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As filed with the Securities and Exchange Commission on August 7, 1997
Registration No.
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MERCANTILE BANK CORPORATION
(Name of small business issuer in its charter)
Michigan
(State or jurisdiction of
incorporation or organization)
6712
(Primary Standard Industrial
Classification Code Number)
216 North Division Avenue
Grand Rapids, Michigan 49503
(616) 242-9000
38-3360865
(I.R.S. Employer
Identification No.)
(Address and telephone number of principal executive
offices and principal place of business or intended principal place of business)
GERALD R. JOHNSON, JR., CHAIRMAN
42 Deer Run Drive N.E.
Ada, Michigan 49301
(616) 676-0201
(Name, address, and telephone number of agent for service)
Copies to:
JEROME M. SCHWARTZ
Dickinson, Wright, Moon, Van Dusen & Freeman
500 Woodward Avenue, Suite 4000
Detroit, Michigan 48226-3425
DONALD J. KUNZ
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226-3583
Approximate date of proposed sale to the public: As soon as practicable
after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE PRICE(1) REGISTRATION FEE
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Common Stock 1,495,000 shares $10.00 $14,950,000 $4,530.31
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(1) Includes 195,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A) OF THE
SECURITIES ACT OF 1933, MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 7, 1997
PROSPECTUS
1,300,000 SHARES
MERCANTILE BANK CORPORATION LOGO
COMMON STOCK
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Mercantile Bank Corporation, a Michigan corporation (the "Company"), is
offering for sale 1,300,000 shares of its Common Stock (the "Common Stock"). The
Company is a proposed bank holding company organized to own all of the common
stock of Mercantile Bank of West Michigan, a Michigan banking corporation (in
organization), to be located in Grand Rapids, Michigan (the "Bank"). Neither the
Company nor the Bank has ever conducted any business operations other than
matters related to their initial organization and the raising of capital. See
"Business." There has been no public trading market for the Common Stock. Roney
& Co., L.L.C., one of the Underwriters, has advised the Company that it
anticipates making a market in the Common Stock following completion of the
offering, although there can be no assurance that an active trading market will
develop. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. The Company expects that the
quotations for the Common Stock will be reported on the OTC Bulletin Board. The
organizers of the Bank are expected to purchase at least 328,500 of the shares
of Common Stock at the public offering price.
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THE COMMON STOCK OFFERED BY THIS PROSPECTUS INVOLVES A SIGNIFICANT AMOUNT OF
RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN THE COMPANY'S COMMON STOCK.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND THEY ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1)(2) COMPANY(2)(3)
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Per Share................................. $10.00 $ $
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Total(2).................................. $13,000,000 $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting".
(2) The Company has granted the Underwriters a 30-day option to purchase up to
195,000 additional shares of its Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise such option in full,
the Price to Public, Underwriting Discounts, and Proceeds to Company will be
approximately $ , $ and $ , respectively. See
"Underwriting." The Underwriters have agreed to limit the Underwriting
Discounts to 1.5% of the public offering price for up to 328,500 shares sold
by the Underwriters to organizers of the Bank or their immediate families.
See "Underwriting." Organizers of the Bank have provided nonbinding
expressions of interest to purchase a total of approximately 328,500 shares.
If 328,500 shares are so purchased, Underwriting Discounts will be reduced
by, and proceeds to the Company will be increased by, $ .
(3) Before deducting estimated offering expenses payable by the Company of
$248,000.
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The shares of Common Stock are offered by the Underwriters subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to the right of the Underwriters to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares of
Common Stock will be made in Detroit, Michigan on or about , 1997.
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RONEY & CO. LOGO
THE DATE OF THIS PROSPECTUS IS , 1997.
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[KENT COUNTY MAP]
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AVAILABLE INFORMATION
The Company is not currently a reporting company pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), but will be required to
file reports pursuant to the Exchange Act following the completion of the
offering. The Company, which will use a December 31 fiscal year end, intends to
furnish its shareholders with annual reports containing audited financial
information and, for the first three quarters of each fiscal year, quarterly
reports containing unaudited financial information.
Requests for such documents should be directed to Robert B. Kaminski,
Secretary, 216 North Division Avenue, Grand Rapids, Michigan 49503.
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IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless the context clearly suggests otherwise, references in this Prospectus to
the Company include the Bank. Except as otherwise indicated, all information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
The Company was incorporated on July 15, 1997 under Michigan law and
will be a bank holding company owning all of the common stock of the Bank. The
Bank is organizing as a Michigan banking corporation with depository accounts
to be insured by the Bank Insurance Fund of the Federal Deposit Insurance
Corporation (the "FDIC"). The Bank intends to provide a range of commercial
and consumer banking services primarily in Kent County, Michigan, including
Grand Rapids and its suburbs. Those services will reflect the Bank's intended
strategy of serving small to medium size businesses, and individual customers
in its market area. The Bank's retail banking strategy will initially focus on
providing products and services, including automated teller machine, computer
home banking, telephone banking and automated bill paying services to
individuals in the Bank's market area. Completion of the offering will be
conditioned on the Company and the Bank having received all necessary
regulatory approvals, subject to the satisfaction of certain conditions.
Management anticipates commencing business in the fourth quarter of 1997.
REASON FOR STARTING MERCANTILE BANK OF WEST MICHIGAN
The liberalization of Michigan's branch banking laws, together with the
expansion of interstate banking, has led to substantial consolidation of the
banking industry in Michigan including the Bank's market area. In many cases,
when these consolidations occurred, local boards of directors were dissolved
and local management relocated or in some cases terminated.
In the opinion of the Company's management, this situation has created
a favorable opportunity for a new commercial bank with local management and
local directors. Management believes that such a bank can be successful in
attracting small to medium sized businesses and individuals as customers who
wish to conduct business with a locally owned and managed institution that
demonstrates an active interest in their business and personal financial
affairs. The Bank will seek to take advantage of this opportunity by
emphasizing in its marketing plan the Bank's local management, their strong
ties and active commitment to the community.
MARKET AREA
The Bank's primary service area will be Kent County, which includes the
City of Grand Rapids, the second largest city in the State of Michigan. Kent
County is comprised of 36 cities, villages or townships and ranks fourth in
population out of Michigan's 83 counties. Kent County covers 856 square miles.
According to available statistical data, Kent County has approximately 14,000
business establishments, an unemployment rate of approximately 3%, and a median
household income that is estimated to have grown approximately 40% from 1990 to
1996.
Kent County is also a significant banking market in the State of
Michigan. According to available industry data, as of June, 30, 1996, total
deposits in Kent County, including banks, thrifts and credit unions, were
approximately $7.6 billion.
The Bank's main office will be located in downtown Grand Rapids, and
will serve as the Company's corporate headquarters. The Company's address will
be 216 North Division Avenue, Grand Rapids, Michigan 49503. The Company's
telephone number is (616) 242-9000.
MANAGEMENT
Gerald Johnson, Jr., Chairman and Chief Executive Officer of the
Company and the Bank, has over 27 years experience in the financial services
industry, including 24 years of banking experience, 17 of which have been in
the Grand Rapids market area. Mr. Johnson was Chairman, President and Chief
Executive Officer of FMB - First Michigan Bank - Grand Rapids ("FMB-Grand
Rapids"), a Michigan banking corporation, from 1988 to May of 1997, and served
as that bank's President and Chief Executive Officer in 1987. FMB-Grand Rapids
had total assets of approximately $550 million at the time of Mr. Johnson's
decision to leave and start a new bank. FMB-Grand Rapids is a subsidiary of
First Michigan Bank Corporation, a bank holding company headquartered in
Zeeland, Michigan with total assets of over $3.6 billion as of June 30, 1997.
Robert Kaminski will serve as Senior Vice President and Secretary of the
Company and the Bank, and is expected to be responsible for credit, compliance
and operations for the Bank. Mr. Kaminski worked for FMB-Grand Rapids from
1984 to 1996 in various credit and loan review positions and worked for First
Michigan Bank Corporation as chief credit manager for three subsidiary banks
from 1996 until his decision to leave the bank in June of 1997.
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During the tenure of Mr. Johnson at FMB-Grand Rapids, total average
assets grew from approximately $83 million at the beginning of 1987 to $550
million at the time of his departure, while operating profits increased in each
of those years. From 1991 through 1996, FMB-Grand Rapids experienced a
compound annual growth in average assets of approximately 20%. Mr. Johnson has
chosen to join the Bank at a compensation level below what he earned in his
previous position.
Mr. Johnson has formed a Board of Directors comprised of individuals
with a broad background in business, real estate and law. In addition to Mr.
Johnson, current directors include Peter Cordes (business), John Gill
(business), David Hecht (law), Lawrence Larsen (business), Calvin Murdock
(business), Dale Visser (real estate) and Robert Wynalda (business). Messrs.
Larsen and Visser are former directors of FMB-Grand Rapids.
Mr. Johnson, the other members of the Board of Directors, and Mr.
Kaminski, represent a significant asset to the Company and the Bank. These
individuals have many years of personal experience in the Kent County and Grand
Rapids market and in some cases, have worked together successfully at other
financial institutions. The directors and officers assembled by the Company
represent a wide range of business, banking and investment knowledge and
experience. The Company believes that these individuals and their relationships
in the Kent County area should offer the Bank a substantial opportunity to
attract new relationships.
The Company anticipates that the organizers of the Bank, alone or with
their spouses, will purchase 328,500 shares of Common Stock in the offering at
the initial offering price. See "Principal Shareholders".
THE OFFERING
Securities offered by 1,300,000 shares of Common Stock. In addition, the Company
the Company as granted the Underwriters an option to purchase up to an
additional 195,000 shares to cover over-allotments. See
"Description of Capital Stock."
Common Stock to be 1,300,000 shares (1,495,000 shares if the over-allotment
outstanding after option is exercised in full).
the offering (1)
Use of proceeds by Capitalization of the Bank and payment of organization and
the Company preopening expenses. See "Use of Proceeds."
Proposed NASD Over MBWM
the Counter
Bulletin Board
Symbol
- ----------
(1) Does not include 45,000 shares issuable upon exercise of outstanding
stock options under the Company's 1997 Employee Stock Option Plan.
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RISK FACTORS
The Common Stock offered hereby involves a high degree of risk and should
be considered only by persons who can afford the loss of their investment. The
following constitute some of the potential risks of an investment in the Common
Stock and should be carefully considered by prospective investors prior to
purchasing shares of Common Stock. The order of the following is not intended
to be indicative of the relative importance of any described risk nor is the
following intended to be inclusive of all risks of investment in the Common
Stock.
LACK OF OPERATING HISTORY
Neither the Company nor the Bank has any operating history. The business
of the Company and the Bank is subject to the risks inherent in the
establishment of a new business enterprise. Because the Company is only
recently formed, the Bank has not commenced operations, and the Bank and the
Company are in the process of obtaining necessary regulatory approvals,
prospective investors do not have access to all of the information that, in
assessing their proposed investment, would be available to the purchasers of
securities of a financial institution with a history of operations.
SIGNIFICANT LOSSES EXPECTED
As a result of the substantial start-up expenditures that must be incurred
by a new bank and the time it will take to develop its deposit base and loan
portfolio, it is expected that the Bank, and thus the Company, will operate at
a substantial loss during the start-up of the Bank. Accordingly, they are not
expected to be profitable for at least the first two years. Cumulative losses
during the first two years of operation are expected to exceed $1.4 million.
There is no assurance that the Bank or the Company will ever operate
profitably. As a result, it is anticipated that the book value of the Common
Stock will decrease accordingly. If the Company does not reach profitability
and recover its accumulated operating losses and the non-recoverable portion of
its investment in fixed assets, investors in the offering would likely suffer a
significant decline in the value of their shares of Common Stock.
DELAY IN COMMENCING OPERATIONS
Although the Company and the Bank expect to receive all regulatory
approvals and commence business in the fourth quarter of 1997, there can be no
assurance as to when, if at all, these events will occur. Any delay in
commencing operations will increase pre-opening expenses and postpone
realization by the Bank of potential revenues. Absent the receipt of revenues
and commencement of profitable operations, the Company's accumulated deficit
will continue to increase (and book value per share decrease) as operating
expenses such as salaries and other administrative expenses continue to be
incurred.
GOVERNMENT REGULATION AND MONETARY POLICY
The Bank has applied for all regulatory approvals required to organize the
Bank and expects to receive authority to commence operations, subject to the
satisfaction of certain conditions. Those conditions include, among other
things, that: (i) beginning paid-in capital of the Bank will be not less than
$11 million; (ii) the Bank will maintain a ratio of Tier 1 capital to total
assets for the first three years after commencing business of at least 8% and
an adequate valuation reserve; and (iii) a commitment that no dividends will be
paid by the Bank until all initial losses have been recaptured, an appropriate
allowance for loan and lease losses has been established, and overall capital
is adequate. Regulatory capital requirements imposed on the Bank may have the
effect of constraining future growth, absent the infusion of additional
capital.
The Company and the Bank will be subject to extensive state and federal
government supervision and regulation. Existing state and federal banking laws
will subject the Bank to substantial limitations with respect to loans,
purchase of securities, payment of dividends and many other aspects of its
banking business. There can be no assurance that future legislation or
government policy will not adversely affect the banking industry or the
operations of the Bank. Federal economic and monetary policy may affect the
Bank's ability to attract deposits, make loans and achieve satisfactory
interest spreads. See "Supervision and Regulation."
NO ASSURANCE OF DIVIDENDS
It is anticipated that no dividends will be paid on the Common Stock for
the foreseeable future. The Company will be largely dependent upon dividends
paid by the Bank for funds to pay dividends on the Common Stock, if and when
such dividends are declared. No assurance can be given that future earnings of
the Bank, and resulting dividends to the Company, will be sufficient to permit
the legal payment of dividends to Company shareholders at any time in the
future. Even if the Company may legally declare dividends, the amount and
timing of such dividends will be at the discretion of the Company's Board of
Directors. The Board may in its sole discretion decide not to declare
dividends. These shares should not be purchased by persons who need or desire
dividend income from this investment. For a more detailed discussion of other
regulatory limitations on the payment of cash dividends by the Company, see
"Dividend Policy."
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COMPETITION
The Company and the Bank will face strong competition for deposits, loans
and other financial services from numerous banks, savings banks, thrifts,
credit unions and other financial institutions as well as other entities which
provide financial services, including consumer finance companies, securities
brokerage firms, mortgage brokers, insurance companies, mutual funds, and other
lending sources and investment alternatives. Some of the financial
institutions and financial services organizations with which the Bank will
compete are not subject to the same degree of regulation as the Bank. Many of
the financial institutions aggressively compete for business in the Bank's
proposed market area. Most of these competitors have been in business for many
years, have established customer bases, are larger, have substantially higher
lending limits than the Bank, and will be able to offer certain services that
the Bank does not expect to provide in the foreseeable future, including
multiple branches, trust services, and international banking services. In
addition, most of these entities have greater capital resources than the Bank,
which, among other things, may allow them to price their services at levels
more favorable to the customer and to provide larger credit facilities than
could the Bank. See "Business - Market Area" and "Business - Competition."
Additionally, recently effective legislation regarding interstate branching and
banking may act to increase competition in the future from larger out-of-state
banks. See "Supervision and Regulation - Recent Regulatory Developments."
