchase Agreement shall be binding upon the respective successors
and assigns of both of the parties hereto. This Warrant is issued in connection
with a certain Agreement and Plan of Reorganization, dated as of the date
hereof, between IBC and MSB (the "Merger Agreement"), which provides for the
consolidation of MSB into a wholly owned subsidiary of IBC (the
"Consolidation"), and a certain Consolidation Agreement among IBC, its
subsidiary and MSB, which provides certain additional terms and conditions
relating to the Merger (the "Consolidation Agreement"). The Merger Agreement and
the Consolidation Agreement are sometimes hereinafter collectively referred to
as the "Merger Documents." All capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to them in the Merger Documents.
The term "Holder" shall mean and refer to IBC or any successor holder of this
Warrant.
SECTION 1. EXERCISE OF THE WARRANT.
(a) The Holder will not exercise this Warrant unless it has
obtained all required approvals, if any, of appropriate regulatory
authorities having jurisdiction, including the Office of Thrift
Supervision, pursuant to all applicable laws and regulations. Further,
subject to the terms and conditions set forth in this Warrant and in
the Warrant Purchase Agreement and the provisions of applicable law,
the Holder will not exercise this Warrant without the
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written consent of MSB except within ninety days after the occurrence
of any of the following events (a "Triggering Event") and prior to the
occurrence of an Exercise Termination Event:
(i) any material, willful, and intentional breach
of the Merger Documents by MSB that would permit IBC to
terminate the Merger Documents (A) occurring after the receipt
by MSB of a proposal to engage in an Acquisition Transaction,
(B) occurring after the announcement by any other Person of an
intention to engage in an Acquisition Transaction, or (c) in
anticipation and for the purpose of engaging in an Acquisition
Transaction;
(ii) (A) a proposal to engage in an Acquisition
Transaction is submitted to and approved by the shareholders
of MSB at any time prior to December 31, 2000, or (B) a Tender
Offer is commenced and the transactions contemplated in the
Tender Offer are completed in such a manner that the Person
making the Tender Offer acquires beneficial ownership of more
than 20 percent of the capital stock or any other class of
voting securities of MSB, and the Consolidation is not
consummated prior to December 31, 2000;
(iii) (A) a proposal to engage in an Acquisition
Transaction is received by MSB or a Tender Offer is made
directly to the shareholders of MSB or the intention of making
an Acquisition Transaction or Tender Offer is announced at any
time prior to the holding of the MSB Shareholders' Meeting;
and (B) the Board of Directors of MSB (1) fails to recommend
to the shareholders of MSB that they vote their shares of MSB
Common Stock in favor of the approval of the Consolidation,
(2) withdraws such recommendation previously made, (3) fails
to solicit proxies of shareholders of MSB to approve the
Consolidation, or (4) fails to hold the MSB Shareholders'
Meeting;
(b) Notwithstanding the foregoing, this Warrant shall not be
exercisable after the occurrence of an Exercise Termination Event which
for purposes hereof means (i) the Effective Time (as defined in the
Agreement) of the Consolidation, (ii) the failure of the shareholders
of IBC to approve the Consolidation; (iii) the failure of any
Regulatory Authority to provide any required Consent to the
Consolidation, which failure was not the result of the existence of the
Acquisition Proposal or a breach by MSB of any of its obligations under
any of the Merger Documents; or (iv) the Merger Documents are
terminated pursuant to Section 6.1 of the Merger Agreement, unless the
event giving rise to the right to terminate is a breach by MSB and is
preceded by a Triggering Event or the receipt by MSB of an Acquisition
Transaction proposal, or the announcement by another Person of a
proposal involving an Acquisition Transaction.
(c) An "Acquisition Transaction" shall mean a transaction
between MSB and any Person other than IBC or any Affiliate of IBC
involving (A) the sale or other disposition of more than 20% of the
shares of the capital stock or any other class of voting securities of
MSB, including, but not limited to, a Tender Offer, (B) the sale or
other disposition of 15%
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or more of the consolidated assets or deposits of MSB, or (c) a merger
or consolidation involving MSB other than a transaction pursuant to
which MSB will be the surviving corporation and the current
shareholders of MSB will be the owners of a majority of the stock of
the surviving corporation following the transaction. For purposes of
this Section 1, a Tender Offer which is contingent upon the expiration
of the Warrant is deemed to commence when it is announced.
(d) This Warrant shall be exercised by presentation and
surrender hereof to MSB at its principal office accompanied by (i) a
written notice of exercise for a specified number of shares of MSB
Common Stock, (ii) payment to MSB, for the account of MSB, of the
Exercise Price for the number of shares specified in such notice, and
(iii) a certificate of the Holder indicating the Triggering Event that
has occurred which entitles the Holder to exercise this Warrant. The
Exercise Price for the number of shares of MSB Common Stock specified
in the notice shall be payable in immediately available funds.
(e) Upon such presentation and surrender, MSB shall issue
promptly (and within three business days if requested by the Holder) to
the Holder, or any assignee, transferee, or designee permitted by
subparagraph (g) of this Section 1, the shares to which the Holder is
entitled hereunder and the Holder shall deliver to MSB a copy of this
Warrant and a letter agreeing that the Holder will not offer to sell or
otherwise dispose of such shares in violation of applicable law or the
provisions of this Warrant.
(f) Certificates for shares of MSB Common Stock may be
endorsed with a restrictive legend that shall read substantially as
follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy
of such agreement is on file at the principal office of Issuer
and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933
Act"), in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the Holder shall have
delivered to MSB a copy of a letter from the staff of the SEC, or an
opinion of counsel, in form and substance reasonably satisfactory to
MSB, to the effect that such legend is not required for purposes of the
1933 Act; (ii) the reference to the provisions of this Warrant in the
above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in
compliance with the provisions of this Warrant and under circumstances
that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
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(g) If this Warrant should be exercised in part only, MSB
shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the shares purchasable hereunder. Upon receipt
by MSB of this Warrant, in proper form for exercise, the Holder shall
be deemed to be the holder of record of the shares of MSB Common Stock
issuable upon such exercise, notwithstanding that the stock transfer
books of MSB shall then be closed or that certificates representing
such shares of MSB Common shall not then be actually delivered to the
Holder. MSB shall pay all expenses, and any and all federal, state, and
local taxes and other charges that may be payable in connection with
the preparation, issue, and delivery of stock certificates under this
Section 1 in the name of the Holder or of any assignee, transferee, or
designee permitted by subparagraph (g) of this Section 1.
(h) Neither of the parties hereto may assign any of its rights
or obligations under this Warrant created hereunder to any other
person, without the express written consent of the other party, except
that in the event a Triggering Event shall have occurred prior to an
Exercise Termination Event, the Holder, subject to the express
provisions hereof, may assign in whole or in part its rights and
obligations hereunder within 90 days following such Triggering Event;
provided, however, that until the date 15 days following the date on
which the Office of Thrift Supervision approves an application by the
Holder pursuant to applicable laws and regulations to acquire the
shares of MSB Common Stock subject to this Warrant, IBC may not assign
its rights under this Warrant except in (i) a widely dispersed public
distribution, (ii) a private placement in which no one party acquires
the right to purchase in excess of 2% of the voting shares of MSB,
(iii) an assignment to a single party (e.g., a broker or investment
banker) for the purpose of conducting a widely dispersed public
distribution on the Holder's behalf, or (iv) any other manner approved
by the Office of Thrift Supervision.
SECTION 2. CERTAIN COVENANTS AND REPRESENTATIONS OF MSB AND IBC.
(a) MSB shall at all times maintain sufficient authorized but
unissued shares of MSB Common Stock so that this Warrant may be
exercised without additional authorization of the holders of MSB Common
Stock, after giving effect to all other outstanding options, warrants,
convertible securities, and other rights to purchase MSB Common Stock.
(b) MSB represents and warrants to the Holder that the shares
of MSB Common Stock issued upon an exercise of this Warrant will be
duly authorized, fully paid, nonassessable, and subject to no
preemptive rights.
(c) MSB agrees (i) that it will not, by charter amendment or
through reorganization, consolidation, merger, dissolution or sale of
assets, or by any other voluntary act, avoid or seek to avoid the
observance or performance of any of the covenants, stipulations, or
conditions to be observed or performed hereunder by MSB; (ii) promptly
to take all action as may from time to time be required, (including,
without limitation (A) complying with all pre-merger notification,
reporting, and waiting period requirements
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specified in 15 U.S.C. Section 18a and regulations promulgated
thereunder, and (B) in the event, under the Bank Holding Company Act of
1956, as amended (the "Bank Holding Company Act"), or the Change in
Bank Control Act of 1978, or other statute, the prior approval of the
Office of Thrift Supervision or other regulatory agency (collectively,
the "Agencies"), is necessary before the Warrant may be exercised or
transferred, cooperate fully with the Holder in preparing such
applications and providing such information to the Agencies as the
Agencies may require) in order to permit the Holder to exercise or
transfer this Warrant and MSB duly and effectively to issue shares
pursuant to the exercise hereof; and (iii) promptly to take all action
provided herein to protect the rights of the Holder against dilution.
(d) IBC represents and warrants to MSB that the Warrant is not
being, and any shares of MSB Common Stock or other securities acquired
by IBC upon exercise of the Warrant will not be, acquired with a view
to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act of 1933, as amended.
SECTION 3. FRACTIONAL SHARES. MSB shall not be required to issue
fractional shares of MSB Common Stock upon an exercise of this Warrant but shall
pay for such fraction of a share in cash or by certified or official bank check
at the Exercise Price.
SECTION 4. EXCHANGE OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof at the principal office of MSB for other Warrants of
different denominations entitling the Holder thereof to purchase in the
aggregate the same number of shares of MSB Common Stock purchasable hereunder.
The term "Warrant" as used herein includes any warrants for which this Warrant
may be exchanged. Upon receipt by MSB of evidence reasonably satisfactory to it
of the loss, theft, destruction, or mutilation of this Warrant, and (in the case
of loss, theft, or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, MSB will execute
and deliver a new Warrant of like tenor and date. Any such new Warrant executed
and delivered shall constitute an additional contractual obligation on the part
of MSB, whether or not the Warrant so lost, stolen, destroyed, or mutilated
shall at any time be enforceable by anyone.
SECTION 5. CERTAIN TRANSACTIONS.
(a) In the event that prior to an Exercise Termination Event,
MSB shall (i) consolidate with or merge into any Person, other than IBC
or one of its Affiliates, and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) permit any Person,
other than IBC or one of its Affiliates, to merge into MSB, and MSB
shall be the continuing or surviving corporation, but, in connection
with such merger, (x) the shareholders of MSB immediately prior to such
merger own less than a majority of the surviving corporation's
outstanding voting securities, or (y) the then outstanding voting
shares of MSB Common Stock shall be changed into or exchanged for stock
or other securities of any other Person or cash or any other property,
or (iii) sell or otherwise transfer all or substantially all of its
assets to any Person, other than IBC or one of its Affiliates, then,
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and in any such case, the agreement governing such transaction shall
make proper provision so that this Warrant shall, upon the consummation
of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, a warrant, at the option
of the Holder, of either (A) the Acquiring Corporation (as hereinafter
defined), (B) any company which controls the Acquiring Corporation, or
(c) in the case of a merger described in clause (a)(ii) above, MSB, in
which case such warrant shall be a newly issued warrant (in any such
case, the "Substitute Warrant").
(b) For purposes of this Section 5, the following terms have
the meanings indicated:
(i) "Acquiring Corporation" shall mean (A) the
continuing or surviving corporation of a consolidation or
merger with MSB (if other than MSB), (B) the corporation
merging into MSB in a merger in which MSB is the continuing or
surviving person and in connection with which the then
outstanding shares of MSB Common Stock are changed into or
exchanged for stock or other securities of any other Person or
cash or any other property, or (c) the transferee of all or
substantially all of MSB's assets;
(ii) "Substitute Common" shall mean the common stock
issued by the issuer of the Substitute Warrant;
(iii) "Assigned Value" shall mean the Market/Offer
Price as determined pursuant to Subsection 7(b) of the Warrant
Purchase Agreement; provided, however, that in the event of a
sale of all or substantially all of MSB's assets, the Assigned
Value shall be the sum of the price paid in such sale for such
assets and the current market value of the remaining assets of
MSB as determined by a recognized investment banking firm
selected by the Holder, divided by the number of shares of MSB
Common Stock outstanding at the time of such sale;
(iv) "Average Price" shall mean the average closing
price of a share of Substitute Common for the one year
immediately preceding the consolidation, merger, or sale in
question, but in no event higher than the closing price of the
shares of Substitute Common on the day preceding such
consolidation, merger, or sale; provided that if MSB is the
issuer of the Substitute Warrant, the Average Price shall be
computed with respect to a share of the common stock issued by
the Person merging into MSB or by any company which controls
such Person, as the Holder may elect;
(v) A "Person" shall mean any individual, firm,
corporation or other entity and include as well any syndicate
or group deemed to be a "person" by Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended; and
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(vi) "Affiliate" shall have the meaning ascribed to
such term in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended.
(c) The Substitute Warrant shall have the same terms as this
Warrant, provided that, if the terms of the Substitute Warrant cannot,
for legal reasons, be the same as this Warrant, such terms shall be as
similar as possible and in no event less advantageous to the Holder.
The issuer of the Substitute Warrant shall also enter into an agreement
with the then Holder of the Substitute Warrant in substantially the
same form as the Warrant Purchase Agreement, which shall be applicable
to the Substitute Warrant.
(d) The Substitute Warrant shall be exercisable for such
number of shares of Substitute Common as is equal to the Assigned Value
multiplied by the number of shares of MSB Common Stock for which this
Warrant is then exercisable, divided by the Average Price. The exercise
price of the Substitute Warrant per share of Substitute Common shall be
equal to the Exercise Price multiplied by a fraction in which the
numerator is the number of shares of MSB Common Stock for which this
Warrant is then exercisable and the denominator is the number of shares
of Substitute Common for which the Substitute Warrant is exercisable.
SECTION 6. RIGHTS OF THE HOLDER; REMEDIES.
(a) The Holder shall not, by virtue hereof and prior to the
exercise hereof, be entitled to any rights of a holder of MSB Common
Stock.
(b) Without limiting the foregoing or any remedies available
to the Holder, MSB specifically acknowledges that neither IBC nor any
successor Holder of this Warrant would have an adequate remedy at law
for any breach of this Warrant and MSB hereby agrees that IBC and any
successor Holder shall be entitled to specific performance of the
obligations of MSB hereunder and injunctive relief against actual or
threatened violations of the provisions hereof.
SECTION 7. ANTIDILUTION PROVISIONS. The number of shares of MSB
Common Stock purchasable upon the exercise hereof shall be subject to adjustment
from time to time as provided in this Section 7.
(a) In the event that MSB issues any additional shares of MSB
Common Stock at any time after the date hereof (including pursuant to
stock option plans), the number of shares of MSB Common Stock which can
be purchased pursuant to this Warrant shall be increased by an amount
equal to 19.9 percent of the additional shares so issued.
(b) (i) In the event that, after the date hereof, MSB pays or
makes a dividend or other distribution of any class of capital stock of
MSB in MSB Common Stock, the number of shares of MSB Common Stock
purchasable upon exercise hereof shall be increased by multiplying such
number of shares by a fraction of which the denominator shall be the
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number of shares of MSB Common Stock outstanding at the close of
business on the day immediately preceding the date of such distribution
and the numerator shall be the sum of such number of shares and the
total number of shares constituting such dividend or other
distribution, such increase to become effective immediately after the
opening of business on the day following such distribution.
(ii) In the event that, after the date hereof,
outstanding shares of MSB Common Stock are subdivided into a
greater number of shares of MSB Common Stock, the number of
shares of MSB Common Stock purchasable upon exercise hereof at
the opening of business on the day following the day upon
which such subdivision becomes effective shall be
proportionately increased, and, conversely, in the event that,
after the date hereof, outstanding shares of MSB Common Stock
are combined into a smaller number of shares of MSB Common
Stock, the number of shares of MSB Common Stock purchasable
upon exercise hereof at the opening of business on the day
following the day upon which such combination becomes
effective shall be proportionately decreased, such increase or
decrease, as the case may be, to become effective immediately
after the opening of business on the day following the day
upon which such subdivision or combination becomes effective.
(iii) The reclassification (including any
reclassification upon a merger in which MSB is the continuing
corporation) of MSB Common Stock into securities including
other than MSB Common Stock shall be deemed to involve a
subdivision or combination, as the case may be, of the number
of shares of MSB Common Stock outstanding immediately prior to
such reclassification into the number of shares of MSB Common
Stock outstanding immediately thereafter and the effective
date of such reclassification shall be deemed to be the day
upon which such subdivision or combination becomes effective,
as the case may be, within the meaning of clause (ii) above.
(c) Whenever the number of shares of MSB Common Stock
purchasable upon exercise hereof is adjusted pursuant to paragraph (b)
above, the Exercise Price shall be adjusted by multiplying the Exercise
Price by a fraction the numerator of which is equal to the number of
shares of MSB Common Stock purchasable prior to the adjustment and the
denominator of which is equal to the number of shares of MSB Common
Stock purchasable after the adjustment.
(d) For the purpose of this Section 7, the term "MSB Common
Stock" shall include any shares of MSB of any class or series which has
no preference or priority in the payment of dividends or in the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution, or winding up of MSB and which is not subject to
redemption by MSB.
SECTION 8. NOTICE.
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(a) Whenever the number of shares of MSB Common Stock for
which this Warrant is exercisable is adjusted as provided in Section 7
hereof, MSB shall promptly compute such adjustment and mail to the
Holder a certificate, signed by a principal financial officer of MSB,
setting forth the number of shares of MSB Common Stock for which this
Warrant is exercisable and the adjusted Exercise Price as a result of
such adjustment, a brief statement of the facts requiring such
adjustment, the computation thereof, and when such adjustment will
become effective.
(b) Upon the occurrence of a Triggering Event MSB shall (i)
promptly notify the Holder and/or the "Owner" (as that term is defined
in the Warrant Purchase Agreement) of such event, (ii) promptly compute
the "Warrant Repurchase Price" and the "Warrant Stock Repurchase Price"
(as such terms are defined in the Warrant Purchase Agreement), and
(iii) furnish to the Holder and/or the Owner a certificate, signed by
the chief financial officer of MSB setting forth the Warrant Repurchase
Price and/or the Warrant Stock Repurchase Price and the basis and
computation thereof.
(c) Upon the occurrence of an event which results in this
Warrant becoming convertible into, or exchangeable for, the Substitute
Warrant, as provided in Section 5 hereof, MSB and the Acquiring
Corporation shall promptly notify the Holder of such event; and, upon
receipt from the Holder of its choice as to the issuer of the
Substitute Warrant, the Acquiring Corporation shall promptly compute
the number of shares of Substitute Common for which the Substitute
Warrant is exercisable and furnish to the Holder a certificate, signed
by a principal financial officer of the Acquiring Corporation, setting
forth the number of shares of Substitute Common for which the
Substitute Warrant is exercisable, the Substitute Warrant exercise
price, a computation thereof, and when such adjustment will become
effective.
SECTION 9. TERMINATION. This Warrant and the rights conferred hereby
shall terminate upon the earliest of (i) six months after the occurrence of a
Triggering Event; (ii) the Effective Time of the Merger, (iii) the date of
termination of the Merger Documents unless (a) the event giving rise to the
right to terminate is preceded by a Triggering Event, or (b) the receipt by MSB,
or the announcement by another person, of a proposal involving an Acquisition
Transaction
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or Tender Offer, unless the Agreement is earlier terminated by MSB, pursuant to
its right to terminate the Agreement, under the conditions of Section 6.1 of the
Agreement; or (iv) December 31, 2000.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of
this , 1999.
ATTEST: MUTUAL SAVINGS BANK, F.S.B.
By: By:
-------------------------------------
Robert N. Schuster
Title: Its: Chief Executive Officer
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AFFILIATE AGREEMENT
EXHIBIT C
Independent Bank Corporation
230 West Main Street
Ionia, Michigan 48846
Attention: Mr. William R. Kohls, Chief Financial Officer
Ladies and Gentlemen:
The undersigned is a shareholder of Mutual Savings Bank, f.s.b., a
federal savings bank ("MSB"), and may become a shareholder of Independent Bank
Corporation, a Michigan corporation ("IBC") pursuant to the transactions
described in a certain Agreement and Plan of Reorganization, dated as
_____________, 1999 (the "Agreement"), by and between IBC and MSB. Under the
terms of the Agreement, MSB will be consolidated with and into a wholly owned
Michigan bank subsidiary of IBC (the "Consolidation"), and the shares of the
$0.01 par value common stock of MSB ("MSB Common Stock") will be converted into
the right to receive shares of the $1.00 par value common stock of IBC ("IBC
Common Stock"). This Affiliate Agreement represents an agreement between the
undersigned and IBC regarding certain rights and obligations of the undersigned
in connection with any and all shares of IBC Common Stock to be received by the
undersigned as a result of the Consolidation.
In consideration of the Consolidation and the mutual covenants
contained herein, the undersigned and IBC hereby agree as follows:
1. Affiliate Status. The undersigned understands and agrees that as to
MSB the undersigned may be deemed to be an "affiliate" under Rule 145(c) of the
Rules and Regulations of the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended ("1933 Act"), and the undersigned
anticipates that the undersigned may be deemed to be such an "affiliate" at the
time of the Consolidation.
2. Covenants and Warranties of Undersigned. The undersigned represents,
warrants, and agrees that IBC has informed the undersigned that the issuance of
shares of IBC Common Stock to the undersigned in connection with the
Consolidation will be registered with the SEC under the 1933 Act on a
Registration Statement on Form S-4 and that such registration will not cover any
resale or other disposition of IBC Common Stock and that shares of IBC Common
Stock received pursuant to the Consolidation can only be sold by the undersigned
(a) following such time as financial results covering at least 30 days of
post-consolidation combined operations have been published, and (b)(1) following
registration under the 1933 Act, or (2) in conformity with the requirements of
Rule 145(d) promulgated by the SEC as the same now exist or may hereafter be
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amended, or (3) to the extent some other exemption from registration under the
1933 Act might be available.
3. Understanding of Restrictions on Dispositions. The undersigned has
carefully read the Agreement and this Affiliate Agreement and discussed their
requirements and impact upon his ability to sell, transfer, or otherwise dispose
of the shares of IBC Common Stock received by the undersigned as a result of the
Consolidation, to the extent he believes necessary, with the undersigned's
counsel or counsel for MSB.
4. Filing of Reports by IBC. IBC agrees, for a period of two years
after the effective date of the Consolidation, to file on a timely basis all
reports required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, so that the public information provisions of
Rule 145(d) promulgated by the SEC as the same are presently in effect will be
available to the undersigned in the event the undersigned desires to transfer
any shares of IBC Common Stock issued to the undersigned pursuant to the
Consolidation.
5. Transfer Restrictions. The undersigned agrees that IBC may refuse to
permit the undersigned to sell, transfer, or dispose of the IBC Common Stock
unless: (a) there is an effective registration statement filed pursuant to the
1933 Act covering such sale, transfer, or other disposition; (b) in the opinion
of counsel for IBC, or in the opinion of counsel satisfactory to counsel for
IBC, such registration is not required; (c) the undersigned furnishes to IBC a
copy of a "no action" or interpretive letter or other definitive ruling from the
staff of the SEC to the effect that the proposed sale, transfer, or other
disposition may be effected without registration; or (d) the undersigned effects
the sale, transfer or disposition within the limits, and in accordance with the
applicable provisions of Rule 145 under the 1933 Act.
6. Rule 145. If the undersigned proposes to sell any of the securities
pursuant to Rule 145, and if such sale would be permitted under the terms of
this letter, then IBC will, upon the undersigned's written request, supply me
with the following: (a) a statement as to whether IBC has complied with the
provisions of Rule 144(c) regarding the filing of reports with the SEC as a
condition to sales made pursuant to that rule; and (b) a confirmation as to the
number of shares of IBC outstanding as shown by the most recent report or
statement published by IBC.
7. No Obligation to Register. Except as set forth in this letter, IBC
is under no obligation to register the sale, transfer, or other disposition of
the securities by the undersigned, or on the undersigned's behalf, or to take
any other action necessary in order to effect compliance with an exemption from
registration available.
8. Legend. IBC may decline to register any transfer of securities,
except consistent with this letter. IBC may place on the certificates for my
shares and any substitute certificates a legend stating in substance:
The shares represented by this certificate are subject to the
provisions of Rule 145 under the Securities Act of 1933 and may not
be sold,
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transferred or otherwise disposed of without compliance with said
rule.
9. Removal of Legend. The undersigned understands that the legend, if
any, with respect to the shares of IBC Common Stock received by the undersigned
shall be removed by IBC by delivery of substitute certificates without the
legend, and the related transfer restrictions shall be lifted if: (a) the shares
of IBC Common Stock shall have been registered under the 1933 Act for resale;
(b) there shall have been delivered to IBC a copy of the letter from the staff
of the SEC, or an opinion of counsel satisfactory to IBC, to the effect that an
exemption from registration under the Act is available with respect thereto; or
(c) two years have elapsed since the Effective Date of the Consolidation, as
defined in the Agreement, and the conditions of Rule 145(d)(3) are satisfied.
10. Miscellaneous. This Affiliate Agreement is the complete agreement
between IBC and the undersigned concerning the subject matter hereof. Any notice
required to be sent to any party hereunder shall be sent by registered or
certified mail, return receipt requested, using the address set forth herein or
such other address as shall be furnished in writing by the parties. This
Affiliate Agreement shall be governed by the laws of the State of Michigan.
This Affiliate Agreement is executed by the undersigned as of the
_____ day of _________, 1999.
Very truly yours,
-----------------------------------
Signature
-----------------------------------
Print Name
-----------------------------------
-----------------------------------
-----------------------------------
Address
[Signatures Continued on Next Page]
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The foregoing Affiliate Agreement is agreed to and accepted by the
undersigned as of ___________________, 1999.
INDEPENDENT BANK CORPORATION
By
-----------------------------------------
William R. Kohls, Chief Financial Officer
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MANAGEMENT CONTINUITY AGREEMENT
EXHIBIT D
THIS IS AN AGREEMENT between INDEPENDENT BANK CORPORATION (the
"Corporation"), whose principal offices are 230 West Main Street, Ionia,
Michigan 48846, and ______________________________________ (the "Executive"),
dated ______________, 1998.
RECITALS
The Executive is a key officer of the Corporation or a Subsidiary whose
continued dedication, availability, advice and counsel to the Corporation and
its Subsidiaries 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 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 team 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 (the "Initial Term"). Thereafter, this
Agreement shall be extended automatically for additional three (3) year periods
("Renewal Terms") at the end of the Initial Term and each Renewal Term, unless
not later than twelve (12) months prior to the end of the Initial Term or a
Renewal Term, the Corporation gives written notice to Executive that it has
elected not to renew this Agreement. Notwithstanding the foregoing, if a Change
of Control occurs during the term of this Agreement, this Agreement will
continue in effect for 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) Average Base Salary. Average Base Salary shall mean the
Executive's average annual salary during the three (3) calendar year
period beginning two (2) years immediately prior to the year of Change
of Control and the year in which the Change of Control occurred;
provided that if Executive has been employed for less than three (3)
years,
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Average Base Salary shall be determined during that lesser period or if
less than one year, the Executive's prevailing salary shall be
annualized.
(b) Average Bonus. Average Bonus shall mean the average of the
last three (3) bonuses paid to Executive under the Corporation's
Management Incentive Compensation Plan immediately preceding the Change
of Control, and if the Executive is eligible to participate in the
Corporation's Incentive Share Grant Plan, the Executive shall be deemed
to have participated in that plan for each of those three years,
whereby those bonuses shall be based on the aggregate fair market value
of the shares of the Corporation's stock acquired or that would have
been acquired irrespective of the restrictions on transfer or
forfeiture provisions.