DEPENDENCE ON MANAGEMENT
The Company is, and for the foreseeable future will be, dependent
primarily upon the services of Gerald R. Johnson, Jr., the Chairman of the
Board and Chief Executive Officer of the Company. If the services of Mr.
Johnson were to become unavailable to the Company for any reason, or if the
Company were unable to hire highly qualified and experienced personnel either
to replace Mr. Johnson, or any other proposed employee, or to staff the
anticipated growth, the operating results of the Company would be adversely
affected. The Company and the Bank do not have employment agreements with, or
key man life insurance for, Mr. Johnson or any other of its officers. See
"Business - Employees" and "Management."
DISCRETION IN USE OF PROCEEDS
The offering is intended to raise funds to provide for the initial
capitalization of the Bank, purchase leasehold improvements, equipment and
other assets for the Bank's operations, fund loans, provide working capital for
general corporate purposes, and pay initial operating expenses. While
management currently has no such plans, if opportunities arise, some of the
proceeds of the offering could also be used to finance acquisitions of other
financial institutions, branches of other institutions, or expansion into other
lines of business closely related to banking. However, management will retain
discretion in employing the proceeds of the offering. See "Use of Proceeds."
LENDING RISKS AND LENDING LIMITS
The risk of nonpayment of loans is inherent in commercial banking, and
such nonpayment, if it occurs, would likely have a material adverse effect on
the Company's earnings and overall financial condition as well as the value of
the Common Stock. Because the Bank does not have an operating history, none of
the Bank's customers will have an established credit history with the Bank.
Management will attempt to minimize the Bank's credit exposure by carefully
monitoring the concentration of its loans within specific industries and
through prudent loan application and approval procedures, but there can be no
assurance that such monitoring and procedures will reduce such lending risks.
Credit losses can cause insolvency and failure of a financial institution, and
in such event, its shareholders could lose their entire investment.
The Bank's general lending limit is expected to initially be approximately
$1.65 million; subject to a higher lending limit of $2.75 million in specific
cases with approval by two-thirds of the Bank's Board of Directors.
Accordingly, the size of the loans which the Bank can offer to potential
customers is less than the size of loans which most of the Bank's competitors
with larger lending limits are able to offer. This limit initially may affect
the ability of the Bank to seek relationships with the area's larger
businesses. The Bank expects to accommodate loan volumes in excess of its
lending limit through the sale of participations in such loans to other banks.
However, there can be no assurance that the Bank will be successful in
attracting or maintaining customers seeking larger loans or that the Bank will
be able to engage in participations of such loans on terms favorable to the
Bank.
IMPACT OF INTEREST RATES AND ECONOMIC CONDITIONS
The results of operations for financial institutions, including the Bank,
may be materially and adversely affected by changes in prevailing economic
conditions, including declines in real estate market values, rapid changes in
interest rates and the monetary and fiscal policies of the federal government.
See "Supervision and Regulation - General" and "- Recent Regulatory
Developments." The Bank's profitability is in part a function of the spread
between the interest rates earned on investments and loans and the interest
rates paid on deposits and other interest-bearing liabilities. In the early
1990s, many banking organizations experienced historically high interest rate
spreads. More recently, interest rate spreads have generally narrowed due to
changing market conditions and competitive pricing pressure, and there can be
no assurance that such factors will not continue to exert such pressure or that
such high interest rate spreads will return. Although economic conditions in
the Bank's market area have been generally favorable, there can be no assurance
that such conditions will continue to prevail. Substantially all the Bank's
loans will be to businesses and individuals in Western Michigan and any decline
in the economy of this area could have an adverse impact on the Bank. Like
most banking institutions, the Bank's net interest spread and margin will be
affected by general economic conditions and other factors that influence market
interest rates and the Bank's ability to respond to changes in such rates. At
any given time, the Bank's assets and liabilities will be such that they are
affected
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differently by a given change in interest rates. As a result, an increase or
decrease in rates could have a material adverse effect on the Bank's net
income, capital and liquidity. While management intends to take measures to
guard against interest rate risk, there can be no assurance that such measures
will be effective in minimizing the exposure to interest rate risk. See
"Supervision and Regulation."
NEED FOR TECHNOLOGICAL CHANGE
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. The Company's
future success will depend in part on its ability to address the needs of its
customers by using technology to provide products and services that will
satisfy customer demands for convenience as well as to create additional
efficiencies in the Bank's operations. Many of the Bank's competitors have
substantially greater resources to invest in technological improvements. Such
technology may permit competitors to perform certain functions at a lower cost
than the Bank. There can be no assurance that the Bank will be able to
effectively implement new technology-driven products and services or be
successful in marketing such products and services to its customers. See
"Business - Business Strategy."
ANTI-TAKEOVER PROVISIONS
Chapters 7A and 7B of the Michigan Business Corporation Act provide for
certain supermajority vote and other requirements on certain business
combinations with interested shareholders and limit voting rights of certain
acquirers of control shares. In addition, federal law requires the approval of
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") prior to acquisition of "control" of a bank holding company. These
provisions may have the effect of delaying or preventing a change in control of
the Company without action by the shareholders. As a result, these provisions
could adversely affect the price of the Common Stock by, among other things,
preventing a shareholder of the Company's Common Stock from realizing a premium
which might be paid as a result of a change in control of the Company. See
"Description of Capital Stock - Certain Anti-Takeover Provisions."
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation and bylaws provide for the
indemnification of its officers and directors and insulate its officers and
directors from liability for certain breaches of the duty of care. It is
possible that the indemnification obligations imposed under these provisions
could result in a charge against the Company's earnings and thereby affect the
availability of funds for payment of dividends to the Company's shareholders.
See "Description of Capital Stock - Indemnification of Directors and Officers."
DETERMINATION OF OFFERING PRICE; LIMITED TRADING MARKET EXPECTED
The initial public offering price of $10.00 per share was determined by
the Company in consultation with the Underwriters. This price is not based upon
earnings or any history of operations and should not be construed as indicative
of the present or anticipated future value of the Common Stock. Prior to the
offering, there has been no public trading market for the Common Stock. The
price at which these shares are being offered to the public may be greater than
the market price for the Common Stock following the offering. Roney & Co.,
L.L.C., one of the Underwriters, has advised the Company that, upon completion
of the offering, it intends to use reasonable efforts to initiate
quotations of the Common Stock on the OTC Bulletin Board and to act as a market
maker in the Common Stock, subject to applicable laws and regulatory
requirements, although it is not obligated to do so. Making a market in
securities involves maintaining bid and ask quotations and being able, as
principal, to effect transactions in reasonable quantities at those quoted
prices, subject to various securities laws and other regulatory requirements.
The development of a public trading market depends, however, upon the existence
of willing buyers and sellers, the presence of which is not within the control
of the Company, the Bank or any market maker. Market makers on the OTC
Bulletin Board are not required to maintain a continuous two sided market, are
required to honor firm quotations for only a limited number of shares, and are
free to withdraw firm quotations at any time. Even with a market maker,
factors such as the limited size of the offering, the lack of earnings history
for the Company and the absence of a reasonable expectation of dividends within
the near future mean that there can be no assurance of an active and liquid
market for the Common Stock developing in the foreseeable future. Even if a
market develops, there can be no assurance that a market will continue, or that
shareholders will be able to sell their shares at or above the price at which
these shares are being offered to the public. Purchasers of Common Stock should
carefully consider the limited liquidity of their investment in the shares
being offered hereby.
REGULATORY RISK
The banking industry is heavily regulated. Many of these regulations are
intended to protect depositors, the public, and the FDIC, not shareholders.
Applicable laws, regulations, interpretations and enforcement policies have
been subject to significant, and sometimes retroactively applied, changes in
recent years, and may be subject to significant future changes. There can be
no assurance that such future changes will not adversely affect the business of
the Company. In addition, the burden imposed by federal and state regulations
may place banks in general, and the Company specifically, at a competitive
disadvantage compared to less regulated competitors. See "Supervision and
Regulation."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,300,000 shares of
Common Stock offered hereby are estimated to be $___ ($___ if the
Underwriters' over-allotment option is exercised in full), after deduction of
the underwriting discounts, but before deducting estimated offering expenses of
$______. The Underwriters have agreed to limit the underwriting discounts to
1.5% of the public offering price for the first 328,500 shares sold by the
Underwriters to organizers of the Bank or their immediate families. Such
persons have provided nonbinding expressions of interest to purchase
approximately 328,500 shares. If such persons purchase 328,500 shares,
underwriting discounts will be reduced by, and proceeds to the Company will be
increased by, $ .
The Company expects to contribute approximately $11,000,000 of the net
proceeds of the offering to the Bank by purchasing all of the Bank's common
stock to be issued. This purchase of the Bank's stock is intended to provide
the Bank with the capital required by regulators to commence operations. The
Bank plans to use approximately $650,000 for leasehold improvements and related
architectural and engineering services, and approximately $850,000 to purchase
furniture, fixtures and equipment and other necessary assets for the Bank's
operations. The Company expects to use approximately $46,000 of the net
proceeds to pay for organizational expenses of the Bank. These
organizational expenses, and other preopening expenses, were financed on an
interim basis from loans of approximately $278,500 made to the Company by
members of its Board of Directors. It is anticipated that this approximately
$278,500 of loans will be repaid by the Company promptly following the
completion of the offering. Preopening income may offset some of these
expenses. It is currently anticipated that the balance of the net proceeds
received by the Bank will be used to fund investments in loans and securities
and for payment of operating expenses. The remaining net proceeds (plus any
net proceeds as a result of the exercise of the Underwriters' over-allotment
option) will initially be invested by the Company in investment grade
securities and otherwise held by the Company as working capital for general
corporate purposes and to pay operating expenses, as well as for possible
future capital contributions to the Bank. The funds will also be available to
finance possible acquisitions of other branches or expansion into other lines
of business closely related to banking, although the Company presently has no
plans to do so.
DIVIDEND POLICY
The Company initially expects that Company and Bank earnings, if any, will
be retained to finance the growth of the Company and the Bank and that no cash
dividends will be paid for the foreseeable future. After the Bank achieves
profitability, recovers its operating deficit, and funds an adequate reserve
for loan and lease losses, the Company may consider payment of dividends.
However, the declaration of dividends is at the discretion of the Board of
Directors, and there is no assurance that dividends will be declared at any
time. If and when dividends are declared, the Company will be largely
dependent upon dividends paid by the Bank for funds to pay dividends on the
Common Stock. It is also possible, however, that the Company might at some
time in the future pay dividends generated from income or investments and from
other activities of the Company.
Under Michigan law, the Bank will be restricted as to the maximum amount
of dividends it may pay on its Common Stock. A Michigan state bank may not
declare dividends except out of net profits then on hand after deducting its
losses and bad debts and then only if the bank will have a surplus amounting to
at least 20% of its capital after the payment of the dividend. A Michigan
state bank may not declare or pay any cash dividend or dividend in kind until
the cumulative dividends on its preferred stock, if any, have been paid in
full. If the surplus of a Michigan state bank is at any time less than the
amount of its capital, before the declaration of a cash dividend or dividend in
kind, it must transfer to surplus not less than 10% of its net profits for the
preceding half-year (in the case of quarterly or semi-annual dividends) or the
preceding two consecutive half-year periods (in the case of annual dividends).
The ability of the Company and the Bank to pay dividends is also affected by
various regulatory requirements and policies, such as the requirement to
maintain adequate capital above regulatory guidelines. See "Supervision and
Regulation." Such requirements and policies may limit the Company's ability to
obtain dividends from the Bank for its cash needs, including funds for
acquisitions, payment of dividends by the Company, and the payment of operating
expenses.
CAPITALIZATION
The following table sets forth the capitalization of the Company as it is
projected to be immediately after the sale of the 1,300,000 shares of Common
Stock offered hereby and the application of the estimated net proceeds. See
"Use of Proceeds."
Short-term debt $-0-
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized, none issued $-0-
Common Stock, no par value, 9,000,000 shares authorized,
1,300,000 shares issued and outstanding 1,300,000
Additional Paid-in Capital 10,723,000
Retained Earnings (204,000)
Organizational Expenses (1) (46,000)
------------
Total Equity $11,773,000
- ---------
(1) The organizational expenses will be amortized over a 60 month period.
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BUSINESS
BACKGROUND
The liberalization of Michigan's branch banking laws, together with the
expansion of interstate banking, has led to substantial consolidation of the
banking industry in Michigan, including the West Michigan area, where the Bank
will be located. In the past, several of the financial institutions within the
primary market area of the Bank have either been acquired by or merged with
larger financial institutions or out-of-state financial institutions. In some
cases, when these consolidations occurred, local boards of directors were
dissolved and local management relocated or in some cases terminated. This has
in some cases resulted in policy and credit decisions being centralized away
from local management.
In the opinion of the Company's management, this situation has created a
favorable opportunity for a new commercial bank with local management and
directors. Management of the Company believes that such a bank can attract
those customers who wish to conduct business with a locally managed institution
that demonstrates an active interest in their business and personal financial
affairs. The Company believes that a locally managed institution, in many
cases, will be able to deliver more timely responses to customer requests,
provide customized financial products and services, and offer the personal
attention of the Bank's senior banking officers. The Bank will seek to take
advantage of this opportunity by emphasizing in its marketing plan the Bank's
local management and the Bank's ties and commitment to its market area.
After the offering, the Company will own all of the issued and outstanding
stock of the Bank. Following completion of the offering and before
commencement of operations, the Bank intends to complete the furnishing of its
main office, certain training of its staff and the purchase, lease and
installation of equipment necessary to transact a banking business.
Correspondent banking relationships and other arrangements for services will be
completed as necessary.
The Company was incorporated as a Michigan business corporation on July
15, 1997. The Company was formed to acquire all of the Bank's issued and
outstanding stock and to engage in the business of a bank holding company under
the federal Bank Holding Company Act of 1956, as amended. On June 23, 1997,
the Company filed its application with the Commissioner of the Financial
Institutions Bureau of the State of Michigan (the "Commissioner") to establish
the Bank. The Company filed its application for deposit insurance with the
FDIC on June 30, 1997. The Company's application to become a bank holding
company for the Bank was filed with the Federal Reserve Board on , 1997. The
Company and the Bank expect to receive the necessary approvals of their
applications and commence business in the fourth quarter of 1997. See "Risk
Factors - Delay in Commencing Operations" and "Risk Factors - Government
Regulation and Monetary Policy."
The Company will maintain its offices at 216 North Division Avenue, Grand
Rapids, Michigan 49503, telephone number (616) 242-9000.
BUSINESS STRATEGY
The Bank intends to provide a range of business and consumer financial
services to serve small to medium-sized business customers and individuals. The
foundation of this strategy will be to emphasize local management and its
commitment to the Bank's primary market area. Gerald R. Johnson, Jr., Chairman
and Chief Executive Officer of the Company, has over 17 years of banking
experience in the Bank's market area. Mr. Johnson was President and Chief
Executive Officer of FMB, a Michigan banking corporation with more than $550
million of assets, at the time of his resignation from FMB to organize the
Bank. Mr. Johnson is assembling a staff that is expected to provide prompt
customer service and effective banking products. The Bank intends to compete
aggressively for its banking business through a systematic program of direct
calling on both customers and referral sources such as attorneys, accountants
and other business people.