(c) Change of Control. A "Change in Control" shall mean a change
in control of the Corporation of such 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 ("Exchange
Act"), or such item thereof which may hereafter pertain to the same
subject; provided that, and notwithstanding the foregoing, a Change in
Control shall be deemed to have occurred if:
(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 percent (20%) or more of the combined voting power of the
Corporation's then outstanding 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 immediately 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;
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(B) Any sale, exchange, lease, mortgage, pledge,
transfer, or other disposition (in a single transaction 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
(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.
(d) 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.
(e) 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
Disability or occurring after issuance by Executive of a Notice of
Termination for Good Reason) 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 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.
(f) 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
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the Corporation, or which result in a significant reduction in
Executive's authority and responsibility as an executive of the
Corporation or a Subsidiary;
(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
recent incentive bonus potential prior to the Change of Control
under the Corporation's Management Incentive Compensation Plan, or
any successor plan;
(iii) Either (a) the Corporation requiring Executive to be
based at a location in excess of ten (10) miles from the location
where Executive is currently based, or (b) 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 pay the Executive the
amount of any loss realized in the sale of the Executive's
principal residence in connection with any such change of
residence. Any gain realized upon the sale shall not offset the
obligation to pay moving expenses, and the amounts payable under
(b) shall be tax effected, 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 contemplated in Paragraph 6
hereof;
(v) Any termination by the Corporation of Executive's
employment that is other than for Cause;
(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; or
(vii) The failure of the Corporation to provide the Executive
with substantially the same fringe benefits (including, without
limitation, retirement 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.
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The existence of Good Reason shall not be affected by Executive's
Disability. Executive's continued employment shall not constitute a
waiver of Executive's rights with respect to any circumstance
constituting Good Reason under this Agreement.
(g) 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.
(h) Subsidiary. "Subsidiary" means a corporation with at least
eighty percent (80%) of its outstanding capital stock owned directly or
indirectly 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 of Executive 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:
(a) A lump sum cash amount (which shall be paid not later than
thirty (30) days after the date of termination of employment) equal to
Executive's Average Base Salary, multiplied by__________ ;
(b) A lump sum cash amount (which shall be paid not later than
thirty (30) days after the date of termination of employment) equal to
the Executive's Average Bonus, multiplied by ___________;
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(c) For a ________ 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 other wise 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 ___________ 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 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 __________
year period following a termination of employment provided that
the payments payable under subparagraphs 4(a) and (b) above have
been made.
(d) 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
$10,000 to reimburse job search travel;
(e) In computing and determining Severance Benefits under
subparagraphs 4(a) through (d) above, a decrease in Executive's salary,
incentive bonus, 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, and/or
insurance benefits used to determine Average Annual Salary,
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Average Bonus, and therefore Severance Benefits shall be that in effect
immediately before the decrease that is disregarded pursuant to this
subparagraph 4(e);
(f) 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).
5. Maximum Payments. Notwithstanding any provision in this Agreement
to the contrary, if part or all of any amount to be paid to Executive by the
Corporation under this Agreement or otherwise constitute a "parachute payment"
(or payments) under Section 280G or any other similar provision of the Internal
Revenue Code of 1986, as amended (the "Code"), the following limitation shall
apply:
If the aggregate present value of such parachute payments (the
"Parachute Amount") exceeds (i) three (3) times Executive's "base
amount" as defined in Section 280G of the Code, and (ii) less One
Dollar ($1.00), then the amounts otherwise payable to or for the
benefit of the Executive subsequent to the termination of his
employment, and taken into account in calculating the Parachute Amount
(the "Termination Payments"), shall be reduced and/or delayed, as
further described below, to the extent necessary so that the Parachute
Amount is equal to three (3) times the Executive's "base amount," less
One Dollar ($1.00).
Any determination or calculation described in this Paragraph 5 shall be
made by the Corporation's independent accountants or the Corporation's tax
counsel, as selected by Executive. Such determination, and any proposed
reduction and/or delay in termination payments shall be furnished in writing
promptly by the accountants to the Executive. The Executive may then elect, in
his sole discretion, which and how much of any particular termination payment
shall be reduced and/or delayed and shall advise the Corporation in writing of
his election, within thirty (30) days of the accountant's determination, of the
reduction or delay in termination payments. If no such election is made by the
Executive within such 30-day period, the Corporation may elect which and how
much of any termination payment shall be reduced and/or delayed and shall notify
the Executive promptly of such election. As promptly as practicable following
such determination and the elections hereunder, the Corporation shall pay to or
distribute to or for the benefit of the Executive such amounts as are then due
to the Executive.
Any disagreement regarding a reduction or delay in termination payments
will be subject to arbitration under Paragraph 15 of this Agreement. Neither the
Executive's designation of specific payments to be reduced or delayed, nor the
Executive's acceptance of reduced or delayed payments, shall waive the
Executive's right to contest such reduction or delay.
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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 personally 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. Except as specifically provided in this
Agreement, 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.
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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 Kent
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.
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IN WITNESS WHEREOF, the parties have signed this Agreement as of the
day and year written above.
CORPORATION: INDEPENDENT BANK CORPORATION
BY
---------------------------------------
ITS
------------------------------------
EXECUTIVE:
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APPENDIX B
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT (this "Warrant Purchase Agreement") is
made as of March 24, 1999, between INDEPENDENT BANK CORPORATION, a Michigan
corporation ("IBC"), and MUTUAL SAVINGS BANK, f.s.b., a federally chartered
stock savings bank ("MSB").
RECITALS:
A. Concurrently herewith, IBC and MSB have entered into a certain
Agreement and Plan of Reorganization, dated as of the date hereof (the
"Agreement"), which provides for the consolidation of MSB into a wholly owned
subsidiary of IBC (the "Consolidation") pursuant to a Consolidation Agreement
containing certain additional terms and conditions relating to the Consolidation
(the "Consolidation Agreement"). (The Agreement and the Consolidation Agreement
are sometimes hereinafter collectively referred to as the "Merger Documents.")
All capitalized terms used herein and not otherwise defined herein shall have
the meanings ascribed to them in the Merger Documents.
B. As a condition to IBC's entering into the Agreement, and in
consideration therefor, MSB has agreed to issue to IBC a warrant or warrants
entitling IBC to purchase up to a total of 853,792 shares of MSB Common Stock,
on the terms and conditions set forth herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
SECTION 1. ISSUANCE, DELIVERY, AND EXERCISE OF THE WARRANT.
Concurrently with the execution of the Agreement and this Warrant Purchase
Agreement, MSB shall execute a warrant in favor of IBC in the form attached as
Attachment A hereto (the "Warrant") to purchase up to a total of 853,792 shares
of MSB Common Stock at a purchase price equal to $9.8125 per share (the
"Exercise Price"), subject to adjustments as provided in the Warrant. (The
holder of the Warrant from time to time is hereinafter referred to as the
"Holder.") The Warrant shall be exercisable in accordance with the terms and
conditions set forth therein.
SECTION 2. REGISTRATION RIGHTS. If, at any time after the Warrant
becomes exercisable in accordance with its terms, MSB shall receive a written
request therefor from the Holder, MSB shall prepare and file a registration
statement under the Securities Act of 1933, as amended, or under the applicable
federal laws and Office of Thrift Supervision regulations (the "Applicable
Securities Laws") covering such number of shares of MSB Common Stock as the
Holder shall specify in the request and shall use its best efforts to cause such
registration statement to become effective; provided, however, that the Holder
shall only have the right to request one such registration. Without the written
consent of the Holder, neither MSB nor any other holder of securities of MSB may
include any other securities in such registration.
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SECTION 3. "PIGGYBACK" RIGHTS. If, at any time after the Warrant
becomes exercisable in accordance with its terms, MSB shall determine to proceed
with the preparation and filing of a registration statement under the Applicable
Securities Laws in connection with the proposed offer and sale for money of any
of its securities (other than in connection with a dividend reinvestment,
employee stock purchase, stock option, or similar plan or a registration
statement on Form S-4) by it or any of its security holders, MSB shall give
written notice thereof to the Holder. Upon the written request of the Holder
given within ten days after receipt of any such notice from MSB, MSB shall,
except as herein provided, cause all shares of MSB Common Stock which the Holder
shall request be included in such registration statement to be so included;
provided, however, that nothing herein shall prevent MSB from abandoning or
delaying any registration at any time; and provided, further, that if MSB
decides not to proceed with a registration after the registration statement has
been filed with the United States Securities and Exchange Commission or the
Office of Thrift Supervision, as required by applicable law (the "Securities
Regulator") and MSB's decision not to proceed is primarily based upon the
anticipated public offering price of the securities to be sold by MSB, MSB shall
promptly complete the registration for the benefit of the Holder if the Holder
agrees to bear all additional and incremental expenses incurred by MSB as the
result of such registration after MSB has decided not to proceed. If any
registration pursuant to this Section shall be underwritten in whole or in part,
the Holder may require that any shares of MSB Common Stock requested for
inclusion pursuant to this Section be included in the underwriting on the same
terms and conditions as the securities otherwise being sold through the
underwriters. In the event that the shares of MSB Common Stock requested for
inclusion pursuant to this Section would constitute more than 25 percent of the
total number of shares to be included in a proposed underwritten public
offering, and if in the good faith judgment of the managing underwriter of such
public offering the inclusion of all of such shares would interfere with the
successful marketing of the shares being offered by MSB, the number of shares
otherwise to be included in the underwritten public offering hereunder may be
reduced; provided, however, that after any such required reduction, the shares
of MSB Common Stock to be included in such offering for the account of the
Holder shall constitute at least 25 percent of the total number of shares to be
included in such offering.
SECTION 4. OBLIGATIONS OF MSB IN CONNECTION WITH A
REGISTRATION. If and whenever MSB is required by the provisions of Sections 2 or
3 hereof to effect the registration of any shares of MSB Common Stock under the
Applicable Securities Laws, MSB shall:
(a) prepare and file with the Securities Regulator a
registration statement with respect to such securities and use its best
efforts to cause such registration statement to become and remain
effective for such period as may be reasonably necessary to effect the
sale of such securities, not to exceed nine months;
(b) prepare and file with the Securities Regulator such
amendments to such registration statement and supplements to the
prospectus contained therein as may be necessary to keep such
registration statement effective for such period as may be reasonably
necessary to effect the sale of such securities, not to exceed nine
months;
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(c) furnish to the Holder and to the underwriters of the
securities being registered such reasonable number of copies of the
registration statement, amendments thereto, preliminary prospectus,
final prospectus, and such other documents as the Holder or such
underwriters may reasonably request in order to facilitate the public
offering of such securities;
(d) use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as the Holder or such underwriters
may reasonably request; provided that MSB shall not be required by
virtue hereof to submit to the general jurisdiction of any state;
(e) notify the Holder, promptly after MSB shall receive notice
thereof, of the time when such registration statement or any
post-effective amendment thereof has become effective or a supplement
to any prospectus forming a part of such registration statement has
been filed;
(f) notify the Holder promptly of any request by the
Securities Regulator for the amending or supplementing of such
registration statement or prospectus or for additional information;
(g) prepare and file with the Securities Regulator, promptly
upon the request of the Holder, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel
for the Holder (and concurred in by counsel for MSB), is required under
the Applicable Securities Laws or the rules and regulations promulgated
thereunder in connection with the distribution of the shares of MSB
Common Stock by the Holder;
(h) prepare and promptly file with the Securities Regulator
such amendment or supplement to such registration statement or
prospectus as may be necessary to correct any statements or omissions
if, at the time when a prospectus is required to be delivered under the
Applicable Securities Laws, any event shall have occurred as the result
of which such prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;
(i) advise the Holder, promptly after it shall receive notice
or obtain knowledge thereof, of the issuance of any stop order by the
Securities Regulator suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for that
purpose and promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such stop order should be
issued; and
(j) at the request of the Holder, furnish on the date or dates
provided for in the underwriting agreement: (i) an opinion or opinions
of the counsel representing MSB for the purposes of such registration,
addressed to the underwriters and to the Holder, covering such matters
as such underwriters and the Holder may reasonably request and as are
customarily
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covered by issuer's counsel at that time; and (ii) a letter or letters
from the independent certified public accountants of MSB, addressed to
the underwriters and to the Holder, covering such matters as such
underwriters or the Holder may reasonably request, in which letters
such accountants shall state (without limiting the generality of the
foregoing) that they are independent certified public accountants
within the meaning of the Applicable Securities Laws and that, in the
opinion of such accountants, the financial statements and other
financial data of MSB included in the registration statement or any
amendment or supplement thereto comply in all material respects with
the applicable accounting requirements of the Applicable Securities
Laws.
SECTION 5. EXPENSES OF REGISTRATION. With respect to a registration
requested pursuant to Section 2 hereof and with respect to each inclusion of
shares of MSB Common Stock in a registration statement pursuant to Section 3
hereof, MSB shall bear the following fees, costs, and expenses: all
registration, stock exchange listing, and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for MSB, fees and disbursements of
counsel for the underwriter or underwriters of such securities (if MSB and/or
the Holder are required to bear such fees and disbursements), and all legal fees
and disbursements and other expenses of complying with state securities or blue
sky laws of any jurisdictions in which the securities to be offered are to be
registered or qualified. Fees and disbursements of counsel and accountants for
the Holder, underwriting discounts and commissions and transfer taxes relating
to the MSB Common Stock being sold for the Holder, and any other expenses
incurred by the Holder not expressly included above shall be borne by the
Holder.
SECTION 6. INDEMNIFICATION.
(a) MSB shall indemnify and hold harmless the Holder, any
underwriter (as defined in the Applicable Securities Laws) for the
Holder, and each person, if any, who controls the Holder or such
underwriter within the meaning of the Applicable Securities Laws, from
and against any and all loss, damage, liability, cost, and expense to
which the Holder or any such underwriter or controlling person may
become subject under the Applicable Securities Laws or otherwise,
insofar as such losses, damages, liabilities, costs, or expenses are
caused by any untrue statement or alleged untrue statement of any
material fact contained in any registration statement filed pursuant to
Section 4 hereof, any prospectus or preliminary prospectus contained
therein, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they are made, not
misleading; provided, however, that MSB will not be liable in any such
case to the extent that any such loss, damage, liability, cost, or
expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity
with information furnished by the Holder, such underwriter, or such
controlling persons in writing specifically for use in the preparation
thereof.
(b) Promptly after receipt by an indemnified party pursuant to
the provisions of paragraph (a) of this Section 6 of notice of the
commencement of any action involving the
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subject matter of the foregoing indemnity provisions, such indemnified
party shall, if a claim thereof is to be made against MSB pursuant to
the provision of such paragraph (a), promptly notify MSB of the
commencement thereof; but the omission to so notify MSB will not
relieve it from any liability which it may have to any indemnified
party otherwise hereunder. In case such action is brought against any
indemnified party and such indemnified party notifies MSB of the
commencement thereof, MSB shall have the right to participate in and,
to the extent that it may wish to do so, to assume the defense
thereof, with counsel satisfactory to such indemnified party;
provided, however, if the defendants in any action include both the
indemnified party and MSB and there is a conflict of interest which
would prevent counsel for MSB from also representing the indemnified
party, the indemnified party or parties shall have the right to select
one separate counsel to participate in the defense of such action on
behalf of such indemnified party or parties. After notice from MSB to
such indemnified party of its election so to assume the defense of any
such action, the indemnified party shall have the right to participate
in such action and to retain its own counsel, but MSB shall not be
required to indemnify and hold harmless the indemnified party pursuant
to the provisions of such paragraph (a) for any legal fees or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof, other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed
separate counsel in accordance with the provisions of the preceding
sentence of this paragraph (b), (ii) MSB shall not have employed
counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the
commencement of the action, or (iii) MSB has authorized the employment
of counsel for the indemnified party at the expense of MSB.
(c) If recovery is not available under the foregoing
indemnification provisions, for any reason other than as specified
therein, the parties entitled to indemnification by the terms thereof
shall be entitled to contribution to liabilities and expenses, except
to the extent that contribution is not permitted under Section 11(f) of
the Securities Act of 1933, as amended. In determining the amount of
contribution to which the respective parties are entitled, there shall
be considered the parties' relative knowledge and access to information
concerning the matter with respect to which the claim was asserted, the
opportunity to correct and prevent any statement or omission, and any
other equitable considerations appropriate under the circumstances.
SECTION 7. REPURCHASE RIGHTS.
(a) Immediately prior to the occurrence of a Repurchase Event
(as defined below), (i) following a request of the Holder, delivered
prior to an Exercise Termination Event, MSB (or any successor thereto)
shall repurchase the Warrant from the Holder at a price (the "Warrant
Repurchase Price") equal to the amount by which (A) the Market/Offer
Price (as defined below) exceeds (B) the Exercise Price, multiplied by
the number of shares for which the Warrant may then be exercised, and
(ii) at the request of the owner of shares of MSB Common Stock
purchased pursuant to an exercise of the Warrant ("Warrant Stock") from
time to time (the "Owner"), delivered within 90 days of such occurrence
, MSB shall repurchase such number of shares of the Warrant Stock from
the Owner as the Owner shall
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designate at a price (the "Warrant Stock Repurchase Price") equal to
the Market/Offer Price multiplied by the number of shares of Warrant
Stock so designated.
(b) For purposes of paragraph (a) of this Section 7, the
"Market/Offer Price" shall mean the highest of (i) the price per share
at which a tender offer or exchange offer for shares of MSB Common
Stock has been made, (ii) the price per share of MSB Common Stock to be
paid by any third party pursuant to an agreement with MSB, and (iii)
the highest closing price for shares of MSB Common Stock within the
4-month period immediately preceding the date the Holder gives notice
of the required repurchase of the Warrant or the Owner gives notice of
the required repurchase of Warrant Stock, as appropriate. In the event
that an exchange offer is made or an agreement is entered into for a
merger or consolidation involving consideration other than cash, the
value of the securities or other property issuable or deliverable in
exchange for MSB Common Stock shall be determined by a nationally
recognized investment banking firm mutually acceptable to the parties
hereto.
(c) The Holder and the Owner may exercise their respective
rights to require MSB to repurchase the Warrant or the Warrant Stock
pursuant to this Section 7 by surrendering for such purpose to MSB, at
its principal office, the Warrant or certificates for shares of Warrant
Stock, as the case may be, free and clear of any liens, claims,
encumbrances, or rights of third parties of any kind, accompanied by a
written notice or notices stating that the Holder or the Owner, as the
case may be, requests MSB to repurchase such Warrant or Warrant Stock
in accordance with the provisions of this Section 7. Subject to the
last proviso of Subsection 7(d) below, as promptly as practicable, and
in any event within five business days after the surrender of the
Warrant or certificates representing shares of Warrant Stock and the
receipt of such notice or notices relating thereto, MSB shall deliver
or cause to be delivered to the Holder or Owner the Warrant Repurchase
Price or the Warrant Stock Repurchase Price therefor, as applicable, or
the portion thereof which MSB is not then prohibited under applicable
law and regulation from so delivering.
(d) To the extent that MSB is prohibited under applicable law
or regulation, or as a result of administrative or judicial action,
from repurchasing the Warrant and/or the Warrant Stock in full at any
time that it may be required to do so hereunder, MSB shall immediately
so notify the Holder and/or the Owner and thereafter deliver or cause
to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Warrant Repurchase Price and the
Warrant Stock Repurchase Price, respectively, which it is no longer
prohibited from delivering, within five business days after the date on
which MSB is no longer so prohibited. Upon receipt of such notice from
MSB and for a period of 15 days thereafter, the Holder and/or Owner may
revoke its notice of repurchase of the Warrant and/or Warrant Stock by
written notice to MSB at its principal office stating that the Holder
and/or the Owner elects to revoke its election to exercise its right to
require MSB to repurchase the Warrant and/or Warrant Stock, whereupon
MSB will promptly deliver to the Holder and/or Owner the Warrant and/or
certificates representing shares of Warrant Stock surrendered to MSB
for purposes of such repurchase. Whether or not such election is
revoked, MSB hereby agrees to use its best efforts to obtain all
required legal and regulatory
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approvals necessary to permit MSB to repurchase the Warrant and/or the
Warrant Stock to the full extent and as promptly as practicable.
(e) For purposes of this Section 7, a Repurchase Event shall
be deemed to have occurred upon (i) the consummation of any merger,
consolidation or similar transaction involving MSB or any purchase,
lease or other acquisition of all or a substantial portion of the
assets of MSB, other than any such transaction which would not
constitute an Acquisition Transaction pursuant to the provisions of
Section 1(c) of the Warrant, or (ii) upon the acquisition by any person
of beneficial ownership of 50% or more of the then outstanding shares
of MSB Common Stock.
SECTION 8. ASSUMPTION OF OBLIGATIONS UNDER THIS AGREEMENT.
MSB will not enter into any transaction described in paragraph 5(a) of the
Warrant unless the "Acquiring Corporation" (as that term is defined in the
Warrant) assumes in writing all the obligations of MSB hereunder. Neither of the
parties hereto may assign any of its rights or obligations under this Agreement
or the Warrant created hereunder to any other person, without the express
written consent of the other party, except that in the event a Triggering Event
shall have occurred prior to an Exercise Termination Event, the Holder, subject
to the express provisions hereof, may assign in whole or in part its rights and
obligations hereunder within 90 days following such Triggering Event; provided,
however, that until the date 15 days following the date on which the Office of
Thrift Supervision approves an application by the Holder pursuant to applicable
laws and regulations to acquire the shares of MSB Common Stock subject to the
Warrant, IBC may not assign its rights under the Warrant except in (i) a widely
dispersed public distribution, (ii) a private placement in which no one party
acquires the right to purchase in excess of 2% of the voting shares of MSB,
(iii) an assignment to a single party (e.g., a broker or investment banker) for
the purpose of conducting a widely dispersed public distribution on the Holder's
behalf, or (iv) any other manner approved by the Office of Thrift Supervision.
SECTION 9. REMEDIES. Without limiting the foregoing or any remedies
available to the Holder, MSB specifically acknowledges that neither IBC nor any
successor holder of the Warrant would have an adequate remedy at law for any
breach of this Warrant Purchase Agreement and MSB hereby agrees that IBC and any
successor holder of the Warrant shall be entitled to specific performance of the
obligations of MSB hereunder and injunctive relief against actual or threatened
violations of the provisions hereof.
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SECTION 10. TERMINATION. This Warrant Purchase Agreement will
terminate upon a termination of the Warrant in accordance with Section 9
thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant
Purchase Agreement as of the day and year first above written.
INDEPENDENT BANK CORPORATION
By: /s/ Charles Van Loan
----------------------------
Charles Van Loan
Its: Chief Executive Officer
MUTUAL SAVINGS BANK, F.S.B.
By: /s/ Robert N. Schuster
----------------------------
Robert N. Schuster
Its: Chief Executive Officer
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THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR
QUALIFIED UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED WITHOUT BEING SO REGISTERED OR QUALIFIED UNLESS AN EXEMPTION OR
EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS ARE AVAILABLE.
WARRANT
TO PURCHASE 853,792 COMMON SHARES
OF
MUTUAL SAVINGS BANK, F.S.B.
This is to certify that, for value received, INDEPENDENT BANK
CORPORATION, a Michigan corporation ("IBC"), is entitled to purchase from MUTUAL
SAVINGS BANK, f.s.b., a federally chartered stock savings bank ("MSB"), at any
time within ninety days after the first occurrence of a Triggering Event and
prior to the occurrence of an Exercise Termination Event, an aggregate of up to
853,792 common shares, $0.01 par value per share, of MSB ("MSB Common Stock"),
at a price of $9.8125 per share (the "Exercise Price"), subject to the terms and
conditions of this Warrant and a certain Warrant Purchase Agreement, of even
date herewith, between IBC and MSB (the "Warrant Purchase Agreement"). The
number of shares of MSB Common Stock which may be received upon the exercise of
this Warrant and the Exercise Price are subject to adjustment from time to time
as hereinafter set forth. The terms and conditions set forth in this Warrant and
the Warrant Purchase Agreement shall be binding upon the respective successors
and assigns of both of the parties hereto. This Warrant is issued in connection
with a certain Agreement and Plan of Reorganization, dated as of the date
hereof, between IBC and MSB (the "Merger Agreement"), which provides for the
consolidation of MSB into a wholly owned subsidiary of IBC (the
"Consolidation"), and a certain Consolidation Agreement among IBC, its
subsidiary and MSB, which provides certain additional terms and conditions
relating to the Merger (the "Consolidation Agreement"). The Merger Agreement and
the Consolidation Agreement are sometimes hereinafter collectively referred to
as the "Merger Documents." All capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to them in the Merger Documents.
The term "Holder" shall mean and refer to IBC or any successor holder of this
Warrant.
SECTION 1. EXERCISE OF THE WARRANT.
(a) The Holder will not exercise this Warrant unless it has
obtained all required approvals, if any, of appropriate regulatory
authorities having jurisdiction, including the Office of Thrift
Supervision, pursuant to all applicable laws and regulations. Further,
subject to the terms and conditions set forth in this Warrant and in
the Warrant Purchase Agreement and the provisions of applicable law,
the Holder will not exercise this Warrant without the
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written consent of MSB except within ninety days after the occurrence
of any of the following events (a "Triggering Event") and prior to the
occurrence of an Exercise Termination Event:
(i) any material, willful, and intentional breach of
the Merger Documents by MSB that would permit IBC to terminate
the Merger Documents (A) occurring after the receipt by MSB of
a proposal to engage in an Acquisition Transaction, (B)
occurring after the announcement by any other Person of an
intention to engage in an Acquisition Transaction, or (c) in
anticipation and for the purpose of engaging in an Acquisition
Transaction;
(ii) (A) a proposal to engage in an Acquisition
Transaction is submitted to and approved by the shareholders
of MSB at any time prior to December 31, 2000, or (B) a Tender
Offer is commenced and the transactions contemplated in the
Tender Offer are completed in such a manner that the Person
making the Tender Offer acquires beneficial ownership of more
than 20 percent of the capital stock or any other class of
voting securities of MSB, and the Consolidation is not
consummated prior to December 31, 2000;
(iii) (A) a proposal to engage in an Acquisition
Transaction is received by MSB or a Tender Offer is made
directly to the shareholders of MSB or the intention of making
an Acquisition Transaction or Tender Offer is announced at any
time prior to the holding of the MSB Shareholders' Meeting;
and (B) the Board of Directors of MSB (1) fails to recommend
to the shareholders of MSB that they vote their shares of MSB
Common Stock in favor of the approval of the Consolidation,
(2) withdraws such recommendation previously made, (3) fails
to solicit proxies of shareholders of MSB to approve the
Consolidation, or (4) fails to hold the MSB Shareholders'
Meeting;
(b) Notwithstanding the foregoing, this Warrant shall not be
exercisable after the occurrence of an Exercise Termination Event which
for purposes hereof means (i) the Effective Time (as defined in the
Agreement) of the Consolidation, (ii) the failure of the shareholders
of IBC to approve the Consolidation; (iii) the failure of any
Regulatory Authority to provide any required Consent to the
Consolidation, which failure was not the result of the existence of the
Acquisition Proposal or a breach by MSB of any of its obligations under
any of the Merger Documents; or (iv) the Merger Documents are
terminated pursuant to Section 6.1 of the Merger Agreement, unless the
event giving rise to the right to terminate is a breach by MSB and is
preceded by a Triggering Event or the receipt by MSB of an Acquisition
Transaction proposal, or the announcement by another Person of a
proposal involving an Acquisition Transaction.