BUSINESS FINANCIAL SERVICES. The Bank intends to offer products and
services consistent with its goal of attracting small to medium-sized business
customers as well as a variety of individuals. Commercial loans will be offered
on both a secured and unsecured basis and will be available for working capital
purposes, the purchase of equipment and machinery, financing of accounts
receivable and inventory and for the purchase of real estate, primarily owner
occupied real estate. As part of its banking business, the Bank may make loans
to all types of borrowers secured by first and junior mortgages on various
types of real estate, including without limitation, single-family residential,
multi-family residential, mixed use, commercial, developed, and undeveloped.
In making such loans, the Bank will be subject to written policies, reviewed
and approved at least annually by the Bank's Board of Directors, pursuant to
federal law and regulations. Such policies will address loan portfolio
diversification and prudent underwriting standards, loan administration
procedures, and documentation, approval and reporting requirements. In
addition, federal regulations specify minimum supervisory loan-to-value ratios
applicable to each type of loan secured by real estate.
The Bank will generally look to a borrower's business operations as the
principal source of repayment and will also seek, when appropriate, security
interests in the inventory, accounts receivable or other personal property of
the borrower, and personal guaranties. Although the Bank intends to be
aggressive in seeking new loan growth, it intends to stress high quality in its
loans. To promote such standards, the Board of Directors of the Bank intends to
establish strict lending policies, including specified lending authorities,
loan review policies and lending committees. In establishing
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such policies, the Board of Directors will be required to conform to applicable
bank regulatory requirements. See "Supervision and Regulation".
The Bank intends to actively pursue business checking accounts by offering
competitive rates, computerized banking, and other convenient services to its
business customers. In some cases the Bank will require its business borrowers
to maintain minimum balances. Management of the Bank also intends to establish
relationships with one or more correspondent banks and other independent
financial institutions to provide other services requested by its customers,
including loan participations where the requested loan amount exceeds the
Bank's legal lending limit.
CONSUMER FINANCIAL SERVICES. The Bank's retail banking strategy will
initially focus on providing attractive products and services, including
automated teller machine, computer home banking, telephone banking and
automated bill paying services to individuals in the Bank's market area. The
Bank believes that by offering these technologically advanced banking products
it can attract new deposits and loans without the necessity of expensive brick
and mortar branch operations.
In addition, the Bank will originate residential real estate loans in the
form of first mortgages and home equity loans. The Bank intends to apply to
the Federal Home Loan Mortgage Corporation (Freddie Mac) for approval as a
seller-servicer of residential mortgage loans and intends to sell most of its
fixed rate mortgages into the secondary market. Most of its adjustable rate
loans and home equity loans, which will also be primarily adjustable rate, are
intended to be held in the Bank's portfolio.
The Bank intends to offer other consumer lending services including credit
cards (through third-party providers), direct auto loans, and other personal
loan products on both a secured and unsecured basis.
Management expects that the Bank's staff will have access to current
software and database systems selected to deliver high-quality products and
provide responsive service to clients. The Bank expects to enter into
agreements with third-party service providers to provide customers with
convenient electronic access to their accounts and other bank products through
debit cards, voice response and home banking. The use of third-party service
providers is intended to allow the Bank to remain at the forefront of
technology while minimizing the costs of delivery.
INVESTMENTS. The principal investment of the Company will be its purchase
of all of the common stock of the Bank. Funds retained by the Company from
time to time may be invested in various debt instruments, including but not
limited to obligations of or guaranteed by the United States, general
obligations of a state or political subdivision thereof, bankers' acceptances
or certificates of deposit of United States commercial banks, or commercial
paper of United States issuers rated in the highest category by a
nationally-recognized investment rating service. Although the Company is
permitted to make limited portfolio investments in equity securities and to
make equity investments in subsidiary corporations engaged in certain
non-banking activities which may include real estate-related activities, such
as mortgage banking, community development, real estate appraisals, arranging
equity financing for commercial real estate, and owning and operating real
estate used substantially by the Bank or acquired for its future use, the
Company has no present plans to make any such equity investment. See,
"Supervision and Regulation - The Company - Investments and Activities." The
Company's Board of Directors may alter the Company's investment policy without
shareholder approval.
The Bank may invest its funds in a wide variety of debt instruments and
may participate in the federal funds market with other depository institutions.
Subject to certain exceptions, the Bank is prohibited from investing in equity
securities. Under one such exception, in certain circumstances and with the
prior approval of the FDIC, the Bank could invest up to 10% of its total assets
in the equity securities of a subsidiary corporation engaged in certain real
estate-related activities. The Bank has no present plans to make such an
investment. Real estate acquired by the Bank in satisfaction of or foreclosure
upon loans may be held by the Bank, subject to a determination by a majority of
the Bank's Board of Directors at least annually of the advisability of
retaining the property, for a period not exceeding 60 months after the date of
acquisition, or such longer period as the Commissioner may approve. The Bank
is also permitted to invest an aggregate amount not in excess of two-thirds of
the capital and surplus of the Bank in such real estate as is necessary for the
convenient transaction of its business. The Bank has no present plans to make
any such investment. The Bank's Board of Directors may alter the Bank's
investment policy without shareholder approval.
MARKET AREA
Management believes that recent changes in the local banking industry,
including mergers and acquisitions involving commercial banks and thrift
institutions, have resulted in a decrease in the level of service for small to
medium-sized business customers in the Bank's market area. Management believes
that there continues to be the perception in some areas of the local business
community that many of the larger financial institutions are not as focused on
providing personal service to small to medium-sized businesses. Accordingly,
management believes that there are increased market opportunities for the Bank
to serve these businesses.
The Bank's main office will be located at 216 North Division Avenue
between Lyon Street and Michigan Street in downtown Grand Rapids, Michigan, not
far from the Butterworth Hospital Complex and Grand Rapids Community College.
The Bank will be leasing a building that is being renovated by the Bank.
The Bank's primary service area will be Kent County which includes the
City of Grand Rapids, the second largest city in the State of Michigan. Kent
County is comprised of 36 cities, villages or townships and ranks fourth in
population out of Michigan's 83 counties. Kent County covers 856 square miles.
According to available statistical data, Kent County has approximately 14,000
business establishments, an unemployment rate of
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approximately 3%, and a median household income that is estimated to have grown
approximately 40% from 1990 to 1996.
Kent County is also a significant banking market in the State of Michigan.
According to available industry data, as of June 30, 1996 total deposits in
Kent County, including banks, thrifts and credit unions, were approximately
$7.6 billion.
COMPETITION
There are many thrift institution, credit union and bank offices located
within the Bank's primary market area. Most are branches of larger financial
institutions which, in management's view, are managed with a philosophy of
strong centralization. The Bank will face competition from thrift
institutions, credit unions, and other banks as well as finance companies,
insurance companies, mortgage companies, securities brokerage firms, money
market funds and other providers of financial services. Most of the Bank's
competitors have been in business a number of years, have established customer
bases, are larger and have higher lending limits than the Bank. The Bank will
compete for loans principally through its ability to communicate effectively
with its customers and understand and meet their needs. Management believes
that its personal service philosophy will enhance its ability to compete
favorably in attracting individuals and small businesses. The Bank will
actively solicit retail customers and will compete for deposits by offering
customers personal attention, professional service, computerized banking, and
competitive interest rates.
BANK PREMISES
The Bank is leasing and renovating a one story building in downtown Grand
Rapids, Michigan for use as the Bank's main office and the Company's
headquarters. This building is of masonry construction and has approximately
11,000 square feet of usable space. The Bank believes that this space will be
adequate for its present needs. As a result of the Bank's intended strategy of
providing personal customer service, the Bank does not intend to have teller
windows inside the Bank or drive through teller facilities. Instead, the Bank
intends to utilize customer services representatives who will service the
Bank's customers at desks conveniently located inside the Bank.
The lease for the Bank's office has an initial term of 10 years and the
Bank has four, five year renewal options. The monthly lease payments begin at
$12,487 per month in the first year and increase each year during the term of
the lease by the greater of the annual percentage increase in the Consumer
Price Index or 3%. In addition, the Bank will be required to make payments for
taxes, insurance, and other operating expenses. The Bank expects to expend
approximately $650,000 for tenant improvements and related architectural and
engineering services, and additional funds for furniture, fixtures and other
equipment.
The Bank's office is located at 216 North Division Avenue between Lyon
Street and Michigan Street in downtown Grand Rapids, Michigan, in a portion of
downtown Grand Rapids convenient to I-96. Access to the main office is
available to Kent County residents by utilizing I-196, US 131, Michigan Street,
and Lyon Street. The building is one of a few available locations in downtown
Grand Rapids with on-site parking. The parking consists of approximately 24
spaces, with no parking meters. The Bank expects to commence its business in
the fourth quarter of 1997.
EMPLOYEES
The Bank is assembling a staff of experienced professionals and expects to
have approximately 18 full time employees, including approximately eight
officers and ten customer service and other support persons, within the first
few months of operations.
PLAN OF OPERATION
The Company's plan of operation for the twelve months following the
completion of the offering does not contemplate the need to raise additional
funds during that period. Management has concluded, based on current
pre-opening growth projections, that the Bank is likely to have adequate funds
to meet its cash requirements for at least the next several years. Management
has no specific plans for product research or development which would be
performed within the next twelve months. Management plans to expend
approximately $650,000 for leasehold improvements and related architectural and
engineering services, and approximately $850,000 for furniture, fixtures,
equipment and other necessary assets, prior to commencing operation. During
the first twelve months of operation, the Company does not anticipate requiring
substantial additional equipment. No significant changes in the number of
employees is anticipated in the first twelve months of operations after the
Bank commences its business and completes the hiring of its approximately 18
initial employees.
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MANAGEMENT
DIRECTORS AND OFFICERS
The directors and officers of the Company as of the date hereof, and their
contemplated positions with the Bank upon completion of the offering, are as
follows:
POSITION WITH
THE COMPANY POSITION(S)
NAME AGE (AND DIRECTOR CLASS) WITH THE BANK
- ---- --- -------------------- -------------
Peter A. Cordes 56 Director (Class II) Director
C. John Gill 63 Director (Class I) Director
David M. Hecht 60 Director (Class II) Director
Gerald R. Johnson, Jr. 50 Chairman of the
Board, Chief Chairman of the
Executive Officer, Board, Chief
and Director (Class I) Executive Officer
and Director
Lawrence W. Larsen 57 Director (Class III) Director
Calvin D. Murdock 58 Director (Class I) Director
Dale J. Visser 61 Director (Class III) Director
Robert M. Wynalda 61 Director (Class II) Director
Robert B. Kaminski 35 Senior Vice President Senior Vice
and Secretary President and
Secretary
Under federal law and regulations and subject to certain exceptions, the
addition or replacement of any director, or the employment, dismissal or
reassignment of a senior executive officer of the Bank or the Company at any
time that the Bank is not in compliance with applicable minimum capital
requirements, is otherwise in a troubled condition, or when the FDIC has
determined that such prior notice is appropriate, is subject to prior notice to
and disapproval by the FDIC.
The Company's Articles of Incorporation provide that the number of
directors, as determined from time to time by the Board of Directors, shall be
no less than six and no more than fifteen. The Board of Directors has
presently fixed the number of directors at eight. The Articles of
Incorporation further provide that the directors shall be divided into three
classes, Class I, Class II, and Class III, with each class serving a staggered
three-year term and with the number of directors in each class being as nearly
equal as possible. The initial terms of the Class I, Class II, and Class III
directors has been established at one year, two years, and three years,
respectively. The subsequent terms of each class of director will be three
years.
It is anticipated that the entire Board of Directors of the Bank will be
elected annually by its shareholder, the Company.
Officers of the Company and the Bank will be elected annually by their
respective Boards of Directors and perform such duties as are prescribed in the
bylaws or by the Board of Directors.
There are no family relationships among any of the Company's directors,
officers or key personnel. Dale Visser, one of the directors, is the brother
of Bruce Visser, who is one of the organizers of the Bank.
EXPERIENCE OF DIRECTORS AND OFFICERS
The experience and backgrounds of the directors and officers, and their
proposed positions with the Company, are summarized below.
PETER A. CORDES (Director) Mr. Cordes has served as President and Chief
Executive Officer of GWI Engineering Inc. ("GWI") of Grand Rapids, Michigan
since 1991. GWI is engaged in the engineering and manufacturing of custom
assembly and welding equipment for customers in a variety of industries in the
Midwest. Mr. Cordes purchased GWI in 1991 and is now sole owner. Mr. Cordes
is a 1966 graduate of St. Louis University with a degree in aeronautics. He is
a native of Traverse City, Michigan and has spent the last eighteen years in
West Michigan.
C. JOHN GILL (Director) Mr. Gill is Chairman of the Board and one of the
owners of Gill Industries of Grand Rapids, Michigan. He has served in this
capacity since he started this business in 1963. Gill Industries is a
manufacturing company involved with sheet metal stampings and assemblies for
the automotive and appliance industries. Mr. Gill is a native of Lakeview,
Michigan.
DAVID M. HECHT (Director) Mr. Hecht is an attorney with the law firm, Hecht
& Lentz, in Grand Rapids, Michigan. He is Chairman and one of the owners of
the law firm. Mr. Hecht established the firm in 1993. Prior to this, he was a
partner in the Grand Rapids office of the law firm of Dickinson, Wright, Moon,
Van Dusen & Freeman. Mr. Hecht is a
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native of Grand Rapids and a graduate of the University of Michigan and the
University of Wisconsin. He has practiced law for 36 years, including the
past 25 years in Grand Rapids. Mr. Hecht is on the Board of Trustees of the
Grand Valley University Foundation and a Director of Hospice Foundation of
Greater Grand Rapids.
GERALD R. JOHNSON, JR. (Chairman of the Board, Chief Executive Officer, and
Director) has over 27 years experience in the financial service industry,
including 24 years of commercial banking experience. Mr. Johnson was appointed
President and Chief Executive Officer of FMB-Grand Rapids in 1986, and served
as Chairman, President and Chief Executive Officer from 1988 to May of 1997,
when he resigned to organize the Company. In the Grand Rapids market, prior to
joining FMB-Grand Rapids, Mr. Johnson was employed in various lending
capacities by Union Bank (now part of First Chicago NBD), Pacesetter Bank-Grand
Rapids (now part of Old Kent), and Manufacturers Bank (now part of Comerica
Bank). Mr. Johnson has been involved in charitable and community activities
for many years. He currently serves as a Vice Chairman of the Board of the
Downtown YMCA, Chairman of Residential Treatment of West Michigan, and is
affiliated with Life Guidance Services, American Heart Association of Greater
Grand Rapids, Economic Development Foundation, Grand Rapids Rotary Club, and
Michigan Trails Girl Scout Council. Mr. Johnson also has past affiliations
with Hope Network, Project Rehab, and the Grand Rapids Area Chamber of Commerce
where he was a board member for six years.
LAWRENCE W. LARSEN (Director) Mr. Larsen is President and owner of Central
Industrial Corporation of Grand Rapids, Michigan, and has served in that
capacity since he started that company in 1967. Central Industrial Corporation
is a wholesale distributor of industrial supplies. Mr. Larsen is also an owner
and director of Jet Products, Inc. of West Carrollton, Ohio. Jet Products,
Inc. designs, manufactures and sells hose reels and related products. Mr.