(c) An "Acquisition Transaction" shall mean a transaction
between MSB and any Person other than IBC or any Affiliate of IBC
involving (A) the sale or other disposition of more than 20% of the
shares of the capital stock or any other class of voting securities of
MSB, including, but not limited to, a Tender Offer, (B) the sale or
other disposition of 15%
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or more of the consolidated assets or deposits of MSB, or (c) a merger
or consolidation involving MSB other than a transaction pursuant to
which MSB will be the surviving corporation and the current
shareholders of MSB will be the owners of a majority of the stock of
the surviving corporation following the transaction. For purposes of
this Section 1, a Tender Offer which is contingent upon the expiration
of the Warrant is deemed to commence when it is announced.
(d) This Warrant shall be exercised by presentation and
surrender hereof to MSB at its principal office accompanied by (i) a
written notice of exercise for a specified number of shares of MSB
Common Stock, (ii) payment to MSB, for the account of MSB, of the
Exercise Price for the number of shares specified in such notice, and
(iii) a certificate of the Holder indicating the Triggering Event that
has occurred which entitles the Holder to exercise this Warrant. The
Exercise Price for the number of shares of MSB Common Stock specified
in the notice shall be payable in immediately available funds.
(e) Upon such presentation and surrender, MSB shall issue
promptly (and within three business days if requested by the Holder) to
the Holder, or any assignee, transferee, or designee permitted by
subparagraph (g) of this Section 1, the shares to which the Holder is
entitled hereunder and the Holder shall deliver to MSB a copy of this
Warrant and a letter agreeing that the Holder will not offer to sell or
otherwise dispose of such shares in violation of applicable law or the
provisions of this Warrant.
(f) Certificates for shares of MSB Common Stock may be
endorsed with a restrictive legend that shall read substantially as
follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy
of such agreement is on file at the principal office of Issuer
and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933
Act"), in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the Holder shall have
delivered to MSB a copy of a letter from the staff of the SEC, or an
opinion of counsel, in form and substance reasonably satisfactory to
MSB, to the effect that such legend is not required for purposes of the
1933 Act; (ii) the reference to the provisions of this Warrant in the
above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in
compliance with the provisions of this Warrant and under circumstances
that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
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(g) If this Warrant should be exercised in part only, MSB
shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the shares purchasable hereunder. Upon receipt
by MSB of this Warrant, in proper form for exercise, the Holder shall
be deemed to be the holder of record of the shares of MSB Common Stock
issuable upon such exercise, notwithstanding that the stock transfer
books of MSB shall then be closed or that certificates representing
such shares of MSB Common shall not then be actually delivered to the
Holder. MSB shall pay all expenses, and any and all federal, state, and
local taxes and other charges that may be payable in connection with
the preparation, issue, and delivery of stock certificates under this
Section 1 in the name of the Holder or of any assignee, transferee, or
designee permitted by subparagraph (g) of this Section 1.
(h) Neither of the parties hereto may assign any of its rights
or obligations under this Warrant created hereunder to any other
person, without the express written consent of the other party, except
that in the event a Triggering Event shall have occurred prior to an
Exercise Termination Event, the Holder, subject to the express
provisions hereof, may assign in whole or in part its rights and
obligations hereunder within 90 days following such Triggering Event;
provided, however, that until the date 15 days following the date on
which the Office of Thrift Supervision approves an application by the
Holder pursuant to applicable laws and regulations to acquire the
shares of MSB Common Stock subject to this Warrant, IBC may not assign
its rights under this Warrant except in (i) a widely dispersed public
distribution, (ii) a private placement in which no one party acquires
the right to purchase in excess of 2% of the voting shares of MSB,
(iii) an assignment to a single party (e.g., a broker or investment
banker) for the purpose of conducting a widely dispersed public
distribution on the Holder's behalf, or (iv) any other manner approved
by the Office of Thrift Supervision.
SECTION 2. CERTAIN COVENANTS AND REPRESENTATIONS OF MSB AND IBC.
(a) MSB shall at all times maintain sufficient authorized but
unissued shares of MSB Common Stock so that this Warrant may be
exercised without additional authorization of the holders of MSB Common
Stock, after giving effect to all other outstanding options, warrants,
convertible securities, and other rights to purchase MSB Common Stock.
(b) MSB represents and warrants to the Holder that the shares
of MSB Common Stock issued upon an exercise of this Warrant will be
duly authorized, fully paid, nonassessable, and subject to no
preemptive rights.
(c) MSB agrees (i) that it will not, by charter amendment or
through reorganization, consolidation, merger, dissolution or sale of
assets, or by any other voluntary act, avoid or seek to avoid the
observance or performance of any of the covenants, stipulations, or
conditions to be observed or performed hereunder by MSB; (ii) promptly
to take all action as may from time to time be required, (including,
without limitation (A) complying with all pre-merger notification,
reporting, and waiting period requirements
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specified in 15 U.S.C. Section 18a and regulations promulgated
thereunder, and (B) in the event, under the Bank Holding Company Act of
1956, as amended (the "Bank Holding Company Act"), or the Change in
Bank Control Act of 1978, or other statute, the prior approval of the
Office of Thrift Supervision or other regulatory agency (collectively,
the "Agencies"), is necessary before the Warrant may be exercised or
transferred, cooperate fully with the Holder in preparing such
applications and providing such information to the Agencies as the
Agencies may require) in order to permit the Holder to exercise or
transfer this Warrant and MSB duly and effectively to issue shares
pursuant to the exercise hereof; and (iii) promptly to take all action
provided herein to protect the rights of the Holder against dilution.
(d) IBC represents and warrants to MSB that the Warrant is not
being, and any shares of MSB Common Stock or other securities acquired
by IBC upon exercise of the Warrant will not be, acquired with a view
to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act of 1933, as amended.
SECTION 3. FRACTIONAL SHARES. MSB shall not be required to issue
fractional shares of MSB Common Stock upon an exercise of this Warrant but shall
pay for such fraction of a share in cash or by certified or official bank check
at the Exercise Price.
SECTION 4. EXCHANGE OR LOSS OF WARRANT. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof at the principal office of MSB for other Warrants of different
denominations entitling the Holder thereof to purchase in the aggregate the same
number of shares of MSB Common Stock purchasable hereunder. The term "Warrant"
as used herein includes any warrants for which this Warrant may be exchanged.
Upon receipt by MSB of evidence reasonably satisfactory to it of the loss,
theft, destruction, or mutilation of this Warrant, and (in the case of loss,
theft, or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, MSB will execute and
deliver a new Warrant of like tenor and date. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
MSB, whether or not the Warrant so lost, stolen, destroyed, or mutilated shall
at any time be enforceable by anyone.
SECTION 5. CERTAIN TRANSACTIONS.
(a) In the event that prior to an Exercise Termination Event,
MSB shall (i) consolidate with or merge into any Person, other than IBC
or one of its Affiliates, and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) permit any Person,
other than IBC or one of its Affiliates, to merge into MSB, and MSB
shall be the continuing or surviving corporation, but, in connection
with such merger, (x) the shareholders of MSB immediately prior to such
merger own less than a majority of the surviving corporation's
outstanding voting securities, or (y) the then outstanding voting
shares of MSB Common Stock shall be changed into or exchanged for stock
or other securities of any other Person or cash or any other property,
or (iii) sell or otherwise transfer all or substantially all of its
assets to any Person, other than IBC or one of its Affiliates, then,
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and in any such case, the agreement governing such transaction shall
make proper provision so that this Warrant shall, upon the
consummation of any such transaction and upon the terms and conditions
set forth herein, be converted into, or exchanged for, a warrant, at
the option of the Holder, of either (A) the Acquiring Corporation (as
hereinafter defined), (B) any company which controls the Acquiring
Corporation, or (c) in the case of a merger described in clause
(a)(ii) above, MSB, in which case such warrant shall be a newly issued
warrant (in any such case, the "Substitute Warrant").
(b) For purposes of this Section 5, the following terms
have the meanings indicated:
(i) "Acquiring Corporation" shall mean (A) the
continuing or surviving corporation of a consolidation or
merger with MSB (if other than MSB), (B) the corporation
merging into MSB in a merger in which MSB is the continuing or
surviving person and in connection with which the then
outstanding shares of MSB Common Stock are changed into or
exchanged for stock or other securities of any other Person or
cash or any other property, or (c) the transferee of all or
substantially all of MSB's assets;
(ii) "Substitute Common" shall mean the common stock
issued by the issuer of the Substitute Warrant;
(iii) "Assigned Value" shall mean the Market/Offer
Price as determined pursuant to Subsection 7(b) of the Warrant
Purchase Agreement; provided, however, that in the event of a
sale of all or substantially all of MSB's assets, the Assigned
Value shall be the sum of the price paid in such sale for such
assets and the current market value of the remaining assets of
MSB as determined by a recognized investment banking firm
selected by the Holder, divided by the number of shares of MSB
Common Stock outstanding at the time of such sale;
(iv) "Average Price" shall mean the average closing
price of a share of Substitute Common for the one year
immediately preceding the consolidation, merger, or sale in
question, but in no event higher than the closing price of the
shares of Substitute Common on the day preceding such
consolidation, merger, or sale; provided that if MSB is the
issuer of the Substitute Warrant, the Average Price shall be
computed with respect to a share of the common stock issued by
the Person merging into MSB or by any company which controls
such Person, as the Holder may elect;
(v) A "Person" shall mean any individual, firm,
corporation or other entity and include as well any syndicate
or group deemed to be a "person" by Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended; and
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(vi) "Affiliate" shall have the meaning ascribed to such
term in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended.
(c) The Substitute Warrant shall have the same terms as this
Warrant, provided that, if the terms of the Substitute Warrant cannot,
for legal reasons, be the same as this Warrant, such terms shall be as
similar as possible and in no event less advantageous to the Holder.
The issuer of the Substitute Warrant shall also enter into an agreement
with the then Holder of the Substitute Warrant in substantially the
same form as the Warrant Purchase Agreement, which shall be applicable
to the Substitute Warrant.
(d) The Substitute Warrant shall be exercisable for such
number of shares of Substitute Common as is equal to the Assigned Value
multiplied by the number of shares of MSB Common Stock for which this
Warrant is then exercisable, divided by the Average Price. The exercise
price of the Substitute Warrant per share of Substitute Common shall be
equal to the Exercise Price multiplied by a fraction in which the
numerator is the number of shares of MSB Common Stock for which this
Warrant is then exercisable and the denominator is the number of shares
of Substitute Common for which the Substitute Warrant is exercisable.
SECTION 6. RIGHTS OF THE HOLDER; REMEDIES.
(a) The Holder shall not, by virtue hereof and prior to the
exercise hereof, be entitled to any rights of a holder of MSB Common
Stock.
(b) Without limiting the foregoing or any remedies available
to the Holder, MSB specifically acknowledges that neither IBC nor any
successor Holder of this Warrant would have an adequate remedy at law
for any breach of this Warrant and MSB hereby agrees that IBC and any
successor Holder shall be entitled to specific performance of the
obligations of MSB hereunder and injunctive relief against actual or
threatened violations of the provisions hereof.
SECTION 7. ANTIDILUTION PROVISIONS. The number of shares of MSB
Common Stock purchasable upon the exercise hereof shall be subject to adjustment
from time to time as provided in this Section 7.
(a) In the event that MSB issues any additional shares of MSB
Common Stock at any time after the date hereof (including pursuant to
stock option plans), the number of shares of MSB Common Stock which can
be purchased pursuant to this Warrant shall be increased by an amount
equal to 19.9 percent of the additional shares so issued.
(b) (i) In the event that, after the date hereof, MSB pays or
makes a dividend or other distribution of any class of capital stock of
MSB in MSB Common Stock, the number of shares of MSB Common Stock
purchasable upon exercise hereof shall be increased by multiplying such
number of shares by a fraction of which the denominator shall be the
number of shares of MSB Common Stock outstanding at the close of
business on the day immediately preceding the date of such distribution
and the numerator shall be the
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sum of such number of shares and the total number of shares
constituting such dividend or other distribution, such increase to
become effective immediately after the opening of business on the day
following such distribution.
(ii) In the event that, after the date hereof,
outstanding shares of MSB Common Stock are subdivided into a
greater number of shares of MSB Common Stock, the number of
shares of MSB Common Stock purchasable upon exercise hereof at
the opening of business on the day following the day upon
which such subdivision becomes effective shall be
proportionately increased, and, conversely, in the event that,
after the date hereof, outstanding shares of MSB Common Stock
are combined into a smaller number of shares of MSB Common
Stock, the number of shares of MSB Common Stock purchasable
upon exercise hereof at the opening of business on the day
following the day upon which such combination becomes
effective shall be proportionately decreased, such increase or
decrease, as the case may be, to become effective immediately
after the opening of business on the day following the day
upon which such subdivision or combination becomes effective.
(iii) The reclassification (including any
reclassification upon a merger in which MSB is the continuing
corporation) of MSB Common Stock into securities including
other than MSB Common Stock shall be deemed to involve a
subdivision or combination, as the case may be, of the number
of shares of MSB Common Stock outstanding immediately prior to
such reclassification into the number of shares of MSB Common
Stock outstanding immediately thereafter and the effective
date of such reclassification shall be deemed to be the day
upon which such subdivision or combination becomes effective,
as the case may be, within the meaning of clause (ii) above.
(c) Whenever the number of shares of MSB Common Stock
purchasable upon exercise hereof is adjusted pursuant to paragraph (b)
above, the Exercise Price shall be adjusted by multiplying the Exercise
Price by a fraction the numerator of which is equal to the number of
shares of MSB Common Stock purchasable prior to the adjustment and the
denominator of which is equal to the number of shares of MSB Common
Stock purchasable after the adjustment.
(d) For the purpose of this Section 7, the term "MSB
Common Stock" shall include any shares of MSB of any class or series
which has no preference or priority in the payment of dividends or in
the distribution of assets upon any voluntary or involuntary
liquidation, dissolution, or winding up of MSB and which is not subject
to redemption by MSB.
SECTION 8. NOTICE.
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(a) Whenever the number of shares of MSB Common Stock for
which this Warrant is exercisable is adjusted as provided in Section 7
hereof, MSB shall promptly compute such adjustment and mail to the
Holder a certificate, signed by a principal financial officer of MSB,
setting forth the number of shares of MSB Common Stock for which this
Warrant is exercisable and the adjusted Exercise Price as a result of
such adjustment, a brief statement of the facts requiring such
adjustment, the computation thereof, and when such adjustment will
become effective.
(b) Upon the occurrence of a Triggering Event MSB shall (i)
promptly notify the Holder and/or the "Owner" (as that term is defined
in the Warrant Purchase Agreement) of such event, (ii) promptly compute
the "Warrant Repurchase Price" and the "Warrant Stock Repurchase Price"
(as such terms are defined in the Warrant Purchase Agreement), and
(iii) furnish to the Holder and/or the Owner a certificate, signed by
the chief financial officer of MSB setting forth the Warrant Repurchase
Price and/or the Warrant Stock Repurchase Price and the basis and
computation thereof.
(c) Upon the occurrence of an event which results in this
Warrant becoming convertible into, or exchangeable for, the Substitute
Warrant, as provided in Section 5 hereof, MSB and the Acquiring
Corporation shall promptly notify the Holder of such event; and, upon
receipt from the Holder of its choice as to the issuer of the
Substitute Warrant, the Acquiring Corporation shall promptly compute
the number of shares of Substitute Common for which the Substitute
Warrant is exercisable and furnish to the Holder a certificate, signed
by a principal financial officer of the Acquiring Corporation, setting
forth the number of shares of Substitute Common for which the
Substitute Warrant is exercisable, the Substitute Warrant exercise
price, a computation thereof, and when such adjustment will become
effective.
SECTION 9. TERMINATION. This Warrant and the rights conferred hereby
shall terminate upon the earliest of (i) six months after the occurrence of a
Triggering Event; (ii) the Effective Time of the Merger, (iii) the date of
termination of the Merger Documents unless (a) the event giving rise to the
right to terminate is preceded by a Triggering Event, or (b) the receipt by MSB,
or the announcement by another person, of a proposal involving an Acquisition
Transaction
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or Tender Offer, unless the Agreement is earlier terminated by MSB, pursuant to
its right to terminate the Agreement, under the conditions of Section 6.1 of the
Agreement; or (iv) December 31, 2000.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of
this 24th day of March, 1999.
ATTEST: MUTUAL SAVINGS BANK, F.S.B.
By: /s/ Gary W. Wilds By: /s/ Robert N. Schuster
-------------------------- ----------------------------
Robert N. Schuster
Title: Secretary Its: Chief Executive Officer
-----------------------
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APPENDIX C
March 24, 1999
Board of Directors
Independent Bank Corporation
230 West Main Street
Ionia, Michigan
Members of the Board:
You have requested our opinion as to the fairness from a financial point of
view to the shareholders of Independent Bank Corporation ("IBC") of the exchange
ratio (the "Exchange Ratio") of 0.800 shares of common stock, par value $1.00
per share, of IBC (the "IBC Common Stock") to be exchanged for each share of
common stock, par value $0.01 per share of Mutual Savings Bank, f.s.b. ("MSB")
pursuant to the terms of the Agreement and Plan of Reorganization, dated as of
March 24, 1999, between IBC and MSB (the "Agreement"). For the purposes of our
opinion, we have assumed that the merger of MSB with IBC pursuant to the
Agreement(the "Merger") will constitute a tax-free reorganization as
contemplated by the Agreement and the Merger will qualify as a pooling of
interests for accounting purposes. We have also assumed that no securities will
be issued under the option agreement between IBC and MSB.
Stifel, Nicolaus & Company, Incorporated ("Stifel"), as part of its
investment banking services, is regularly engaged in the independent valuation
of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. In
the ordinary course of its business, Stifel actively trades equity securities of
IBC and MSB for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
In rendering our opinion, we have reviewed, among other things: the
Agreement; the financial statements of IBC and MSB included in their respective
Annual Reports on Form 10-K for the four years ended December 31, 1997 in the
case of IBC and for the five years ended December 31, 1998 in the case of MSB as
well as IBC's Quarterly Report on From 10-Q for the quarter ended September 30,
1998; certain internal financial analyses and forecasts for IBC and MSB prepared
by their respective managements; and certain internal financial forecasts for
IBC and MSB on a combined basis, giving effect to the Merger, prepared by the
management of IBC. We have conducted conversations with IBC's senior management
and MSB's senior management regarding recent developments and managements'
financial forecasts for IBC and MSB. In addition, we have spoken to members of
IBC's senior management and MSB's senior management regarding factors which
affect each entity's business. We have also compared certain financial and
securities data of IBC and MSB with various other companies whose securities are
traded in public markets, reviewed the historical stock prices and trading
volumes of the common stock of IBC and MSB, reviewed the financial terms of
certain other business combinations and conducted such other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion. We also took into account our assessment of general economic, market
and financial conditions and our experience in other transactions, as well as
our experience in securities valuations and our knowledge of the commercial
banking and thrift industries generally.
In rendering our opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all of the financial
and other information that was provided to us or that was otherwise reviewed by
us and have not assumed any responsibility for independently verifying any of
such information. With respect to the financial forecasts supplied to us
(including without limitation, projected cost savings and operating synergies
resulting from the Merger), we have assumed with your consent that they were
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of IBC and MSB as to the future operating and financial
performance of IBC and MSB, that they would be realized in the amounts and time
periods estimated and that they provided a reasonable basis upon which we could
form our opinion. We also assumed that there were no material changes in the
assets, liabilities, financial condition, results of operations, business or
prospects of either IBC or MSB since the date of the last financial
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statements made available to us. We have also assumed, without independent
verification and with your consent, that the aggregate allowances for loan
losses set forth in the financial statements of IBC and MSB are in the aggregate
adequate to cover all such losses. We did not make or obtain any independent
evaluation, appraisal or physical inspection of IBC's or MSB's assets or
liabilities, the collateral securing any of such assets or liabilities, or the
collectibility of any such assets nor did we review loan or credit files of IBC
or MSB. We relied on advice of counsel to IBC as to all legal matters with
respect to IBC, the Agreement and the transactions and other matters contained
or contemplated therein. We have assumed, with your consent, that there are no
factors that would delay or subject to any adverse conditions any necessary
regulatory or governmental approval and that all conditions to the Merger will
be satisfied and not waived.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. Our opinion is directed to the Board of Directors of
IBC for its information and assistance in connection with its consideration of
the financial terms of the transaction contemplated by the Merger and does not
constitute a recommendation to any shareholder as to how such shareholder should
vote on the proposed transaction, nor have we expressed any opinion as to the
prices at which any securities of IBC or MSB might trade in the future. Except
as required by applicable law, including without limitation federal securities
laws, our opinion may not be published or otherwise used or referred to, nor
shall any public reference to Stifel be made, without our prior written consent.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion, as of the date hereof, that the Exchange Ratio pursuant to the
Agreement is fair to the holders of IBC Common Stock from a financial point of
view.
Very truly yours,
STIFEL, NICOLAUS & COMPANY, INCORPORATED
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<PAGE> 203
APPENDIX D
The Board of Directors
Mutual Savings Bank, f.s.b.
623 Washington Avenue
Bay City, MI 48708
The Board of Directors:
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of Mutual Savings Bank, f.s.b. ("MSB") of the
conversion ratio governing the exchange of shares of the common stock of MSB for
shares of common stock of Independent Bank Corporation ("IBC") in connection
with the proposed acquisition of MSB by IBC pursuant to an Agreement and Plan of
Reorganization dated March 24, 1999, and related Consolidation Agreement dated
April 20, 1999 (the "Agreements") by and between MSB and IBC. Pursuant to the
Agreements, MSB will merge with and into IBC, with IBC being the surviving
corporation.
As is more specifically set forth in the Agreements, upon consummation of
the merger, each outstanding share of MSB common stock, except for shares held
by IBC and its subsidiaries or by MSB and its subsidiaries (in both cases, other
than shares held in a fiduciary capacity or as a result of debts previously
contracted), will be converted into and exchangeable for 0.80 shares of IBC
common stock (subject to adjustment under certain defined circumstances). The
exchange ratio referenced is a fixed exchange ratio and consequently the market
value of the consideration to be received by MSB shareholders will fluctuate
with changes in IBC's stock price. The Agreements many be terminated under
certain conditions prior to the effective time of the merger by the Board of
Directors of either party based on defined criteria.
McConnell, Budd, & Downes, Inc., as part of its investment banking
business, is regularly engaged in the valuation of bank holding companies and
banks, thrift holding companies and thrifts and their securities in connection
with mergers and acquisitions, negotiated underwritings, private placements,
competitive bidding processes, market making as a NASD market maker, secondary
distributions of listed securities and valuations for corporate, estate and
other purposes. Our experience and familiarity with MSB includes our
participation in the process and negotiations leading up to the proposed merger
with IBC. In the course of our role as financial advisor to MSB in connection
with the merger, we have received fees for our services and will receive
additional fees contingent on the occurrence of certain defined events. While
the payment of all or a significant portion of fees related to financial
advisory services provided in connection with arm's-length mergers and other
business combination transactions upon consummation of such transactions, as is
the case with this transaction, might be viewed as giving such financial
advisors a financial interest in the successful completion of such transactions,
such compensation arrangements are standard and customary for transactions of
the size and type of this transaction.
In arriving at our opinion, we have reviewed the Agreements. We have also
reviewed publicly available business, financial and shareholder information
relating to MSB and its subsidiaries and certain publicly available financial
and shareholder information relating to IBC.
In connection with the foregoing, we have (i) reviewed MSB's Annual Reports
to Shareholders, Annual Reports on Form 10-K and related financial information
for the four calendar years ended December 31, 1998 and MSB's Quarterly Report
on Form 10-Q and related unaudited financial information for the first quarter
of 1999; (ii) reviewed IBC's Annual Reports to Shareholders, Annual Reports on
Form 10-K and related financial information for the three calendar years ended
December 31, 1998 and IBC's Quarterly Report on Form 10-Q and related unaudited
financial information for the first quarter of 1999; (iii) reviewed certain
internal financial information and financial forecasts, relating to the business
earnings, cash flows, assets and prospects of the respective companies furnished
to McConnell, Budd & Downes, Inc. by MSB and IBC, respectively; (iv) held
discussions with members of the senior management and board of MSB concerning
the past and current results of operations of MSB, its current financial
condition and management's opinion of its future prospects; (v) held discussions
with members of senior management of IBC concerning the past and current results
of operations of IBC, its current financial condition and management's opinion
of its future prospects; (vi) reviewed the historical record of reported prices,
trading volume and dividend payments for
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both MSB and IBC common stock; (vii) considered the current state of and future
prospects for the economy of Michigan generally and the relevant market areas
for MSB and IBC in particular; (viii) reviewed specific merger analysis models
employed by McConnell, Budd & Downes, Inc. to evaluate potential business
combinations of financial institutions; (ix) reviewed the reported financial
terms of selected recent business combinations in the banking industry; and (x)
performed such other studies and analyses as McConnell, Budd & Downes, Inc.
considered appropriate under the circumstances associated with this particular
transaction.
In the course of our review and analysis we considered, among other things,
such topics as the historical and projected future contributions of recurring
earnings by the parties, the anticipated future earnings per share results for
the parties on both a combined and stand-alone basis, the potential to realize
significant recurring operating expense reductions and the impact thereof on
projected future earnings per share, the relative capitalization and capital
adequacy of each of the parties, the relative asset quality and apparent
adequacy of the reserve for loan losses for each of the parties. We also
considered the composition of deposits and the composition of the loan portfolio
of each of MSB and IBC. In addition, we considered the historical trading range,
trading pattern and relative market liquidity of the common shares of each of
the parties. In the conduct of our review and analysis we have relied upon and
assumed, without independent verification, the accuracy and completeness of the
financial information provided to us by MSB and IBC and or otherwise publicly
obtainable. In reaching our opinion we have not assumed any responsibility for
the independent verification of such information or any independent valuation or
appraisal of any of the assets or the liabilities of either MSB or IBC, nor have
we obtained from any other source, any current appraisals of the assets or
liabilities of either MSB or IBC.
We have also relied on the management of MSB and IBC as to the
reasonableness of various financial and operating forecasts and of the
assumptions on which they are based, which were provided to us for use in our
analyses.
In the course of rendering this opinion, which is being rendered prior to
the receipt of certain required regulatory approvals necessary before
consummation of the merger, we assume that no conditions will be imposed by any
regulatory agency in connection with its approval of the merger that will have a
material adverse effect on the results of operations, the financial condition or
the prospectus of IBC following consummation of the merger.
Based upon the subject to the foregoing, it is our opinion, that as of the
date of this letter, the exchange ratio is fair to the shareholders of MSB from
a financial point of view.
Very truly yours,
McConnell, Budd, & Downes, Inc.
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<PAGE> 205
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation of Independent Bank Corporation provide that
its directors and officers are to be indemnified as of right to the fullest
extent permitted under the Michigan Business Corporation Act ("MBCA"). Under the
MBCA, directors, officers, employees or agents are entitled to indemnification
against expenses (including attorneys' 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 attorneys' fees), judgments, fines,
penalties and reasonable settlement 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 or 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 attorneys' 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 or not
opposed to the best interests of the corporation or its shareholders; provided,
indemnification is not permitted if the person is 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 MBCA specifically provides that it is not the exclusive source of
indemnity. As a result, Independent Bank Corporation adopted individual
indemnification agreements with its directors. Approved by Independent Bank
Corporation's shareholders, the indemnification agreements provide a
contractually enforceable right for prompt indemnification, except that
indemnification is not required where: (i) indemnification is provided under an
insurance policy, except for amounts in excess of insurance coverage; (ii)
indemnification is provided by Independent Bank Corporation outside of the
agreement; (iii) the claim involved a violation of Section 16(b) of the
Securities Exchange Act of 1934 or similar provision of state law; or (iv)
indemnification by Independent Bank Corporation is otherwise prohibited by law.