Larsen is a native of Wisconsin. He has spent the last 31 years in the Grand
Rapids area. Mr. Larsen is an active supporter of the Catholic secondary
schools system in Grand Rapids. Mr. Larsen served as a director of FMB-Grand
Rapids from 1980 until June of 1997, and was a member of the Executive Loan
Committee and the Audit Committee.
CALVIN D. MURDOCK (Director) Mr. Murdock is President of SF Electronics,
Inc. ("SFE") of Grand Rapids, Michigan. He has held this position since 1994.
From 1992 to 1994, he served as the General Manager of SFE, and in 1991, served
as SFE's Controller. SFE is a wholesale industrial electronics components
supplier. Mr. Murdock is a Michigan native and a graduate of Ferris State
University with a degree in accounting. Prior to joining SFE, Mr. Murdock
owned and operated businesses in the manufacturing and supply of automobile
wash equipment.
DALE J. VISSER (Director) Mr. Visser is Treasurer and one of the owners of
Visser Brothers Construction of Grand Rapids, Michigan. He has served as
Treasurer of this company since 1960. Mr. Visser grew up in the construction
industry as his father started Visser Brothers in 1926. As an owner of the
company with his brother, Mr. Visser has also held the position of President.
Visser Brothers is a construction general contractor specializing in commercial
buildings. Mr. Visser also has an ownership interest in several real estate
projects in the Grand Rapids area including Eastbrook Mall and Breton Village
Shopping Center. Mr. Visser served as a director of FMB-Grand Rapids from 1972
until June of 1997. He is a Grand Rapids native and a graduate of the
University of Michigan with a degree in civil engineering. Mr. Visser is
active in the community having served on the boards for the Grand Rapids YMCA,
Christian Rest Home, and West Side Christian School.
ROBERT A. WYNALDA (Director) Mr. Wynalda is Chief Executive Officer and an
owner of Wynalda Litho Inc. of Rockford, Michigan. Mr. Wynalda has held this
position since he founded the company in 1970. Wynalda Litho Inc. is a
commercial printing company serving customers from around the country. Mr.
Wynalda is a native of Grand Rapids and has spent 45 years in the printing
business. Mr. Wynalda serves on the Board of Trustees for Cornerstone College
of Grand Rapids, and formerly served as a director of a local financial
institution.
ROBERT B. KAMINSKI (Senior Vice President and Secretary) Mr. Kaminski has
over 13 years of commercial banking experience, all with First Michigan Bank
Corporation and its subsidiaries. From 1984 to 1993, Mr. Kaminski worked for
FMB-Grand Rapids in various capacities in the areas of credit administration
and bank compliance. In 1993, Mr. Kaminski was appointed Vice President in
charge of Loan Review and Compliance for FMB-Grand Rapids. From 1996 through
June of 1997, when he resigned. Mr. Kaminski served as Vice President and
Manager of the Commercial Credit Department for three of First Michigan Bank
Corporation's subsidiaries. Mr. Kaminski serves on the Leadership Committee
for the National Kidney Foundation of Michigan in Grand Rapids, the Board of
Directors for HELP Pregnancy Crisis Aid, Inc., and is a career mentor for
Aquinas College of Grand Rapids.
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
In the first year of operation, no compensation is expected to be paid to
any directors of the Company or the Bank for their services in such capacities.
Depending on the structure and operation of the Company, the operations of the
Bank and other factors, the Company's and the Bank's Boards of Directors may
thereafter determine that reasonable fees or compensation are appropriate. In
that event it is likely that directors of the Company and the Bank would
receive compensation, such as meeting fees, which would be consistent with the
compensation paid to directors of financial institution holding companies and
banks of similar size.
Mr. Johnson, the Bank's Chairman, President, and Chief Executive Officer,
has chosen to join the Bank at a compensation level below what he earned in his
previous position. His interest in doing this is to reduce operating expenses
in the start up phase of the Bank. The annual compensation for Mr. Johnson for
the first year of operations is expected to be $150,000. His compensation in
subsequent years will be determined by the Company's and the Bank's Boards of
Directors. In making their determinations, it is expected that the Boards of
Directors will receive recommendations from their Compensation Committees,
which will be comprised of outside directors. Mr. Johnson
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and the other officers of the Bank may participate in the Company's 1997
Employee Stock Option Plan. Officers of the Bank may also participate in any
benefit plans adopted for Bank employees. The Bank expects to adopt a 401(k)
plan for its employees. Neither the Company nor the Bank has an employment
agreement with any officer.
1997 EMPLOYEE STOCK OPTION PLAN
The Board of Directors has adopted, and the sole shareholder of the
Company has approved, a 1997 Employee Stock Option Plan (the "Plan"). The
Plan's adoption is intended to enable the key employees of the Company or any
subsidiary to participate in any growth and profitability of the Company and
encourage their continuation as employees of the Company or a subsidiary to the
benefit of the Company and its shareholders. Pursuant to the Plan, stock
options may be granted which qualify under the Internal Revenue Code as
incentive stock options or as stock options that do not qualify as incentive
stock options. The Board is of the judgment that the interests of the Company
and its shareholders will be advanced by implementation of this Plan. The
following is a summary of the principal provisions of the Plan.
ADMINISTRATION. The Plan will be administered by the Board of Directors
of the Company. The Board of Directors will make determinations with respect
to the officers and other key employees who will participate in the Plan and
the extent of their participation, including the type of option. In making
such determinations, the Board of Directors may consider the position and
responsibilities of the employee, the nature and value of his or her services
and accomplishments, the present and potential contribution of the employee to
the success of the Company, and such other factors as the Board of Directors
may deem relevant.
SHARES. The total number of shares of Common Stock which may be issued
under the Plan will not exceed 130,000 shares (subject to adjustment for
certain events as described below). The shares will be authorized but unissued
shares (including shares reacquired by the Company).
OPTION AGREEMENT. Each option granted under the Plan will be evidenced by
an agreement in such form as the Board of Directors shall from time to time
approve, which agreement must comply with and be subject to certain conditions
set forth in the Plan. Options granted under the Plan may be incentive stock
options or non-qualified options, as determined from time to time by the Board
of Directors for each optionee.
OPTION PRICE. The option price will not be less than the fair market
value of the shares of Common Stock at the time the option is granted except in
the case of an incentive stock option granted to a 10% shareholder where the
option price will be equal to 110% of fair market value. For purposes of the
Plan, fair market value per share means the average of the published closing
bid and asked prices of the Common Stock on the OTC Bulletin Board (the
"Bulletin Board"), or if the Common Stock has become listed on The Nasdaq Stock
Market ("Nasdaq"), then on Nasdaq instead; or if the Common Stock is not quoted
on either the Bulletin Board or Nasdaq, a value determined by any fair and
reasonable means prescribed by the Board of Directors. The option price shall
be paid in cash or through the delivery of previously owned shares of the
Company's Common Stock, or by a combination of cash and Common Stock. For
purposes of the grant of options under the Plan, and not for any other purpose,
the Board of Directors has determined that $10 per share should be used as the
market price for the Common Stock prior to the completion of the offering.
DURATION OF OPTIONS. The duration of each option will be determined by
the Board of Directors, except that (1) the maximum duration may not exceed ten
years from the date of grant, and (2) for incentive stock options granted to
persons who own 10% or more of the Company's stock, the duration of such
options may not exceed five years from the date of grant. The Board of
Directors will determine at the time of grant whether the option will be
exercisable in full or in cumulative installments.
Except as hereinafter provided, an option may be exercised by an optionee
only while such optionee is in the employ of the Company or a subsidiary. In
the event that the employment of an optionee to whom an option has been granted
under the Plan terminates (except as set forth below) such option may be
exercised, to the extent that the option was exercisable on the date of
termination of employment, only until the earlier of three (3) months after
such termination or the original expiration date of the option; provided,
however, that if termination of employment results from death or total and
permanent disability, such three (3) month period will be extended to twelve
(12) months.
ADJUSTMENTS. The Board of Directors may make appropriate adjustments in
the number of shares of Common Stock for which options may be granted or which
may be issued under the Plan and the price per share of each option if there is
any change in the Common Stock as a result of a stock dividend, stock split,
recapitalization or otherwise.
CHANGE IN CONTROL. In the case of a change in control (as defined in the
Plan) of the Company, each option then outstanding shall become exercisable in
full immediately prior to the change in control.
TERMINATION OF PLAN AND AMENDMENTS. An option may not be granted pursuant
to the Plan after July 1, 2002. The Board of Directors may from time to time
amend or terminate the Plan, subject to shareholder approval to the extent
necessary to satisfy the requirements of Rule 16b-3 under the Exchange Act, or
any successor rule. No amendment or termination of the Plan will adversely
affect any option then outstanding under the Plan without the approval of the
optionee.
FEDERAL INCOME TAX CONSEQUENCES. The grant of a non-qualified option or
incentive stock option has no federal tax consequences for the optionee or the
Company. Upon the exercise of a non-qualified option, the optionee is deemed
to realize taxable income to the extent that the fair market value of the
shares of Common Stock exceeds the option price. The Company is entitled to a
tax deduction for such amounts at the date of exercise. If any stock received
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upon the exercise of a non-qualified option is later sold, any excess of the
sale price over the fair market value of the stock at the date of exercise is
taxable to the optionee.
No taxable income results to the optionee upon the exercise of an
incentive stock option if the incentive stock option is exercised during the
period of the optionee's employment or within three months thereafter, except
in the case of disability or death. However, the amount by which the fair
market value of the stock acquired pursuant to an incentive stock option
exceeds the option price is a tax preference item which may result in the
imposition on the optionee of an alternative minimum tax. If no disposition of
the shares is made within two years from the date the incentive stock option
was granted and one year from the date of exercise, any profit realized upon
disposition of the shares may be treated as a long-term capital gain by the
optionee. The Company will not be entitled to a tax deduction upon such
exercise of an incentive stock option, nor upon a subsequent disposition of the
shares unless such disposition occurs prior to the expiration of the holding
periods.
Under the terms of the Plan the aggregate market value (determined at the
time the option is granted) of the stock with respect to which incentive stock
options are exercisable for the first time in any year by any optionee may not
exceed $100,000.
As of August 1, 1997, the Company had outstanding two options to purchase
an aggregate of 45,000 shares of its Common Stock at an exercise price of
$10.00 per share pursuant to the Plan.
RELATED PARTY TRANSACTIONS
LOANS FROM ORGANIZERS
Over the past several months, organizers of the Bank have loaned
approximately $278,500 in aggregate amount to the Company to cover
organizational expenses of the Bank and the Company. Interest is payable on
the loans at the rate of 5% per annum. All of these loans will be repaid by
the Company from the net proceeds of the offering. Each of the organizers who
has loaned money to the Company is a member of the Company's Board of
Directors.
BANKING TRANSACTIONS
It is anticipated that the directors and officers of the Company and the
Bank and the companies with which they are associated will have banking and
other transactions with the Company and the Bank in the ordinary course of
business. Any loans and commitments to lend to such affiliated persons or
entities included in such transactions will be made in accordance with all
applicable laws and regulations and on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated parties of similar creditworthiness, and will
not involve more than normal risk or present other unfavorable features to the
Company and the Bank. Transactions between the Company or the Bank, and any
officer, director, principal shareholder, or other affiliate of the Company or
the Bank will be on terms no less favorable to the Company or the Bank than
could be obtained on an arms-length basis from unaffiliated independent third
parties.
INDEMNIFICATION
The Articles of Incorporation and bylaws of the Company provide for the
indemnification of directors and officers of the Company, including reasonable
legal fees, incurred by such directors and officers while acting for or on
behalf of the Company as a director or officer, subject to certain limitations.
See "Description of Capital Stock - Indemnification of Directors and Officers."
The scope of such indemnification otherwise permitted by Michigan law may be
limited in certain circumstances by federal law and regulations. See "Recent
Regulatory Developments." The Company may purchase directors' and officers'
liability insurance for directors and officers of the Company and the Bank.
PRINCIPAL SHAREHOLDERS
The Company has to date issued only one share of Common Stock. The
following table sets forth certain information with respect to the anticipated
beneficial ownership of the Company's Common Stock after the sale of shares
offered hereby, by (i) each person expected by the Company to beneficially own
more than 5% of the outstanding Common Stock; (ii) each of the current
directors and executive officers of the Company; and (iii) all such directors
and executive officers of the Company as a group. Pursuant to the Underwriting
Agreement between the Company and the Underwriters (the "Underwriting
Agreement"), the Company will direct the Underwriters to offer to sell the
number of shares listed below to the directors and executive officers listed
below (each being an organizer of the Bank), and 50,000 shares to Bruce Visser,
also an organizer of the Bank. All share numbers are provided based upon such
directions from the Company and non-binding expressions of interest supplied by
the persons listed below, and Bruce Visser. Depending upon their individual
circumstances at the time, each of such persons may purchase a greater or fewer
number of shares than indicated, and in fact may purchase no shares.
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Number of shares Percentage of
beneficially owned outstanding shares
Name and Address after offering (1) after offering (3)
- ---------------- ------------------ ------------------
Peter A. Cordes
5447 Forest Bend Dr. S.E.
Ada, Michigan 49301 25,000 1.9 %
C. John Gill
4174 Winterwood Ct. N.E.
Grand Rapids, Michigan 49546 25,000 1.9 %
David M. Hecht
2020 Robinson Rd. S.E.
Grand Rapids, Michigan 49506 50,000 3.8 %
Gerald R. Johnson
42 Deer Run Drive N.E.
Ada, Michigan 49301 60,000 (2) 4.6 %
Lawrence R. Larsen
547 Kent Hills Rd., N.E.
Grand Rapids, Michigan 49505 13,500 1.0 %
Calvin D. Murdock
2778 Walker Avenue N.W.
Grand Rapids, Michigan 49544 15,000 1.2 %
Dale J. Visser
6872 Farrell Drive
Rockford, Michigan 49341 50,000 3.8 %
Robert M. Wynalda
3395 Valley View Drive N.E.
Rockford, Michigan 49341 50,000 3.8 %
Directors and executive
officers of the Company as
a group (8 persons)(4) 288,500 (2) 22 %
(1) Some or all of the Common Stock listed may be held jointly with, or for
the benefit of, spouses and children of, or various trusts established by,
the person indicated.
(2) Includes 10,000 shares that such person has the right to acquire within
60 days of August 1, 1997 pursuant to the Company's 1997 Employee Stock
Option Plan. Such person also holds an option under such plan to purchase
an additional 30,000 shares.
(3) The percentages shown are based on the 1,300,000 shares offered hereby
plus the number of shares that the named person or group has the right to
acquire within 60 days of August 1, 1997; and in each case assumes no
exercise of the Underwriters' over-allotment option.
(4) Does not include 50,000 shares (3.8% of the outstanding shares after the
offering) that Bruce Visser, who is Dale Visser's brother and one of the
Bank's organizers, has expressed an interest in purchasing. These 50,000
shares, together with the 278,500 shares shown in the table (calculated
without taking into account shares referred to in footnote 2 above),
comprise the 328,500 shares that the organizers of the Bank have expressed
an interest in acquiring in the offering.
SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state law. Consequently, the growth and earnings
performance of the Company and the Bank can be affected not only by management
decisions and general economic conditions, but also by the statutes
administered by, and the regulations and policies of, various governmental
regulatory authorities. Those authorities include, but are not limited to, the
Federal Reserve Board, the FDIC, the Commissioner, the Internal Revenue
Service, and state taxing authorities. The effect of such statutes,
regulations and policies can be significant, and cannot be predicted with a
high degree of certainty.