In the case of a derivative or other action by or in the right of Independent
Bank Corporation where a director is found liable, indemnity is predicated on
the determination that indemnification is nevertheless appropriate, by majority
vote of a committee of disinterested directors, independent legal counsel, or a
court where the claim is litigated, whichever the indemnitee chooses. The
protection provided by the indemnification agreements is broader than that under
the MBCA, where indemnification in such circumstances is available only where
specifically authorized by the court where the claim is litigated.
In addition to the available indemnification, Independent Bank
Corporation'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 Independent Bank Corporation or its shareholders resulting
from certain negligent acts or omissions.
Under an insurance policy maintained by Independent Bank Corporation, the
directors and officers of Independent Bank Corporation are insured within the
limits and subject to the limitations of the policy, against certain expenses in
connection with the defense of certain claims, actions, suits or proceedings,
and certain liabilities which might be imposed as a result of such claims,
action, suits or proceedings, which may be brought against them by reason of
being or having been such directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Reference is made to the Exhibit Index which appears as the last page of
this Registration Statement.
(b) Financial Statement Schedules are included in the Prospectus as part of the
information included under Item 17 of this Form S-4 Registration Statement.
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(c) The opinion of McConnell, Budd & Downes appears as Appendix C to the Joint
Proxy Statement/ Prospectus.
(d) The opinion of Stifel Nicolaus & Company, Incorporated appears as Appendix D
to the Joint Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) 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 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.
(b) 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), 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.
(c) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 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.
(d) 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.
(e) 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.
(f) 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.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Ionia, State of Michigan,
on the 28th day of May, 1999.
INDEPENDENT BANK CORPORATION
/s/ CHARLES VANLOAN
--------------------------------------
Charles C. VanLoan,
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles C. Van Loan and William R. Kohls, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, 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 so and perform each and every act and thing required and 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 substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the dates indicated.
<TABLE>
<S> <C>
/s/ CHARLES VANLOAN Dated: May 28, 1999
- ------------------------------------------------------------
Charles C. VanLoan, President and Chief Executive Officer
and a Director (Principal Executive Officer)
/s/ WILLIAM R. KOHLS Dated: May 28, 1999
- ------------------------------------------------------------
William R. Kohls, Chief Financial Officer
(Principal Financial Officer)
/s/ JAMES J. TWAROZYNSKI Dated: May 28, 1999
- ------------------------------------------------------------
James J. Twarozynski, Vice President and Controller
(Principal Accounting Officer)
/s/ KEITH E. BAZAIRE Dated: May 28, 1999
- ------------------------------------------------------------
Keith E. Bazaire, Director
/s/ TERRY L. HASKE Dated: May 28, 1999
- ------------------------------------------------------------
Terry L. Haske, Director
/s/ THOMAS F. KOHN Dated: May 28, 1999
- ------------------------------------------------------------
Thomas F. Kohn, Director
/s/ ROBERT J. LEPPINK Dated: May 28, 1999
- ------------------------------------------------------------
Robert J. Leppink, Director
/s/ CHARLES A. PALMER Dated: May 28, 1999
- ------------------------------------------------------------
Charles A. Palmer, Director
/s/ ARCH V. WRIGHT Dated: May 28, 1999
- ------------------------------------------------------------
Arch V. Wright, Director
</TABLE>
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EXHIBIT INDEX
The following exhibits are filed as a part of the Registration Statement:
<TABLE>
<S> <C>
2.1 Agreement and Plan of Reorganization between Independent
Bank Corporation and Mutual Savings Bank, f.s.b. dated March
24, 1999, as set forth in full in Appendix A to the Joint
Proxy Statement/Prospectus which is a part of this
Registration Statement.
3.1 Restated Articles of Incorporation (incorporated herein by
reference to Exhibit 3(i) to the Registrant's report on Form
10-Q for the quarter ended June 30, 1994).
3.2 Amended and Restated Bylaws (incorporated herein by
reference to Exhibit 3(ii) to the Registrant's report on
Form 10-Q for the quarter ended June 30, 1994).
5 Opinion of Varnum, Riddering, Schmidt & Howlett LLP
regarding the validity of the securities being offered.
8 Opinion of Varnum, Riddering, Schmidt & Howlett LLP
Regarding Tax Matters.
10.1 Deferred Benefit Plan for Directors (incorporated herein by
reference to Exhibit 10(c) to the Registrant's report on
Form 10-K for the year ended December 31, 1984).
10.2 The form of Indemnity Agreement approved by the Registrant's
shareholders at its April 19, 1988 Annual Meeting, as
executed with all of the Directors of the Registrant
(incorporated herein by reference to Exhibit 10(F) to the
Registrant's report on Form 10-K for the year ended December
31, 1988).
10.3 Incentive Share Grant Plan, as amended, approved by the
Registrant's shareholders at its April 21, 1992 Annual
Meeting (incorporated herein by reference to Exhibit 10 to
the Registrant's report on Form 10-K for the year ended
December 31, 1992).
10.4 Non-Employee Director Stock Option Plan, as amended,
approved by the Registrant's shareholders at its April 15,
1997 Annual Meeting (incorporated herein by reference to
Exhibit 4 to the Registrant's Form S-8 Registration
Statement dated July 28, 1997, filed under registration No.
333-32269).
10.5 Employee Stock Option Plan, as amended, approved by the
Registrant's shareholders at its April 15, 1997 Annual
Meeting (incorporated herein by reference to Exhibit 4 to
the Registrant's Form S-8 Registration Statement dated July
28, 1997, filed under registration No. 333-32267).
10.6 The form of Management Continuity Agreement as executed with
executive officers and certain senior managers (incorporated
herein by reference to Exhibit 10.6 to the Registrant's
report on Form 10-K for the year ended December 31, 1998).
10.7 Warrant Purchase Agreement and Warrant dated March 24, 1999,
as set forth in full in Appendix B to the Joint Proxy
Statement/Prospectus which is a part of this Registration
Statement.
21 Subsidiaries of the Registrant (filed as exhibit 21 to the
Registrant's Form 10-K for the year ended December 31, 1998,
and is incorporated herein by reference.)
23(a) Consent of KPMG LLP regarding report on financial statements
of Independent Bank Corporation.
23(b) Consent of KPMG LLP regarding report on financial statements
of Mutual Savings Bank, f.s.b.
23(c) Consent of Varnum, Riddering, Schmidt & Howlett LLP
(included in Exhibit 5)
23(d) Consent of Stifel Nicolaus & Company, Incorporated.
23(e) Consent of McConnell Budd & Downes, Inc.
24 Powers of Attorney--included as a part of the signature
page.
99.1 Form of Proxy for Independent Bank Corporation.
99.2 Form of Proxy for Mutual Savings Bank, f.s.b.
</TABLE>
II-4
<PAGE> 209
<TABLE>
<S> <C>
99.3 Annual Report of Mutual Savings Bank, f.s.b., on Form 10-K
for the year ended December 31, 1998 (incorporated herein by
reference to Exhibit 99.1 to the Registrant's Current Report
on Form 8-K, dated May 25, 1999).
99.4 Quarterly Report of Mutual Savings Bank, f.s.b., on Form
10-Q for the quarterly period ended March 31, 1999
(incorporated herein by reference to Exhibit 99.2 to the
Registrant's Current Report on Form 8-K, dated May 25,
1999).
99.5 Current Report of Mutual Savings Bank, f.s.b., on Form 8-K
dated March 24, 1999 (in-corporated herein by reference to
Exhibit 99.3 to the Registrant's Current Report on Form 8-K,
dated May 25, 1999).
</TABLE>
II-5
<PAGE> 1
Exhibit 5
May 28, 1999
Independent Bank Corporation
230 West Main Street
Ionia, Michigan 48846
Subject: Acquisition of Mutual Savings Bank, f.s.b., A Stock Company
Ladies and Gentlemen:
With respect to the Registration Statement on form S-4 (the "Registration
Statement" to be filed by Independent Bank Corporation ("IBC") with the
Securities and Exchange commission relating to the registration of 3,679,024
shares of IBC common stock, $1.00 par value (the "Stock"), to be issued in
connection with the proposed merger (the "Merger") of Mutual Savings Bank,
f.s.b., A Stock Company ("MSB"), into IBC, we advise you as follows:
We are counsel for IBC and have participated in the preparation of the
Registration Statement. We have reviewed the Agreement and Plan of
Reorganization, dated March 24, 1999, between IBC and MSB, and the related
Consolidation Agreement among IBC, MSB and New MSB Bank, dated April 20, 1999,
collectively (the "Merger Documents'), IBC's Restated Articles of
Incorporation, IBC's Amended and Restated Bylaws, the corporate action taken to
date in connection with the Registration Statement and the issuance and sale of
the Stock, and such other documents and authorities as we deem relevant for the
purpose of this opinion.
Based upon the foregoing, we are of the opinion that:
(a) upon the proper approval of the Merger Documents by the shareholders
of MSB and IBC;
(b) upon the approval of the Merger by the Federal Reserve Board, the
Michigan Financial Institutions Bureau, and the Office of Thrift Supervision,
and the expiration of all applicable waiting periods;
(c) upon compliance with the Securities Act of 1933, as amended, and with
the securities or "blue sky" laws of the states in which the Stock is to be
offered for sale; and
(d) upon the "Effective Time," as defined in the Merger Documents;
the Stock, when issued and delivered as provided in the Merger Documents in
accordance with the resolutions heretofore adopted by the Board of Directors of
IBC, will be legally issued, fully paid, and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Joint Proxy Statement/Prospectus included in the Registration Statement.
Sincerely,
VARNUM, RIDDERING, SCHMIDT & HOWLETT LLP
/s/ Michael G. Wooldridge
Michael G. Wooldridge
<PAGE> 1
EXHIBIT 8
, 1999
------------
Board of Directors
Independent Bank Corporation
230 W. Main Street
Ionia, MI 48846
Board of Directors
Mutual Savings Bank, f.s.b.
623 Washington Avenue
Bay City, MI 48708
Re: Tax Opinion Concerning Reorganization/I.R.C. ss. 368(a)(2)(D)
Gentlemen:
At your request, this letter sets forth our opinion as to certain
federal income tax consequences of a statutory merger, described below, wherein
Mutual Savings Bank, f.s.b. ("Target"), a federal savings bank, would be merged
with and into New MSB Bank ("Subsidiary"), a Michigan banking corporation
organized pursuant to Section 130 of the Michigan Banking Code of 1969, as a
wholly-owned subsidiary controlled by Independent Bank Corporation ("Parent"),
in exchange for stock of Parent. Our opinion as to these tax consequences is
based on the facts, representations, assumptions and conditions stated below.
Background Facts & Representations
A. Parent
Parent is a publicly-held corporation engaged in the business of acting
as a bank holding company and in related activities. Parent owns all of the
outstanding shares of Subsidiary. Parent does not currently own, directly or
indirectly, nor has it directly or indirectly owned in the preceding five years,
<PAGE> 2
any of the stock of Target.
B. Subsidiary
Subsidiary is a Michigan banking corporation organized pursuant to
Section 130 of the Michigan Banking Code for the purpose of effecting the
proposed merger described herein. All of Subsidiary's shares of stock that are
issued and outstanding are held by Parent. Subsidiary will not engage in any
business activity during its corporate life prior to the merger of Target with
and into Subsidiary.
C. Target
Target is a federally chartered stock savings bank engaged in the
banking business. Target's issued and outstanding shares of stock are held of
record by more than 100 shareholders. Target does not own, directly or
indirectly, nor has it so owned in the preceding five years, any of the stock of
Parent. Target has no subsidiaries.
Representations Regarding Transaction
1. Target and Parent have entered into an Agreement and Plan of
Reorganization, dated March 24, 1999 (the "Merger Agreement").
2. Subsidiary, the surviving corporation in the merger, will acquire
all of the assets and assume all of the liabilities of Target. Subsidiary will
continue the business of Target under the name of "___________________." After
the merger, all of the issued and outstanding shares of Subsidiary will be owned
by Parent.
3. On the effective date of the merger, in general, each share of the
capital stock of Target shall, ipso facto and without any action on the part of
the holder thereof, become and be converted into the right to receive Parent
stock as provided in the Merger Agreement.
4. In connection with the conversion of Target stock into Parent stock,
no certificate evidencing fractional shares of Parent 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 Parent stock resulting
<PAGE> 3
from the conversion. In lieu thereof, Target shareholders who otherwise are
entitled to receive a fraction of a share of parent stock will be paid cash, as
provided in the Merger Agreement.
Certain Conditions and Assumptions
In connection with our opinion, we have examined and relied upon
originals, or copies certified or otherwise identified to our satisfaction, of
such records, documents, and other instruments, and such other matters of fact
and law, as we have considered necessary or appropriate for the purposes of this
opinion, including an examination of: (i) the Merger Agreement and the other
documents and agreements referred to therein; and (ii) the Joint Proxy
Statement/Prospectus (the "Prospectus") relating to the merger and included in
the Registration Statement of Parent on Form S-4 (the "Registration Statement")
filed by Parent with the Securities and Exchange Commission. In our examination,
we have assumed the legal capacity of all natural persons, the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
the conformity to the original documents of all documents submitted to us as
certified or photostatic copies, and the authenticity of the originals of such
latter documents.
For purposes of our opinion set forth below, we have assumed and are
relying upon the accuracy and completeness of the statements and representations
(which statements and representations we have neither investigated nor verified,
and upon which we are entitled to rely) contained, respectively, in certain
certificates of the officers of Parent and Target. We have also assumed that the
transactions contemplated by the Merger Agreement will be consummated in
accordance with the Merger Agreement, the merger will constitute a statutory
merger pursuant to the applicable provisions of the law of the State of
Michigan, and the facts, statements, and other information contained in the
Prospectus relating to the merger are true, correct, and complete in all
material respects.
Additional Representations and Assumptions
In addition to the above, the following representations and assumptions
have been made:
(a) The fair market value of Parent stock and other consideration, if
<PAGE> 4
any, to be received by each Target shareholder in the transaction will, in each
instance, be approximately equal to the fair market value of Target stock
surrendered in exchange therefor.
(b) There is no plan or intention by any Target shareholder to sell,
exchange or otherwise dispose of Parent stock to be received in the transaction
that will reduce their holding thereof 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 Target as of the same date. For
purposes of this representation, shares of Target stock exchanged for cash or
other property, surrendered by dissenters or exchanged for cash in lieu of
fractional shares of Parent stock will be treated as outstanding Target stock on
the date of the transaction. Moreover, shares of Target stock and shares of
Parent stock held by Target shareholders and otherwise sold, redeemed, or
disposed of prior or subsequent to the transaction will be considered in making
this representation.
(c) Subsidiary 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 Target immediately prior to the transaction. For purposes
of this representation, amounts paid by Target to dissenters, amounts paid by
Target to shareholders who receive cash or other property, Target assets used to
pay its reorganization expenses, and all redemptions and distributions (except
for regular, normal dividends) made by Target immediately before the transaction
will be included as assets held by Target immediately before the transaction.
(d) Prior to the transaction, Parent will be in control of Subsidiary
within the meaning of section 368(c) of the Internal Revenue Code of 1986, as
amended (the "I.R.C.").
(e) Following the transaction, Subsidiary will not issue additional
shares of its stock that would result in Parent losing control of Subsidiary
within the meaning of section 368(c)(1) of the I.R.C.
(f) Parent has no plan or intention to redeem or otherwise reacquire
any of its stock issued in the transaction.
(g) Parent has no plan or intention to liquidate Subsidiary, to sell or
<PAGE> 5
otherwise dispose of the stock of Subsidiary, to merge Subsidiary with and into
another corporation, or to cause Subsidiary to sell or otherwise dispose of any
of the assets of Target acquired in the transaction, except for dispositions
made in the ordinary course of its business.
(h) The liabilities of Target assumed by Subsidiary and the liabilities
to which the transferred assets of Target are subject were incurred by Target in
the ordinary course of its business and are associated with the assets to be
transferred. No Target liabilities will be assumed by or transferred to Parent.
(i) Following the transaction, Subsidiary will continue the historic
business of Target or use a significant portion of Target's business assets in a
business.
(j) Parent, Subsidiary, Target and shareholders of Target will pay
their respective expenses, if any, incurred in connection with the transaction.
(k) There is and will be no intercorporate indebtedness between Parent
and Target or between Subsidiary and Target that was or will be issued, acquired
or settled at a discount.
(l) 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 I.R.C.
(m) Target 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 I.R.C.
(n) The fair market value of the assets of Target to be transferred to
Subsidiary exceeds, and on the day of the proposed transaction will exceed, the
sum of all Target liabilities to be assumed by Subsidiary, plus the amount of
liabilities, if any, to which the assets to be transferred are subject.
(o) No Subsidiary stock will be used in the transaction to acquire
stock of Target, and no Subsidiary stock will be issued to any party other than
Parent in connection with the transaction.
(p) None of the compensation received by any shareholder-employee of
Target will be separate consideration for, or
<PAGE> 6
allocable to, any of their shares of Target 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 Parent's shares received by any shareholder-employee of Target will be
separate consideration for, or allocable to, any employment agreement
compensation owed to such shareholder-employee.
(q) Parent does not own, directly or indirectly, nor has it owned,
directly or indirectly, in the past five years, any Target stock.
(r) The boards of directors of Target, Subsidiary, and Parent believe
that the merger will strengthen Parent and its subsidiaries and affiliates, and
Target, and Subsidiary, as successor to Target, in enabling them to expand and
compete in the banking industry. The formation of Subsidiary, the merger of
Target with and into Subsidiary, and the exchange of Parent stock for Target
stock are to be effected for business purposes.
(s) The payment of cash in lieu of fractional shares of Parent stock is
solely for the purpose of avoiding the expense and inconvenience to Parent of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the transaction
to Target shareholders instead of issuing fractional shares of Parent stock will
not exceed one-tenth of one percent of the total consideration that will be
issued in the transaction to Target shareholders in exchange for their shares of
Target stock. The fractional share interests of each Target shareholder will be
aggregated, and no Target shareholder will receive cash in an amount equal to or
greater than the value of one full share of Parent stock.
(t) No dividends will be paid by Target before the consummation of the
transaction, other than regular periodic dividends, consistent in amount and in
effect with prior dividend distributions.
(u) In the transaction, shares of Target stock representing control of
Target, as defined in section 368(c)(1) of the I.R.C., will be exchanged solely
for voting stock of Parent. For purposes of this representation, shares of
Target stock exchanged for cash or other property originating with Parent will
be treated as outstanding Target stock on the date of the transaction.
(v) Target has, and on the date of the proposed transaction will have,
<PAGE> 7
no outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire any stock in Target that would
affect Parent's acquisition or retention of control of Target as defined in
section 368(c)(1) of the I.R.C.
Opinion and Additional Conditions
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 described above:
1. The acquisition by Subsidiary of substantially all of the assets of
Target in exchange for the stock of Parent and the assumption by Subsidiary of
the liabilities of Target will qualify as a reorganization within the meaning of
I.R.C. sections 368(a)(1)(A) and (a)(2)(D), and Parent, Target and Subsidiary
will each be a "party to a reorganization" within the meaning of section 368(b).
2. No gain or loss will be recognized by the Target shareholders upon
their receipt of Parent stock solely in exchange for their Target shares, except
to the extent of any cash received in lieu of fractional shares. I.R.C. ss.
356(a)(1).
3. The basis of Parent stock to be received by each Target shareholder
will be the same as the basis of Target stock surrendered in exchange therefor.
I.R.C. ss. 358(a)(1).
4. The holding period of Parent shares received by Target's
shareholders will include the holding period for Target shares surrendered in
exchange therefor, provided that Target shares surrendered were held as capital
assets in the hands of Target's shareholder on the date of the consummation of
the merger. I.R.C. ss. 1223(1).
5. No gain or loss will be recognized by Target upon the transfer
of substantially all of its assets to Subsidiary solely in exchange for Parent
shares and the assumption by Subsidiary of Target liabilities. I.R.C. ss.ss.
357(a), 361(a).
6. No gain or loss will be recognized by either Parent or
Subsidiary upon the receipt by Subsidiary of substantially all of the assets of
Target
<PAGE> 8
solely in exchange for Parent shares and the assumption by Subsidiary of the
liabilities of Target. Rev. Rul. 57-278, 1957-1 C.B. 124.
7. The basis of the assets of Target acquired by Subsidiary will be the
same as the basis of such assets in the hands of Target immediately before the
exchange. I.R.C. ss. 362(b). The holding period of Target's assets in the hands
of Subsidiary will include the holding period during which such assets were held
by Target immediately before the merger.
I.R.C. ss. 1223(2).
Our opinion may not be applicable to all shareholders, including,
without limitation, (1) a Target shareholder whose Target shares are not held as
a capital asset; or (2) a Target shareholder who is subject to special treatment
under the I.R.C., including without limitation, an insurance company, a dealer
in securities, a financial institution, a tax-exempt investor, or a non-United
States citizen.
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, our opinion may be adversely affected. 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
authority, including Treasury regulations, and administrative and judicial
interpretations of the law and regulations. Administrative positions of the
Internal Revenue Service contained in revenue rulings and revenue procedures,
and other authorities, including statutory provisions and judicial decisions
interpreting them, are subject to change, with possible retroactive effects, and
we undertake no obligation to advise you of any change in any matter set forth
herein.
Our opinion is limited to the specific issues addressed above and is
not intended to address any other issues. No opinion is expressed herein
concerning the effect of state, local, and foreign tax laws. Furthermore, no
opinion is expressed herein about the tax treatment of the transaction under
other provisions of the I.R.C. or the Treasury regulations issued thereunder or
about the tax treatment of any conditions existing at the time of, or effects
resulting from, the transaction that are not specifically addressed by the
foregoing opinion, including, without limitation, the exchange of any Target
<PAGE> 9
shares in the merger that were acquired by the holder pursuant to an employee
stock option or employee stock purchase plan or otherwise as compensation.
No advance ruling has been obtained from the Internal Revenue Service
regarding the merger described herein. An opinion of counsel represents
counsel's best legal judgment, but has no binding effect or official status of
any kind. Accordingly, there can be no assurance that the Internal Revenue
Service or courts will not take positions contrary to our opinion; however, we
believe it is more likely than not that the positions stated in our opinion will
be sustained.
No person other than the addressees named herein may rely on this
opinion for any purpose. This opinion is solely for the benefit of the parties
to whom it is addressed, and may not be relied upon by any other party, nor used
for any purpose other than in connection with the transaction described herein.
We consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-4 filed by Parent with the Securities and
Exchange Commission for the purpose of registering Parent's shares under the
Securities Act of 1933, as amended.
Respectfully submitted,
VARNUM, RIDDERING, SCHMIDT & HOWLETT LLP
<PAGE> 1
EXHIBIT 23(a)
The Board of Directors
Independent Bank Corporation:
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Selected Financial Data" and
"Experts" in the Joint Proxy Statement/Prospectus.
Detroit, Michigan /s/ KPMG LLP
May 27, 1999
<PAGE> 1
EXHIBIT 23(b)
The Board of Directors
Mutual Savings Bank, f.s.b.:
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Selected Financial Data" and
"Experts" in the Joint Proxy Statement/Prospectus.
Detroit, Michigan /s/ KPMG LLP
May 27, 1999
<PAGE> 1
Exhibit 23(d)
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the use of our opinion included as Appendix C to the
Proxy Statement/Prospectus included in the Registration Statement on Form S-4
relating to the proposed merger of Mutual Savings Bank, f.s.b. with and into
Independent Bank Corporation, and to the reference to our firm name under the
caption "Opinion of Financial Advisors -- Opinion of Financial Advisor of IBC"
in such Proxy Statement/Prospectus. In giving such consent, we do not admit and
we disclaim that we come 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 thereunder.
STIFEL, NICOLAUS & COMPANY, INCORPORATED
By: /s/ Mark J. Ross
-------------------------------
Mark J. Ross
Vice President
St. Louis, Missouri
May 28, 1999
<PAGE> 1
Exhibit 23 (e)
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the inclusion of the Opinion of McConnell, Budd &
Downes, Inc. in Appendix D to the Registration Statement on Form S-4 of the
Joint Proxy Statement of Independent Bank Corporation ("IBC") and Mutual
Savings Banks, f.s.b. ("MSB") to be filed with the Securities and Exchange
Commission in connection with the proposed Consolidation of IBC and MSB and to
the references to the work completed by our firm as financial advisor to MSB,
therein. In giving such consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission thereunder, nor do we thereby admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "expert" as used in the Securities Act of 1933 as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
/s/ McConnell, Budd & Downes, Inc.
<PAGE> 1
Exhibit 99.1
PROXY
INDEPENDENT BANK CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
AUGUST __, 1999
The undersigned acknowledges receipt of notice of a Special Meeting of
Shareholders of Independent Bank Corporation to be held on August ___, 1999, and
a Joint Proxy Statement/Prospectus dated July ___, 1999, and hereby appoints
William R. Kohls and Charles C. Van Loan, or either of them, attorneys and
proxies of the undersigned, each with full power of substitution, to vote all
shares of the undersigned in Independent Bank Corporation at the Special Meeting
of its Shareholders to be held on August ___, 1999, and at any adjournment
thereof:
1. FOR AGAINST ABSTAIN Approval of the Agreement and
// // // Plan of Reorganization, dated
March 24, 1999, contained and
described in the Joint Proxy
Statement/Prospectus dated
July ___, 1999, and the
resulting issuance of shares of
IBC common stock. (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 REORGANIZATION, AND 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 personally. Executors, administrators, trustees and persons signing
for corporations or partnerships should so indicate.
Dated: , 1999
------------------
-------------------------------
-------------------------------
-------------------------------
-------------------------------
Signature of Shareholder(s)
THIS PROXY IS SOLICITED BY THE BOARD
OF DIRECTORS OF INDEPENDENT BANK CORPORATION
<PAGE> 1
Exhibit 99.2
REVOCABLE PROXY
MUTUAL SAVINGS BANK, F.S.B., A STOCK COMPANY
SPECIAL MEETING OF SHAREHOLDERS
AUGUST , 1999
The undersigned acknowledges receipt of notice of a Special Meeting of
Shareholders of Mutual Savings Bank, f.s.b. to be held on August , 1999, and
a Joint Proxy Statement/Prospectus dated July , 1999, and hereby appoints
the Board of Directors of Mutual Savings Bank, f.s.b. or any successors in their
respective positions, as attorney and proxy of the undersigned, with full power
of substitution, to vote as directed below, all shares of common stock of Mutual
Savings Bank, f.s.b. held of record by the undersigned on July , 1999, at
the Special Meeting of its Shareholders to be held on August , 1999, and at
any adjournment thereof:
1. Approval of the Agreement and Plan of FOR AGAINST ABSTAIN
Reorganization, dated March 24, 1999, / / / / / /
and the related Consolidation Agreement,
dated April 20, 1999, contained and
described in the Joint Proxy Statement/
Prospectus dated July , 1999. (Your
Board of Directors recommends a vote
"FOR" this proposal.)
2. As said proxy holder in its discretion may determine by majority vote of
the Board of Directors of Mutual Savings Bank, f.s.b. 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 REORGANIZATION AND RELATED CONSOLIDATION AGREEMENT, AND WILL BE
VOTED IN ACCORDANCE WITH THE JUDGMENT OF THE PROXY 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 personally. Executors, administrators, trustees and persons signing
for corporations or partnerships should so indicate.
[ ] Dated: , 1999
---------------------
[ ]
---------------------------------
Signature of Shareholder(s)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS OF MUTUAL SAVINGS BANK, F.S.B., A STOCK COMPANY