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Federal and state laws and regulations generally applicable to financial
institutions and their holding companies regulate, among other things, the
scope of business, investments, reserves against deposits, capital levels
relative to operations, lending activities and practices, the nature and amount
of collateral for loans, the establishment of branches, mergers, consolidations
and dividends. The system of supervision and regulation applicable to the
Company and the Bank establishes a comprehensive framework for their respective
operations and is intended primarily for the protection of the FDIC's deposit
insurance funds, the depositors of the Bank, and the public, rather than
shareholders of the Bank or the Company.
Federal law and regulations, including provisions added by the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and
regulations promulgated thereunder, establish supervisory standards applicable
to the lending activities of the Bank, including internal controls, credit
underwriting, loan documentation, and loan-to-value ratios for loans secured by
real property. The Bank intends to comply with these requirements, and in some
cases may apply more restrictive standards.
The following references to statutes and regulations are intended to
summarize certain government regulation of the business of the Company and the
Bank, and are qualified by reference to the text of such statutes and
regulations. Any change in government regulation may have a material effect on
the business of the Company and the Bank.
THE COMPANY
GENERAL. The Company has applied for approval of the Commissioner, and on
_____, 1997 applied for approval of the Federal Reserve Board, to acquire all of
the capital stock to be issued by the Bank in connection with its organization.
When the Company becomes the sole shareholder of the Bank, the Company will be
a bank holding company and, as such, will be required to register with, and
will be subject to regulation by, the Federal Reserve Board under the Bank
Holding Company Act, as amended (the "BHCA"). Under the BHCA, the Company will
be subject to periodic examination by the Federal Reserve Board and will be
required to file periodic reports of its operations and such additional
information as the Federal Reserve Board may require.
In accordance with Federal Reserve Board policy, the Company will be
expected to act as a source of financial strength to the Bank and to commit
resources to support the Bank in circumstances where the Company might not do
so absent such policy. In addition, in certain circumstances a Michigan state
bank having impaired capital may be required by the Commissioner either to
restore the bank's capital by a special assessment upon its shareholders, or to
initiate the liquidation of the bank.
Any capital loans by a bank holding company to a subsidiary bank are
subordinate in right of payment to deposits and to certain other indebtedness
of such subsidiary bank. In the event of a bank holding company's bankruptcy,
any commitment by the bank holding company to a federal bank regulatory agency
to maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment. This priority would also apply
to guarantees of capital plans under FDICIA.
INVESTMENTS AND ACTIVITIES. Under the BHCA, bank holding companies are
prohibited, with certain limited exceptions, from engaging in activities other
than those of banking or of managing or controlling banks and from acquiring or
retaining direct or indirect ownership or control of voting shares or assets of
any company which is not a bank or bank holding company, other than subsidiary
companies furnishing services to or performing services for its subsidiaries,
and other subsidiaries engaged in activities which the Federal Reserve Board
determines to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Since September, 1995, the BHCA has
permitted the Federal Reserve Board under specified circumstances to approve
the acquisition, by a bank holding company located in one state, of a bank or
bank holding company located in another state, without regard to any
prohibition contained in state law. See "Recent Regulatory Developments."
In general, any direct or indirect acquisition by the Company of any
voting shares of any bank which would result in the Company's direct or
indirect ownership or control of more than 5% of any class of voting shares of
such bank, and any merger or consolidation of the Company with another bank
holding company, will require the prior written approval of the Federal Reserve
Board under the BHCA. In acting on such applications, the Federal Reserve
Board must consider various statutory factors, including among others, the
effect of the proposed transaction on competition in relevant geographic and
product markets, the convenience and needs of the communities to be served, and
each party's financial condition, managerial resources, and record of
performance under the Community Reinvestment Act.
The merger or consolidation of an existing bank subsidiary of the Company
with another bank, or the acquisition by such a subsidiary of assets of another
bank, or the assumption of liability by such a subsidiary to pay any deposits
in another bank, will require the prior written approval of the responsible
federal depository institution regulatory agency under the Bank Merger Act,
based upon a consideration of statutory factors similar to those outlined above
with respect to the BHCA. In addition, in certain such cases an application
to, and the prior approval of, the Federal Reserve Board under the BHCA and/or
the Commissioner under the Michigan Banking Code, may be required.
With certain limited exceptions, the BHCA prohibits bank holding companies
from acquiring direct or indirect ownership or control of voting shares or
assets of any company other than a bank, unless the company involved is engaged
solely in one or more activities which the Federal Reserve Board has determined
to be so closely related to banking or managing or controlling banks as to be a
proper incident thereto. Under current Federal Reserve Board regulations, such
permissible non-bank activities include such things as mortgage banking,
equipment leasing,
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securities brokerage, and consumer and commercial finance company operations.
As a result of recent amendments to the BHCA, many types of such acquisitions
may be effected by those bank holding companies which satisfy certain statutory
criteria concerning management, capitalization, and regulatory compliance, if
written notice is given to the Federal Reserve Board within 10 business days
after the transaction. In other cases, prior written notice to the Federal
Reserve Board will be required.
In evaluating a written notice of such an acquisition, the Federal Reserve
Board will consider various factors, including among others the financial and
managerial resources of the notifying bank holding company, and the relative
public benefits and adverse effects which may be expected to result from the
performance of the activity by an affiliate of such company. The Federal
Reserve Board may apply different standards to activities proposed to be
commenced de novo and activities commenced by acquisition, in whole or in part,
of a going concern. The required notice period may be extended by the Federal
Reserve Board under certain circumstances, including a notice for acquisition
of a company engaged in activities not previously approved by regulation of the
Federal Reserve Board. If such a proposed acquisition is not disapproved or
subjected to conditions by the Federal Reserve Board within the applicable
notice period, it is deemed approved by the Federal Reserve Board.
CAPITAL REQUIREMENTS. The Federal Reserve Board uses capital adequacy
guidelines in its examination and regulation of bank holding companies. If
capital falls below minimum guidelines, a bank holding company may, among other
things, be denied approval to acquire or establish additional banks or non-bank
businesses.
The Federal Reserve Board's capital guidelines establish the following
minimum regulatory capital requirements for bank holding companies: (i) a
leverage capital requirement expressed as a percentage of total assets, (ii) a
risk-based requirement expressed as a percentage of total risk-weighted assets,
and (iii) a Tier 1 leverage requirement expressed as a percentage of total
assets. The leverage capital requirement consists of a minimum ratio of total
capital to total assets of 6%, with an expressed expectation that banking
organizations generally should operate above such minimum level. The
risk-based requirement consists of a minimum ratio of total capital to total
risk-weighted assets of 8%, of which at least one-half must be Tier 1 capital
(which consists principally of shareholders' equity). The Tier 1 leverage
requirement consists of a minimum ratio of Tier 1 capital to total assets of 3%
for the most highly rated companies, with minimum requirements of 4% to 5% for
all others.
The risk-based and leverage standards presently used by the Federal
Reserve Board are minimum requirements, and higher capital levels will be
required if warranted by the particular circumstances or risk profiles of
individual banking organizations. Further, any banking organization
experiencing or anticipating significant growth would be expected to maintain
capital ratios, including tangible capital positions (i.e., Tier 1 capital less
all intangible assets), well above the minimum levels.
The Federal Reserve Board's regulations provide that the foregoing capital
requirements will generally be applied on a bank-only (rather than a
consolidated) basis in the case of a bank holding company with less than $150
million in total consolidated assets. Nonetheless, on a pro forma basis,
assuming the issuance and sale by the Company of the 1,300,000 shares of Common
Stock offered hereby at $10.00 per share, the Company's leverage capital ratio,
risk-based capital ratio and Tier 1 leverage ratio, in each case as calculated
on a consolidated basis under the Federal Reserve Board's capital guidelines,
would exceed the minimum requirements.
FDICIA requires the federal bank regulatory agencies biennially to review
risk-based capital standards to ensure that they adequately address interest
rate risk, concentration of credit risk and risks from non-traditional
activities and, since adoption of the Riegle Community Development and
Regulatory Improvement Act of 1994 (the "Riegle Act"), to do so taking into
account the size and activities of depository institutions and the avoidance of
undue reporting burdens. See "Recent Regulatory Developments." In 1995, the
agencies adopted regulations requiring as part of the assessment of an
institution's capital adequacy the consideration of: (i) identified
concentrations of credit risks, (ii) the exposure of the institution to a
decline in the value of its capital due to changes in interest rates, and (iii)
the application of revised conversion factors and netting rules on the
institution's potential future exposure from derivative transactions. In
addition, the agencies in September 1996, adopted amendments to their
respective risk based capital standards to require banks and bank holding
companies having significant exposure to market risk arising from, among other
things, trading of debt instruments, (i) to measure that risk using an internal
value-at-risk model conforming to the parameters established in the agencies'
standards, and (ii) to maintain a commensurate amount of additional capital to
reflect such risk. The new rules were adopted effective January 1, 1997, with
compliance mandatory from and after January 1, 1998.
DIVIDENDS. The Company is a corporation separate and distinct from the
Bank. Most of the Company's revenues will be received by it in the form of
dividends or interest paid by the Bank. The Bank is subject to statutory
restrictions on its ability to pay dividends. See "The Bank - Dividends." The
Federal Reserve Board has issued a policy statement on the payment of cash
dividends by bank holding companies. In the policy statement, the Federal
Reserve Board expressed its view that a bank holding company should not pay
cash dividends exceeding its net income or which could only be funded in ways
that weakened the bank holding company's financial health, such as by
borrowing. Additionally, the Federal Reserve Board possesses enforcement powers
over bank holding companies and their non-bank subsidiaries to prevent or
remedy actions that represent unsafe or unsound practices or violations of
applicable statutes and regulations. Among these powers is the ability in
appropriate cases to proscribe the payment of dividends by banks and bank
holding companies. Similar enforcement powers over the Bank are possessed by
the FDIC. It is also unlawful for any insured depository institution to pay a
dividend at a time when it is in default of payment of any assessment to the
FDIC. The "prompt corrective action" provisions of FDICIA impose further
restrictions on the payment of dividends by insured banks which fail to meet
specified capital levels and, in some cases, their parent bank holding
companies.
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In addition to the restrictions on dividends imposed by the Federal
Reserve Board, the Michigan Business Corporation Act (the "MBCA") imposes
certain restrictions on the declaration and payment of dividends by Michigan
corporations such as the Company. See "Description of Capital Stock-Common
Stock-Dividend Rights."
THE BANK
GENERAL. Upon completion of its organization, the Bank will be a Michigan
banking corporation, and its deposit accounts will be insured by the Bank
Insurance Fund (the "BIF") of the FDIC. As a BIF-insured, Michigan chartered
bank, the Bank will be subject to the examination, supervision, reporting and
enforcement jurisdiction of the Commissioner, as the chartering authority for
Michigan banks, and the FDIC, as administrator of the BIF. These agencies and
federal and state law extensively regulate various aspects of the banking
business including, among other things, permissible types and amounts of loans,
investments and other activities, capital adequacy, branching, interest rates
on loans and on deposits, the maintenance of non-interest bearing reserves on
deposit accounts, and the safety and soundness of banking practices.
DEPOSIT INSURANCE. As an FDIC-insured institution, the Bank will be
required to pay deposit insurance premium assessments to the FDIC. Pursuant to
FDICIA, the FDIC adopted a risk-based assessment system under which all insured
depository institutions are placed into one of nine categories and assessed
insurance premiums based upon their level of capital and supervisory
evaluation. Institutions classified as well-capitalized (as defined by the
FDIC) and not exhibiting financial, operational or compliance weaknesses, pay
the lowest premium while institutions that are less than well - capitalized (as
defined by the FDIC) and exhibit such weaknesses in a moderately severe to
unsatisfactory degree pay the highest premium. Risk classification of all
insured institutions is made by the FDIC for each semi-annual assessment
period.
The Federal Deposit Insurance Act ("FDIA") requires the FDIC to establish
semi-annual assessment rates so as to maintain the ratio of the Deposit
Insurance Fund to total estimated insured deposits at not less than 1.25%.
Accordingly, the FDIC has established the schedule of BIF insurance assessments
for the first semi-annual assessment period of 1997, ranging from 0% of
deposits for institutions in the highest category to .27% of deposits for
institutions in the lowest category.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution or
its directors have engaged or are engaging in unsafe or unsound practices, or
have violated any applicable law, regulation, order, or any condition imposed
in writing by, or written agreement with, the FDIC, or if the institution is in
an unsafe or unsound condition to continue operations. The FDIC may also
suspend deposit insurance temporarily during the hearing process for a
permanent termination of insurance if the institution has no tangible capital.
CAPITAL REQUIREMENTS. The FDIC has established the following minimum
capital standards for state-chartered, FDIC-insured non-member banks, such as
the Bank: a leverage requirement consisting of a minimum ratio of Tier 1
capital to total assets of 3% for the most highly-rated banks with minimum
requirements of 4% to 5% for all others, and a risk-based capital requirement
consisting of a minimum ratio of total capital to total risk-weighted assets of
8%, at least one-half of which must be Tier 1 capital. Tier 1 capital consists
principally of shareholders' equity. In addition, the FDIC has adopted
requirements for each state-chartered, non-member bank having trading activity
as shown on its most recent Consolidated Report of Condition and Income ("Call
Report") in an amount equal to 10% or more of its total assets, (i) to measure
its market risk using an internal value-at-risk model conforming to the FDIC's
capital standards, and (ii) to maintain a commensurate amount of additional
capital to reflect such risk. This regulation was adopted effective January 1,
1997, with compliance mandatory on and after January 1, 1998.
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. As a condition to the regulatory
approvals of the Bank's formation, the Bank will be required to have an initial
capitalization sufficient to provide a ratio of Tier 1 capital to total
estimated assets of at least 8% at the end of the third year of operation.
FDIA establishes five capital categories, and the federal depository
institution regulators, as directed by FDIA, have adopted, subject to certain
exceptions, the following minimum requirements for each of such categories:
Total Tier 1
Risk-Based Risk-Based Leverage
Capital Ratio Capital Ratio Ratio
------------- ------------- -----
5% or above
4% or above
Less than 4%
Well capitalized 10% or above 6% or above Less than 3%
Adequately capitalized 8% or above 4% or above A ratio of tangible
Undercapitalized Less than 8% Less than 4% equity to total
Significantly undercapitalized Less than 6% Less than 3% assets of 2% or
Critically undercapitalized - - less
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Subject to certain exceptions, these capital ratios are generally
determined on the basis of Call Reports submitted by each depository
institution and the reports of examination by each institution's appropriate
federal depository institution regulatory agency.
Among other things, FDIA requires the federal depository institution
regulators to take prompt corrective action in respect of depository
institutions that do not meet minimum capital requirements. The scope and
degree of regulatory intervention is linked to the capital category to which a
depository institution is assigned.
Depending upon the capital category to which an institution is assigned,
the regulators' corrective powers include: requiring the submission of a
capital restoration plan; placing limits on asset growth and restrictions on
activities; requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; restricting transactions
with affiliates; restricting the interest rate the institution may pay on
deposits; ordering a new election of directors of the institution; requiring
that senior executive officers or directors be dismissed; prohibiting the
institution from accepting deposits from correspondent banks; requiring the
institution to divest certain subsidiaries; prohibiting the payment of
principal or interest on subordinated debt; and ultimately, appointing a
receiver for the institution.
In general, a depository institution may be reclassified to a lower
category than is indicated by its capital position if the appropriate federal
depository institution regulatory agency determines the institution to be
otherwise in an unsafe or unsound condition or to be engaged in an unsafe or
unsound practice. This could include a failure by the institution, following
receipt of a less-than-satisfactory rating on its most recent examination
report, to correct the deficiency.
DIVIDENDS. As a banking corporation organized under Michigan law, the
Bank will be restricted as to the maximum amount of dividends it may pay on its
Common Stock. The Bank may not pay dividends except out of net profits after
deducting its losses and bad debts. The Bank may not declare or pay a dividend
unless it will have a surplus amounting to at least 20% of its capital after
the payment of the dividend. If the Bank has a surplus less than the amount of
its capital it may not declare or pay any dividend until an amount equal to at
least 10% of net profits for the preceding half year (in the case of quarterly
or semi-annual dividends) or full year (in the case of annual dividends) has
been transferred to surplus. The Bank may, with the approval of the
Commissioner, by vote of shareholders owning two-thirds of the stock eligible
to vote increase its capital stock by a declaration of a stock dividend,
provided that after the increase its surplus equals at least 20% of its capital
stock, as increased. The Bank may not declare or pay any dividend until the
cumulative dividends on preferred stock (should any such stock be issued and
outstanding) have been paid in full. The Bank has no present plans to issue
preferred stock.
FDIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. The FDIC may prevent an insured bank from paying dividends
if the bank is in default of payment of any assessment due to the FDIC. In
addition, payment of dividends by a bank may be prevented by the applicable
federal regulatory authority if such payment is determined, by reason of the
financial condition of such bank, to be an unsafe and unsound banking practice.
The Federal Reserve Board has issued a policy statement providing that bank
holding companies and insured banks should generally only pay dividends out of
current operating earnings.
INSIDER TRANSACTIONS. The Bank is subject to certain restrictions imposed
by the Federal Reserve Act on any extensions of credit to the Company or its
subsidiaries, on investments in the stock or other securities of the Company or
its subsidiaries and the acceptance of the stock or other securities of the
Company or its subsidiaries as collateral for loans to any person. Certain
limitations and reporting requirements are also placed on extensions of credit
by the Bank to its directors and officers, to directors and officers of the
Company and its subsidiaries, to principal shareholders of the Company, and to
"related interests" of such directors, officers and principal shareholders. In
addition, such legislation and regulations may affect the terms upon which any
person becoming a director or officer of the Company or one of its subsidiaries
or a principal shareholder of the Company may obtain credit from banks with
which the Bank maintains a correspondent relationship.
SAFETY AND SOUNDNESS STANDARDS. On July 10, 1995, the FDIC, the Office of
Thrift Supervision, the Federal Reserve Board and the Office of the Comptroller
of the Currency published final guidelines implementing the FDICIA requirement
that the federal banking agencies establish operational and managerial
standards to promote the safety and soundness of federally insured depository
institutions. The guidelines, which took effect on August 9, 1995, establish
standards for internal controls, information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth,
and compensation, fees and benefits. In general, the guidelines prescribe the
goals to be achieved in each area, and each institution will be responsible for
establishing its own procedures to achieve those goals. If an institution
fails to comply with any of the standards set forth in the guidelines, the
institution's primary federal regulator may require the institution to submit a
plan for achieving and maintaining compliance. The preamble to the guidelines
states that the agencies expect to require a compliance plan from an
institution whose failure to meet one or more of the standards is of such
severity that it could threaten the safe and sound operation of the
institution. Failure to submit an acceptable compliance plan, or failure to
adhere to a compliance plan that has been accepted by the appropriate
regulator, would constitute grounds for further enforcement action. Effective
October 1, 1996, the agencies expanded the guidelines to establish asset
quality and earnings standards. As before, the new guidelines make each
depository institution responsible for establishing its own procedures to meet
such goals.
STATE BANK ACTIVITIES. Under FDICIA, as implemented by final regulations
adopted by the FDIC, FDIC-insured state banks are prohibited, subject to
certain exceptions, from making or retaining equity investments of a type, or
in an amount, that are not permissible for a national bank. FDICIA, as
implemented by FDIC regulations, also
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prohibits FDIC-insured state banks and their subsidiaries, subject to certain
exceptions, from engaging as principal in any activity that is not permitted
for a national bank or its subsidiary, respectively, unless the bank meets, and
continues to meet, its minimum regulatory capital requirements and the FDIC
determines the activity would not pose a significant risk to the deposit
insurance fund of which the bank is a member. Impermissible investments and
activities must be divested or discontinued within certain time frames set by
the FDIC in accordance with FDICIA. These restrictions are not currently
expected to have a material impact on the operations of the Bank.
CONSUMER BANKING. The Bank's business will include making a variety of
types of loans to individuals. In making these loans, the Bank will be subject
to state usury and regulatory laws and to various federal statutes, such as the
Equal Credit Opportunity Act, Fair Credit Reporting Act, Truth in Lending Act,
Real Estate Settlement Procedures Act, and Home Mortgage Disclosure Act, and
the regulations promulgated thereunder, which prohibit discrimination, specify
disclosures to be made to borrowers regarding credit and settlement costs, and
regulate the mortgage loan servicing activities of the Bank, including the
maintenance and operation of escrow accounts and the transfer of mortgage loan
servicing. The Riegle Act imposed new escrow requirements on depository and
non-depository mortgage lenders and servicers under the National Flood
Insurance Program. See "Recent Regulatory Developments." In receiving
deposits, the Bank will be subject to extensive regulation under state and
federal law and regulations, including the Truth in Savings Act, the Expedited
Funds Availability Act, the Bank Secrecy Act, the Electronic Funds Transfer
Act, and the FDIA. Violation of these laws could result in the imposition of
significant damages and fines upon the Bank, its directors and officers.
RECENT REGULATORY DEVELOPMENTS.
In 1994, the Congress enacted two major pieces of banking legislation, the
Riegle Act and the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal Act"). The Riegle Act addressed such varied issues
as the promotion of economic revitalization of defined urban and rural
"qualified distressed communities" through special purpose "Community
Development Financial Institutions," the expansion of consumer protection with
respect to certain loans secured by a consumer's home and reverse mortgages,
and reductions in compliance burdens regarding Currency Transaction Reports, in
addition to reform of the National Flood Insurance Program, the promotion of a
secondary market for small business loans and leases, and mandating specific
changes to reduce regulatory impositions on depository institutions and holding
companies.
The Riegle-Neal Act substantially changed the geographic constraints
applicable to the banking industry. Effective September 29, 1995, the
Riegle-Neal Act allows bank holding companies to acquire banks located in any
state in the United States without regard to geographic restrictions or
reciprocity requirements imposed by state law, but subject to certain
conditions, including limitations on the aggregate amount of deposits that may
be held by the acquiring holding company and all of its insured depository
institution affiliates. Effective June 1, 1997 (or earlier if expressly
authorized by applicable state law), the Riegle-Neal Act allows banks to
establish interstate branch networks through acquisitions of other banks,
subject to certain conditions, including certain limitations on the aggregate
amount of deposits that may be held by the surviving bank and all of its
insured depository institution affiliates. The establishment of de novo
interstate branches or the acquisition of individual branches of a bank in
another state (rather than the acquisition of an out-of-state bank in its
entirety) is allowed by the Riegle-Neal Act only if specifically authorized by
state law. The legislation allows individual states to "opt-out" of certain
provisions of the Riegle-Neal Act by enacting appropriate legislation prior to
June 1, 1997.
In November, 1995, Michigan exercised its right to opt-in early to the
Riegle-Neal Act, and permitted non-U.S. banks to establish branch offices in
Michigan. As further amended, effective October 21, 1996, and June 30, 1997,
the Michigan Banking Code now permits, in appropriate circumstances, (a) with
the approval of the Commissioner, (i) the acquisition of all or substantially
all of the assets of a Michigan-chartered bank by an FDIC-insured bank, savings
bank, or savings and loan association located in another state, (ii) the
acquisition by a Michigan-chartered bank of all or substantially all of the
assets of an FDIC-insured bank, savings bank or savings and loan association
located in another state, (iii) the consolidation of one or more
Michigan-chartered banks and FDIC-insured banks, savings banks or savings and
loan associations located in other states having laws permitting such
consolidation, with the resulting organization chartered by Michigan, (iv) the
establishment by a foreign bank, which has not previously designated any other
state as its home state under the International Banking Act of 1978, of
branches located in Michigan, and (v) the organization of a branch in Michigan
by FDIC-insured banks located in other states, the District of Columbia or U.S.
territories or protectorates having laws permitting a Michigan-chartered bank
to establish a branch in such jurisdiction, and (b) upon written notice to the
Commissioner, (i) the acquisition by a Michigan-chartered bank of one or more
branches (not comprising all or substantially all of the assets) of an
FDIC-insured bank, savings bank or savings and loan association located in
another state, the District of Columbia, or a U.S. territory or protectorate,
(ii) the establishment by Michigan-chartered banks of branches located in other
states, the District of Columbia, or U.S. territories or protectorates, and
(iii) the consolidation of one or more Michigan-chartered banks and
FDIC-insured banks, savings banks or savings and loan associations located in
other states, with the resulting organization chartered by one of such other
states, and (c) the sale by a Michigan-chartered bank of one or more of its
branches (not comprising all or substantially all of its assets) to an
FDIC-insured bank, savings bank or savings and loan association located in a
state in which a Michigan-chartered bank could purchase one or more branches of
the purchasing entity. The amending legislation also expanded the regulatory
authority of the Commissioner and made certain other changes.
The Michigan Legislature has adopted, with effect from March 28, 1996, the
Credit Reform Act. This statute, together with amendments to other related
laws, permits regulated lenders, indirectly including Michigan-chartered banks,
to charge and collect higher rates of interest and increased fees on certain
types of loans to individuals and businesses. The laws prohibit "excessive
fees and charges", and authorize governmental authorities and borrowers to
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bring actions for injunctive relief and statutory and actual damages for
violations by lenders. The statutes specifically authorize class actions, and
also civil money penalties for knowing and willful, or persistent violations.
FDIC regulations which became effective April 1, 1996, impose limitations
(and in certain cases, prohibitions) on (i) certain "golden parachute"
severance payments by troubled depository institutions and their affiliated
holding companies to institution-affiliated parties (primarily directors,
officers, employees, or principal shareholders of the institution), and (ii)
certain indemnification payments by a depository institution or its affiliated
holding company, regardless of financial condition, to institution-affiliated
parties. The FDIC regulations impose limitations on indemnification payments
which could restrict, in certain circumstances, payments by the Company or the
Bank to their respective directors or officers otherwise permitted under the
MBCA or the Michigan Banking Code, respectively. See "Description of Capital
Stock - Indemnification of Directors and Officers."
The Omnibus Consolidated Appropriations Act, 1997 ("OCCA"), was enacted
September 30, 1996. It amended many of the principal federal laws regulating
banks and bank holding companies. As part of the projected conversion or
closure of all thrift institutions in the U.S., OCCA modified existing laws (a)
to impose a special, one-time assessment on all deposits insured by the Savings
Association Insurance Fund ("SAIF") of the FDIC to bring the SAIF reserves to
the statutory minimum ratio of 1.25% of all SAIF-insured deposits, (b) to
permit the Financing Corporation to impose (in the same manner as regular FDIC
insurance assessments) assessments upon commercial banks to fund repayment of
its bonds which had been issued to pay for losses resulting from widespread
failures of thrift institutions during the 1980's, (c) to prohibit shifting
deposits from SAIF insurance to BIF insurance, and (d) to merge, prospectively,
the BIF and SAIF into a single Deposit Insurance Fund ("DIF"). The merger of
the funds will occur on January 1, 1999, if no insured depository institution
remains a savings association on that date. There can be no assurance whether
or when the merger of the BIF and SAIF will in fact occur.
OCCA also amended the BHCA (a) to eliminate the requirement of prior
written notice to the Federal Reserve Board by well-capitalized and
well-managed bank holding companies meeting certain statutory criteria wishing
to engage de novo (or in certain cases through acquisition) in a non-banking
activity already permitted by order or regulation of the Federal Reserve Board,
(b) to shorten to 12 business days the prior written notice to the Federal
Reserve Board required from well-managed and well-capitalized bank holding
companies meeting such criteria for other acquisitions of non-banking companies
engaged in non-banking activities so permitted, and (c) to eliminate the
opportunity for a hearing on applications to the Federal Reserve Board for
permission to engage in non-banking activities (other than the acquisition of a
savings association).
Among the other changes made by OCCA, the statute (a) increased the number
of banks exempted from compliance with the record-keeping and reporting
requirements of the Home Mortgage Disclosure Act and eligible for an 18-month
cycle of regulatory examinations by increasing the total assets cut-off in each
case, (b) simplified the disclosure requirements for residential mortgage loans
by harmonizing the requirements of the Truth-in-Lending Act and Real Estate
Settlement Procedures Act, (c) substantially re-wrote the Fair Credit Reporting
Act, and (d) expanded the authority of the Federal Reserve Board under the
Consumer Leasing Act and directed the Board to issue model disclosure forms for
use in leasing personal property.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 9,000,000 shares of
Common Stock and 1,000,000 shares of Preferred Stock. As of the date of this
Prospectus, there is one share of Common Stock issued and outstanding. No
shares of Preferred Stock have been issued by the Company.
Michigan law allows the Company's Board of Directors to issue additional
shares of stock up to the total amount of Common Stock and Preferred Stock
authorized without obtaining the prior approval of the shareholders.
PREFERRED STOCK
The Board of Directors of the Company is authorized to issue Preferred
Stock, in one or more series, from time to time, with such voting powers, full
or limited but not to exceed one vote per share, or without voting powers, and
with such designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions thereof,
as may be provided in the resolution or resolutions adopted by the Board of
Directors. The authority of the Board of Directors includes, but is not limited
to, the determination or fixing of the following with respect to shares of such
class or any series thereof: (i) the number of shares and designation of such
series; (ii) the dividend rate and whether dividends are to be cumulative;
(iii) whether shares are to be redeemable, and, if so, whether redeemable for
cash, property or rights; (iv) the rights to which the holders of shares shall
be entitled, and the preferences, if any, over any other series; (v) whether
the shares shall be subject to the operation of a purchase, retirement or
sinking fund, and, if so, upon what conditions; (vi) whether the shares shall
be convertible into or exchangeable for shares of any other class or of any
other series of any class of capital stock and the terms and conditions of such
conversion or exchange; (vii) the voting powers, full or limited, if any, of
the shares; (viii) whether the issuance of any additional shares, or of any
shares of any other series, shall be subject to restrictions as to issuance, or
as to the powers, preferences or rights of any such other series; and (ix) any
other preferences, privileges and powers and relative, participating, optional
or other special rights and qualifications, limitations or restrictions.
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COMMON STOCK
Dividend Rights
Subject to any prior rights of any holders of Preferred Stock then
outstanding, the holders of the Common Stock will be entitled to dividends
when, as and if declared by the Company's Board of Directors out of funds
legally available therefor. Under Michigan law, dividends may be legally
declared or paid only if after the distribution the corporation can pay its
debts as they come due in the usual course of business and the corporation's
total assets equal or exceed the sum of its liabilities plus the amount that
would be needed to satisfy the preferential rights upon dissolution of any
holders of preferred stock then outstanding whose preferential rights are
superior to those receiving the distribution.
Funds for the payment of dividends by the Company are expected to be
obtained primarily from dividends of the Bank. There can be no assurance that
the Company will have funds available for dividends, or that if funds are
available, that dividends will be declared by the Company's Board of Directors.
As the Bank is not expected to be profitable during its start up period, the
Company does not expect to be in a position to declare dividends at any time in
the foreseeable future.
Voting Rights
Subject to the rights, if any, of holders of shares of Preferred Stock
then outstanding, all voting rights are vested in the holders of shares of
Common Stock. Each share of Common Stock entitles the holder thereof to one
vote on all matters, including the election of directors. Shareholders of the
Company do not have cumulative voting rights.
Preemptive Rights
Holders of Common Stock do not have preemptive rights.
Liquidation Rights
Subject to any rights of any Preferred Stock then outstanding, holders of
Common Stock are entitled to share on a pro rata basis in the net assets of the
Company which remain after satisfaction of all liabilities.
Transfer Agent
State Street Bank & Trust Company of Boston, Massachusetts, serves as the
transfer agent of the Company's Common Stock.
DESCRIPTION OF CERTAIN CHARTER PROVISIONS
The following provisions of the Company's Articles of Incorporation may
delay, defer, prevent, or make it more difficult for a person to acquire the
Company or to change control of the Company's Board of Directors, thereby
reducing the Company's vulnerability to an unsolicited takeover attempt.
Classification of the Board of Directors
The Company's Articles of Incorporation provide for the Board of Directors
to be divided into three classes of directors, each class to be as nearly equal
in number as possible, and also provides that the number of directors shall be
fixed by majority of the Board at no fewer than six nor more than fifteen.
Pursuant to the Articles of Incorporation, the Company's directors have been
divided into three classes. Three Class I directors have been elected for a
term expiring at the 1998 annual meeting of shareholders, three Class II
directors have been elected for a term expiring at the 1999 annual meeting of
shareholders, and two Class III directors have been elected for a term expiring
at the 2000 annual meeting of shareholders (in each case, until their
respective successors are elected and qualified).
Removal of Directors
The MBCA provides that, unless the articles of incorporation otherwise
provide, shareholders may remove a director or the entire Board of Directors
with or without cause. The Company's Articles of Incorporation provide that a
director may be removed only for cause and only by the affirmative vote of the
holders of a majority of the voting power of all the shares of the Company
entitled to vote generally in the election of directors.
Filling Vacancies on the Board of Directors
The Company's Articles of Incorporation provide that a new director chosen
to fill a vacancy on the Board of Directors will serve for the remainder of the
full term of the class in which the vacancy occurred.
Nominations of Director Candidates
The Company's Articles of Incorporation include a provision governing
nominations of director candidates. Nominations for the election of directors
may be made by the Board of Directors, a nominating committee appointed by the
Board of Directors, or any shareholder entitled to vote for directors. In the
case of a shareholder nomination, the Articles of Incorporation provide certain
procedures that must be followed. A shareholder intending to nominate
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candidates for election must deliver written notice containing certain
specified information to the Secretary of the Company at least sixty (60) days
but not more than ninety (90) days prior to the anniversary date of the
immediately preceding annual meeting of shareholders.
Certain Shareholder Action
The Company's Articles of Incorporation require that any shareholder
action must be taken at an annual or special meeting of shareholders, that any
meeting of shareholders must be called by the Board of Directors or the
Chairman of the Board, and, unless otherwise provided by law, prohibit
shareholder action by written consent. Shareholders of the Company are not
permitted to call a special meeting of shareholders or require that the Board
call such a special meeting. The MBCA permits shareholders holding 10% or more
of all of the shares entitled to vote at a meeting to request the Circuit Court
of the County in which the Company's principal place of business or registered
office is located to order a special meeting of shareholders for good cause
shown.
Increased Shareholders' Vote for Alteration, Amendment or Repeal of
Article Provisions
The Company's Articles of Incorporation require the affirmative vote of
the holders of at least 66 2/3 percent of the voting stock of the Company
entitled to vote generally in the election of directors for the alteration,
amendment or repeal of, or the adoption of any provision inconsistent with the
foregoing provisions of the Company's Articles of Incorporation.
CERTAIN ANTI-TAKEOVER PROVISIONS
Michigan Fair Price Act. Certain provisions of the MBCA establish a
statutory scheme similar to the supermajority and fair price provisions found
in many corporate charters (the "Fair Price Act"). The Fair Price Act provides
that a supermajority vote of 90 percent of the shareholders and no less than
two-thirds of the votes of noninterested shareholders must approve a "business
combination." The Fair Price Act defines a "business combination" to encompass
any merger, consolidation, share exchange, sale of assets, stock issue,
liquidation, or reclassification of securities involving an "interested
shareholder" or certain "affiliates." An "interested shareholder" is generally
any person who owns 10 percent or more of the outstanding voting shares of the
corporation. An "affiliate" is a person who directly or indirectly controls,
is controlled by, or is under common control with a specified person.
The supermajority vote required by the Fair Price Act does not apply to
business combinations that satisfy certain conditions. These conditions
include, among others: (i) the purchase price to be paid for the shares of the
corporation in the business combination must be at least equal to the highest
of either (a) the market value of the shares or (b) the highest per share price
paid by the interested shareholder within the preceding two-year period or in
the transaction in which the shareholder became an interested shareholder,
whichever is higher; and (ii) once becoming an interested shareholder, the
person may not become the beneficial owner of any additional shares of the
corporation except as part of the transaction which resulted in the interested
shareholder becoming an interested shareholder or by virtue of proportionate
stock splits or stock dividends.
The requirements of the Fair Price Act do not apply to business
combinations with an interested shareholder that the Board of Directors has
approved or exempted from the requirements of the Fair Price Act by resolution
prior to the time that the interested shareholder first became an interested
shareholder.
Control Share Act. The MBCA regulates the acquisition of "control shares"
of large public Michigan corporations (the "Control Share Act"). Following
completion of the offering, the Control Share Act is expected to apply to the
Company and its shareholders.
The Control Share Act establishes procedures governing "control share
acquisitions." A control share acquisition is defined as an acquisition of
shares by an acquiror which, when combined with other shares held by that
person or entity, would give the acquiror voting power, alone or as part of a
group, at or above any of the following thresholds: 20 percent, 33-1/3 percent
or 50 percent. Under the Control Share Act, an acquiror may not vote "control
shares" unless the corporation's disinterested shareholders (defined to exclude
the acquiring person, officers of the target corporation, and directors of the
target corporation who are also employees of the corporation) vote to confer
voting rights on the control shares. The Control Share Act does not affect the
voting rights of shares owned by an acquiring person prior to the control share
acquisition.
The Control Share Act entitles corporations to redeem control shares from
the acquiring person under certain circumstances. In other cases, the Control
Share Act confers dissenters' right upon all of the corporation's shareholders
except the acquiring person.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provide that the Company shall
indemnify its present and past directors, officers, and such other persons as
the Board of Directors may authorize, to the fullest extent permitted by law.
The Company's Bylaws contain indemnification provisions concerning third
party actions as well as actions in the right of the Company. The Bylaws
provide that the Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company) by reason of the fact
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that he or she is or was a director or officer of the Company, or while
serving as such a director or officer, is or was serving at the request of the
Company as a director, officer, partner, trustee, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise, whether for profit or not, against expenses (including attorney's
fees), judgments, penalties, fees and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Company or its shareholders, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
FDIC regulations impose limitations on indemnification payments which
could restrict, in certain circumstances, payments by the Company or the Bank
to their respective directors or officers otherwise permitted under the MBCA or
the Michigan Banking Code, respectively.
With respect to derivative actions, the Bylaws provide that the Company
shall indemnify any person who was or is a party to or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Company to procure a judgment in its favor by reason of the fact
that he or she is or was a director or officer of the Company, or, while
serving as such a director or officer, is or was serving at the request of the
Company as a director, officer, partner, trustee, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise, whether for profit or not, against expenses (including attorney's
fees) and amounts paid in settlement actually and reasonably incurred by him or
her in connection with the action or suit if he or she acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the Company or its shareholders. No indemnification is provided
in the Bylaws in respect of any claim, issue or matter in which such person has
been found liable to the Company except to the extent that a court of competent
jurisdiction determines upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions discussed above or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
(the "SEC") such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
LIMITATION OF DIRECTOR LIABILITY
The MBCA permits corporations to limit the personal liability of their
directors in certain circumstances. The Company's Articles of Incorporation
provide that a director of the Company shall not be personally liable to the
Company or its shareholders for monetary damages for breach of the director's
fiduciary duty. However, they do not eliminate or limit the liability of a
director for any breach of a duty, act or omission for which the elimination or
limitation of liability is not permitted by the MBCA, currently including,
without limitation, the following: (1) breach of the director's duty of
loyalty to the Company or its shareholders; (2) acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law; (3)
illegal loans, distributions of dividends or assets, or stock purchases as
described in Section 551(1) of the MBCA; and (4) transactions from which the
director derived an improper personal benefit.
SHARES ELIGIBLE FOR FUTURE SALE
As of July 15, 1997, the Company had one share of Common Stock outstanding
that was held by a member of the Board of Directors. Upon completion of the
offering, the Company expects to have 1,300,000 shares of its Common Stock
outstanding. The 1,300,000 shares of the Company's Common Stock sold in the
offering (plus any additional shares sold upon the Underwriters' exercise of
their over-allotment option) have been registered with the SEC under the
Securities Act and may generally be resold without registration under the
Securities Act unless they were acquired by directors, executive officers, or
other affiliates of the Company (collectively, "Affiliates"). Affiliates of
the Company may generally only sell shares of the Common Stock pursuant to Rule
144 under the Securities Act.
In general, under Rule 144 as currently in effect, an affiliate (as
defined in Rule 144) of the Company may sell shares of Common Stock within any
three-month period in an amount limited to the greater of 1% of the outstanding
shares of the Company's Common Stock or the average weekly trading volume in
the Company's Common Stock during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain manner-of-sale provisions,
holding periods for restricted shares, notice requirements, and the
availability of current public information about the Company.
The Company, and the directors and officers of the Company, and Bruce
Visser, one of the organizers of the Bank (who are expected to hold an
aggregate of approximately 328,500 shares after the offering, excluding the
shares that Mr. Johnson and Mr. Kaminski have the right to acquire pursuant to
options granted to them under the Company's 1997 Employee Stock Option Plan),
have agreed, or will agree, that (a) they will not issue, offer for sale, sell,
transfer, grant options to purchase or otherwise dispose of any shares of
Common Stock without the prior written consent of Roney & Co., L.L.C., as
representative of the Underwriters, for a period of 150 days from the date of
this Prospectus, except that (i) the Company may issue shares upon the exercise
of options under the Company's 1997 Employee Stock Option Plan and (ii) the
directors, officers and Mr. Visser may give Common Stock owned by them to
others who have agreed in writing to be bound by the same agreement, and (b)
they will not sell, transfer, assign, pledge, or hypothecate any shares of
Common Stock for a period of three months from the date of the Prospectus
acquired in connection with directions from the Company for issuer directed
securities.
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As of August 1, 1997, the Company had outstanding two options to purchase
an aggregate of 45,000 shares of its Common Stock at an exercise price of $10
per share pursuant to the Company's 1997 Employee Stock Option Plan. Mr.
Johnson holds an option for 40,000 of these shares and Mr. Kaminski holds an
option for 5,000 of these shares.
Prior to the offering, there has been no public trading market for the
Common Stock, and no predictions can be made as to the effect, if any, that
sales of shares or the availability of shares for sale will have on the
prevailing market price of the Common Stock after completion of the offering.
Nevertheless, sales of substantial amounts of Common Stock in the public market
could have an adverse effect on prevailing market prices.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
_____________, 1997 (the "Underwriting Agreement") among the Company and the
several Underwriters named below (the "Underwriters"), the Company has agreed
that it will sell to each of the Underwriters, and each of such Underwriters
for which Roney & Co., L.L.C. is acting as a representative (the
"Representative") has severally agreed to purchase from the Company, the
respective number of shares of Common Stock as set forth opposite its name
below:
Number of Shares
of
Underwriter Common Stock
----------- ----------------
Roney & Co., L.L.C.
The Underwriting Agreement provides that the obligations of the
Underwriters thereunder are subject to certain conditions and provides for the
Company's payment of certain expenses incurred in connection with the review of
the underwriting arrangements for the offering by the National Association of
Securities Dealers, Inc.
If the Underwriting Agreement is terminated, except in certain limited
cases, the Underwriting Agreement provides that the Company will reimburse the
Underwriters for all accountable out-of-pocket expenses incurred by them in
connection with the proposed purchase and sale of the Common Stock up to a
maximum of $40,000. The Company has advanced $20,000 to the Underwriters in
connection with such expense reimbursement. The Underwriting Agreement
provides that in the event the accountable out-of-pocket expenses to be
reimbursed upon such termination total an amount less than $20,000, the
Underwriters shall pay such difference to the Company.
The Company and the Underwriters have agreed that the Underwriters will
purchase the 1,300,000 shares of Common Stock offered hereunder at a price to
the public of $10.00 per share less underwriting discounts of $__ per share.
However, the Underwriters have agreed to limit the underwriting discounts to
1.5% of the public offering price ($0.15 per share) with respect to the first
328,500 shares sold to organizers of the Bank or their immediate families. The
Underwriters propose to offer the Common Stock to selected dealers who are
members of the National Association of Securities Dealers, Inc., at a price of
$10.00 per share less a concession not in excess of $___ per share. The
Underwriters may allow, and such dealers may re-allow, concessions not in excess
of $___ per share to certain other brokers and dealers. After the Common Stock
is released for sale to the public, the offering price and other selling terms
may from time to time be varied by the Representative.
The Company, the directors and officers of the Company, and Bruce Visser,
an organizer of the Bank, have agreed to be subject to certain lock-up
restrictions as described above in "Shares Eligible for Future Sale."
The Representative has informed the Company that the Underwriters do not
intend to make sales to any accounts over which the Underwriters exercise
discretionary authority.
The Company has granted the Underwriters an option, exercisable within 30
days after the date of the offering, to purchase up to an additional 195,000
shares of Common Stock from the Company to cover over-allotments, if any, at
the same price per share as is to be paid by the Underwriters for the other
shares offered hereby. The Underwriters may purchase such shares only to cover
over-allotments, if any, in connection with the offering.
The Underwriting Agreement contains indemnity provisions between the
Underwriters and the Company and the controlling persons thereof against certain
liabilities, including liabilities arising under the Securities Act. The
Company is generally obligated to indemnify the Underwriters and their
respective controlling persons in connection with losses or claims arising out
of any untrue statement of a material fact contained in this Prospectus or in
related documents filed with the Commission or with any state securities
administrator, or any omission of certain material facts from such documents.
There has been no public trading market for the Common Stock. The price
at which the shares are being offered to the public was determined by
negotiations between the Company and the Underwriters. This price is not based
upon earnings or any history of operations and should not be construed as
indicative of the present or anticipated future value of the Common Stock.
Several factors were considered in determining the initial offering price of
the Common Stock, among them the size of the offering, the desire that the
security being offered be attractive to individuals and the Underwriters'
experience in dealing with initial public offerings for financial institutions.
26
28
LEGAL PROCEEDINGS
Neither the Bank nor the Company is a party to any pending legal
proceedings or aware of any threatened legal proceedings where the Company or
the Bank may be exposed to any material loss.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for
the Company by Dickinson, Wright, Moon, Van Dusen & Freeman, Detroit, Michigan.
Honigman Miller Schwartz and Cohn, Detroit, Michigan, is acting as counsel for
the Underwriters in connection with certain legal matters relating to the shares
of Common Stock offered hereby.
EXPERTS
The financial statements of the Company included in this Prospectus have
been audited by Crowe, Chizek and Company LLP, independent public accountants,
as indicated in their report with respect thereto. Such financial statements
and their report have been included herein in reliance upon the authority of
said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Form SB-2 Registration Statement
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as
permitted by the Rules and Regulations of the SEC. For further information
pertaining to the shares of Common Stock offered hereby and to the Company,
reference is made to the Registration Statement, including the Exhibits filed
as a part thereof, copies of which can be inspected at and copied at the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the SEC's regional offices located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, Suite 1300, New York New York 10048. Copies of such materials can also
be obtained on the SEC's Web site at http://www.sec.gov and at prescribed rates
by writing to the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549.
27
29
MERCANTILE BANK CORPORATION
FINANCIAL STATEMENTS
(A COMPANY IN THE DEVELOPMENT STAGE)
INDEX
PAGE NO.
REPORT OF INDEPENDENT AUDITORS F-2
FINANCIAL STATEMENTS
Balance Sheet F-3
Statement of Shareholder's Equity F-4
Statement of Operations F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7
F-1
30
MERCANTILE BANK CORPORATION
FINANCIAL STATEMENTS
(A COMPANY IN THE DEVELOPMENT STAGE)
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Mercantile Bank Corporation
Grand Rapids, Michigan
We have audited the accompanying balance sheet of Mercantile Bank Corporation
(a Company in the development stage) as of July 21, 1997, and the related
statements of shareholder's equity, operations and cash flows for the period
from July 15, 1997 (inception) through July 21, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mercantile Bank Corporation (a
Company in the development stage) as of July 21, 1997, and the results of its
operations and cash flows for the period from July 15, 1997 (inception) through
July 21, 1997 in conformity with generally accepted accounting principles.
/S/ CROWE, CHIZEK & COMPANY LLP
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
July 22, 1997
F-2
31
MERCANTILE BANK CORPORATION
(A Company in the Development Stage)
BALANCE SHEET
July 21, 1997
ASSETS
Cash $232,940
Organization costs 25,560
Deferred offering costs 20,000
--------
$278,500
========
LIABILITIES AND RETAINED EARNINGS
Accounts payable $27,732
Related party notes payable (Note 2) 278,500
--------
306,232
Shareholder's equity
Preferred stock, no par value; 1,000,000 shares
authorized, none issued
Common stock, no par value; 9,000,000 shares
authorized, none issued
Additional paid-in capital
Deficit accumulated during the development stage (27,732)
--------
Total shareholder's equity (27,732)
--------
Total liabilities and shareholder's equity $278,500
========
See accompanying notes to financial statements
F-3
32
MERCANTILE BANK CORPORATION
(A Company in the Development Stage)
STATEMENT OF SHAREHOLDER'S EQUITY
Period from July 15, 1997 (inception) to July 21, 1997
Deficit
Accumulated
Additional During the
Preferred Common Paid-In Development
Stock Stock Capital Stage Total
----- ----- ------------ ----------- ---------
BALANCE AT JULY 15, 1997
Net loss $(27,732) $(27,732)
-------- ---------
BALANCE AT JULY 21, 1997 $ 0 $ 0 $ 0 $(27,732) $(27,732)
======= ===== ====== ======== =========
See accompanying notes to financial statements
F-4
33
MERCANTILE BANK CORPORATION
(A Company in the Development Stage)
STATEMENT OF OPERATIONS
Period from July 15, 1997 (inception) to July 21, 1997
Total operating income $ 0
Operating expenses
Salaries and employee benefit 24,817
Other 2,915
---------
27,732
---------
NET LOSS $(27,732)
========
See accompanying notes to financial statements
F-5
34
MERCANTILE BANK CORPORATION
(A Company in the Development Stage)
STATEMENT OF CASH FLOWS
Period from July 15, 1997 (inception) to July 21, 1997
CASH FLOWS FROM OPERATING ACTIVITIES FROM DEVELOPMENT
STAGE OPERATIONS
Net loss $(27,732)
Adjustments to reconcile net income from development
stage operations to net cash provided by operating activities
Increase in accounts payable 27,732
---------
Net cash from operating activities 0
CASH FLOWS FROM INVESTING ACTIVITIES
Organizational costs (25,560)
---------
Net cash from investing activities (25,560)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party loans payable 278,500
Deferred offering costs (20,000)
---------
Net cash from financing activities 258,500
---------
Net increase in cash 232,940
Cash, beginning balance 0
---------
CASH, ENDING BALANCE $232,940
=========
See accompanying notes to financial statements
F-6
35
MERCANTILE BANK CORPORATION
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
July 21, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Mercantile Bank Corporation (the "Company") was incorporated on
July 15, 1997 as a bank holding company to establish and operate a new bank,
Mercantile Bank of West Michigan (the "Bank") in Grand Rapids, Michigan. The
Company intends to raise a minimum of $12,023,000 in equity capital through the
sale of 1,300,000 shares of the Company's Common Stock at $10 per share, net of
underwriting discounts and offering costs. Proceeds from the offering will be
used to capitalize the Bank, lease facilities and provide working capital.
Basis of Presentation: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Organization Costs: Organization costs represent incorporation costs,
salaries, legal and accounting costs and other costs relating to the
organization. Management anticipates that organization costs will approximate
$46,000 through commencement of operations.
Income Taxes: The Company records income tax expense based on the amount of
taxes due on its tax return plus the change in deferred taxes computed based on
the future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities, using enacted tax rates.
Deferred Offering Costs: Deferred offering costs include legal, consulting and
accounting costs incurred in connection with the registration of the Company's
Common Stock. These costs will be charged against the stock proceeds or, if
the offering is not successful, charged to expense at that time.
NOTE 2 - NOTES PAYABLE RELATED PARTIES
Loans payable in the amount of $278,500 at 5% interest are outstanding to
members of the Board of Directors of the Company. Management intends to repay
the loans from the proceeds of the Common Stock offering and is required to
repay the loans on or before May 31, 1998.
(Continued)
F-7
36
MERCANTILE BANK CORPORATION
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
July 21, 1997
NOTE 3 - LEASE COMMITMENT
The Company is currently in the process of negotiating a lease commitment for a
building located in downtown Grand Rapids for use as the Company's main office.
The terms of the lease are not yet finalized but management anticipates that
the initial term will be for 10 years at $150,000 per year with options to
extend for four successive five year periods. The lease also has an escalation
clause allowing for annual increases of the greater of 3% or the percentage
increase in the Consumer Price Index. The Company plans to make leasehold
improvements of approximately $650,000. The Company will be responsible for
all necessary utilities, etc.
NOTE 4 - DATA PROCESSING AGREEMENT
The Company is negotiating a contract with a data processing company to
outsource the Company's data processing. The terms of the contract are
anticipated to be for five years with continuing two year renewal periods. Data
processing services for the Company are expected to include Customer
Information Systems, Loan and Deposit processing, ACH processing, ATM
processing, Asset Liability Management software, Smart reports, etc.
NOTE 5 - INCOME TAXES
At July 21, 1997, the Company had approximately $28,000 of net operating loss
carryforwards. The tax benefit of these carryforwards ($9,500) has been offset
by a valuation allowance.
NOTE 6 - SUBSEQUENT EVENTS
On July 22, 1997, the Board of Directors of the Company adopted a 1997 Employee
Stock Option Plan (the "Plan"). The Board has authorized 130,000 shares for
use by the Plan. The option price will not be less than the fair market value
of the shares at the time of grant, except as granted to a 10% shareholder
where the option price will be equal to 110% of fair market price. The Board
has determined the option price to be $10 for those options granted prior to
the completion of the public offering of the Company. The duration of each
option may not exceed ten years from the date of grant, for 10% shareholders
the duration is five years. The Plan will terminate on July 1, 2002.
At the July 22, 1997 meeting, the Board granted a total of 45,000 options to
executive officers of the Company. These options have not yet been exercised.
F-8
37
=======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
PAGE
----
Available Information.................. 2
Prospectus Summary..................... 3
Risk Factors........................... 5
Use of Proceeds........................ 8
Dividend Policy........................ 8
Capitalization......................... 8
Business............................... 9
Management............................. 12
Related Party Transactions............. 15
Principal Shareholders................. 15
Supervision and Regulation............. 16
Description of Capital Stock........... 22
Shares Eligible for Future Sale........ 25
Underwriting........................... 26
Legal Proceedings...................... 27
Legal Matters.......................... 27
Experts................................ 27
Additional Information................. 27
Index to Financial Statements.......... F-1
------------------------
UNTIL , 1997 (90 DAYS AFTER THE EFFECTIVE DATE OF THE
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
=======================================================
=======================================================
1,300,000 SHARES
[LOGO]
COMMON STOCK
--------------------------
PROSPECTUS
--------------------------
[LOGO]
, 1997
=======================================================
38
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The registrant's Articles of Incorporation provide that the registrant
shall indemnify its present and past directors, officers, and such other
persons as the Board of Directors may authorize, to the full extent permitted
by law.
The registrant's Bylaws contain indemnification provisions concerning
third party actions as well as actions in the right of the registrant. The
Bylaws provide that the registrant shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the registrant) by
reason of the fact that he or she is or was a director or officer of the
registrant or is, or while serving as such a director or officer was, serving
at the request of the registrant as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise, whether for profit or not, against
expenses (including attorney's fees), judgments, penalties, fees and amounts
paid in settlement actually and reasonably incurred by him or her in connection
with such action, suit or proceeding if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the registrant or its shareholders, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
With respect to derivative actions, the Bylaws provide that the registrant
shall indemnify any person who was or is a party to or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the registrant to procure a judgment in its favor by reason of the
fact that he or she is or was a director or officer of the registrant, or is or
was serving at the request of the registrant as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorney's fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such judgment or suit if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the registrant or its shareholders and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person has been found liable to the registrant unless
and only to the extent that the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability
but in view of all circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such court shall deem
proper.
The registrant's Articles of Incorporation provide that a director of the
registrant shall not be personally liable to the registrant or its shareholders
for monetary damages for breach of the director's fiduciary duty. However, it
does not eliminate or limit the liability of a director for any breach of a
duty, act or omission for which the elimination or limitation of liability is
not permitted by the MBCA, currently including, without limitation, the
following: (1) breach of the director's duty of loyalty to the registrant or
its shareholders; (2) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (3) illegal loans,
distributions of dividends or assets, or stock purchases as described in
Section 551(1) of MBCA; and (4) transactions from which the director derived an
improper personal benefit.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses in connection with the
sale and distribution of the Common Stock being registered, other than
underwriting discounts and commissions. All amounts shown are estimates,
except the SEC registration fee and the NASD filing fee, and assume sale of
1,300,000 shares in the offering.
SEC registration fee $ 4,530.31
NASD filing fee 1,995.00
Printing and mailing expenses 43,000.00
Fees and expenses of counsel 130,000.00
Accounting and related expenses 40,000.00
Blue Sky fees and expenses (including counsel fees) 20,000.00
Registrar and Transfer Agent fees 3,500.00
Miscellaneous 4,974.69
-----------
Total $248,000.00
===========
II-1
39
Item 26. Recent Sales of Unregistered Securities.
During the past several months, the registrant has borrowed approximately
$278,500 from members of the registrant's Board of Directors to pay
organizational and related expenses. To the extent that such transactions
would be deemed to involve the offer or sale of a security, the registrant
would claim an exemption under Rule 504 of Regulation D or Section 4(2) of the
Securities Act of 1933 for such transactions. In addition, the registrant sold
one share of its Common Stock to Gerald R. Johnson, Jr., the Chairman of the
Board and Chief Executive Officer of the registrant, for $10. The registrant
also claims an exemption for such sale pursuant to Rule 504 of Regulation D or
Section 4(2).
Item 27. Exhibits.
Exhibit No. Description
1 Form of Underwriting Agreement
3.1 Articles of Incorporation of Mercantile Bank Corporation
3.2 Bylaws of Mercantile Bank Corporation
4.1 Specimen Stock Certificate of Mercantile Bank
Corporation
5 Opinion of Dickinson, Wright, Moon, Van Dusen & Freeman
10.1 1997 Employee Stock Option Plan
10.2 Lease Agreement
21 Subsidiaries of Mercantile Bank Corporation
23.1 Consent of Dickinson, Wright, Moon, Van Dusen &
Freeman (included in opinion filed as Exhibit 5)
23.2 Consent of Crowe, Chizek and Company LLP
27 Financial Data Schedule
__________________
Item 28.Undertakings.
The undersigned registrant hereby undertakes as follows:
(1) The registrant will provide to the underwriter at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
liabilities arising under the Securities Act (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
40
(3) The registrant will:
(i) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant under Rule 424(b)(1), or (4) or 497(h)
under the Securities Act as part of this Registration Statement as of the
time the SEC declared it effective; and
(ii) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-3
41
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunder duly
authorized, in the City of Grand Rapids, State of Michigan, on August 5, 1997.
MERCANTILE BANK CORPORATION
By: /S/GERALD R. JOHNSON, JR.
---------------------------------
Gerald R. Johnson, Jr., Chairman
of the Board and Chief Executive
Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
indicated on August 5, 1997.
Signatures Title
/S/ PETER A. CORDES Director
- --------------------
Peter A. Cordes
/S/ C. JOHN GILL Director
- --------------------
C. John Gill
/S/ DAVID M. HECHT Director
- --------------------------
David M. Hecht
/S/ GERALD R. JOHNSON, JR. Chairman of the Board, Chief Executive Officer
- -------------------------- and Director (principal executive officer,
Gerald R. Johnson, Jr. principal financial officer and principal
accounting officer)
/S/ LAWRENCE W. LARSEN Director
- ----------------------
Lawrence W. Larsen
/S/ CALVIN D. MURDOCK Director
- ----------------------
Calvin D. Murdock
/S/ DALE J. VISSER Director
- ----------------------
Dale J. Visser
/S/ ROBERT M. WYNALDA Director
- ----------------------
Robert M. Wynalda
II-4
42
MERCANTILE BANK CORPORATION
Registration Statement on Form SB-2
Exhibit Index
Exhibit No. Description
- ----------- -----------
1 Form of Underwriting Agreement
3.1 Articles of Incorporation of Mercantile Bank Corporation
3.2 Bylaws of Mercantile Bank Corporation
4.1 Specimen Stock Certificate of Mercantile Bank Corporation
5 Opinion of Dickinson, Wright, Moon, Van Dusen & Freeman
10.1 1997 Employee Stock Option Plan
10.2 Lease Agreement
21 Subsidiaries of Mercantile Bank Corporation
23.1 Consent of Dickinson, Wright, Moon, Van Dusen &
Freeman (included in opinion filed as Exhibit 5)
23.2 Consent of Crowe, Chizek and Company LLP
27 Financial Data Schedule