-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KmpnFJifO4oBs8uFniL8NmfVQ3CISH/j9lTVXTJswk44T1ESqgdlCXBYe4zgaRYW jReBp9E9xixUnqPpBYtTvA== 0000950124-97-004095.txt : 19970808 0000950124-97-004095.hdr.sgml : 19970808 ACCESSION NUMBER: 0000950124-97-004095 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19970807 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCANTILE BANK CORP CENTRAL INDEX KEY: 0001042729 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 383360865 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-33081 FILM NUMBER: 97653136 BUSINESS ADDRESS: STREET 1: 42 DEER RUN DRIVE CITY: ADA STATE: MI ZIP: 49301 BUSINESS PHONE: 6166760201 MAIL ADDRESS: STREET 1: 42 DEER RUN DRIVE CITY: ADA STATE: MI ZIP: 49301 SB-2 1 FORM SB-2 1 As filed with the Securities and Exchange Commission on August 7, 1997 Registration No. ================================================================================ 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
=============================================================================================================================== 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 - ------------------------------------------------------------------------------------------------------------------------------- Common Stock 1,495,000 shares $10.00 $14,950,000 $4,530.31 ==============================================================================================================================
(1) Includes 195,000 shares of Common Stock which may be purchased by the Underwriters to cover over-allotments. - -------------------------------------------------------------------------------- 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. ================================================================================ 2 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 ------------------ 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. ------------------ 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. ------------------ 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.
====================================================================================================================== PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNTS(1)(2) COMPANY(2)(3) - ---------------------------------------------------------------------------------------------------------------------- Per Share................................. $10.00 $ $ - ---------------------------------------------------------------------------------------------------------------------- Total(2).................................. $13,000,000 $ $ ======================================================================================================================
------------------ (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. ------------------ 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. ------------------ RONEY & CO. LOGO THE DATE OF THIS PROSPECTUS IS , 1997. 3 [KENT COUNTY MAP] ------------------------ 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. ------------------------ 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. 2 4 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. 3 5 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. 4 6 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." 5 7 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 6 8 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." 7 9 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. 8 10 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 9 11 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 10 12 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. 11 13 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 12 14 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 13 15 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 14 16 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. 15 17
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. 16 18 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, 17 19 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. 18 20 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
19 21 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 20 22 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 21 23 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. 22 24 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 23 25 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 24 26 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. 25 27 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
EX-1 2 EXHIBIT 1 1 EXHIBIT 1 1,300,000 SHARES MERCANTILE BANK CORPORATION COMMON STOCK UNDERWRITING AGREEMENT ____________, 1997 Roney & Co., L.L.C. One Griswold Detroit, Michigan 48226 Dear Sirs: Mercantile Bank Corporation, a Michigan corporation (the "Company"), proposes to issue and sell 1,300,000 shares (the "Firm Shares") of its authorized but unissued Common Stock (the "Common Stock") to the several underwriters named in Exhibit A attached to this Agreement (the "Underwriters") for whom Roney & Co., L.L.C., a Delaware limited liability company, is acting as representative ("Roney & Co."). In addition, the Company proposes to grant to the Underwriters an option to purchase up to an additional 195,000 shares (the "Optional Shares") to cover over-allotments. The Firm Shares and the Optional Shares are called, collectively, the "Shares." 1. SALE AND PURCHASE OF THE SHARES. (a) On the basis of the representations, warranties and agreements of the Company contained in, and subject to the terms and conditions of, this Agreement, the Company agrees to issue and sell to the Underwriters, and the Underwriters agree severally and not jointly, to purchase, the Firm Shares set forth opposite their respective names on Exhibit A at a purchase price of $9.30 per Share, except as set forth in Section 1(b) below. (b) On the basis of the representations, warranties and agreements of the Company contained in, and subject to the terms and conditions of, this Agreement, the policies of the National Association of Securities Dealers, Inc. (the "NASD"), and pursuant to directions from the Company, the Underwriters will offer to sell to each of the persons listed on Exhibit B (who may purchase alone or with family members to the extent permitted by the Free-Riding and Withholding Interpretation (the "Interpretation") under the Rules of Fair Practice of the NASD) the number of Shares set forth opposite their respective names on 2 Exhibit B. To the extent such persons (alone or with such family members) offer to buy such Shares, the Underwriters agree to purchase up to 328,500 of such Shares at a purchase price of $9.85 per Share. The parties agree that the securities purchased and sold under this subparagraph shall constitute "issuer directed securities" sold to the issuer's employees or directors or other persons under the Interpretation. (c) On the basis of the representations, warranties and agreements of the Company contained in, and subject to the terms and conditions of, this Agreement, the Company grants to the Underwriters an option to purchase all or any part of the Optional Shares at a price per Share of $9.30. The over-allotment option may be exercised only to cover over-allotments in the sale of the Firm Shares by the Underwriters and may be exercised in whole or in part at any time or times on or before 12:00 noon, Detroit time, on the day before the Firm Shares Closing Date (as defined in Section 2 below), and only once at any time after that date and within 30 days after the Effective Date (as defined in Section 4 below), in each case upon written or transmitted facsimile notice, or verbal notice confirmed by transmitted facsimile, written or telegraphic notice, by Roney & Co. to the Company no later than 12:00 noon, Detroit time, on the day before the Firm Shares Closing Date or at least three but not more than five full business days before the Optional Shares Closing Date (as defined in Section 2 below), as the case may be, setting forth the number of Optional Shares to be purchased and the time and date (if other than the Firm Shares Closing Date) of such purchase. The number of Optional Shares to be purchased by each Underwriter shall be determined by multiplying the number of Optional Shares to be sold by the Company pursuant to such notice of exercise by a fraction, the numerator of which is the number of Firm Shares to be purchased by such Underwriter as set forth opposite its name on Exhibit A and the denominator of which is 1,300,000 (subject to such adjustments to eliminate any fractional share purchases as Roney & Co. at its discretion may make). (d) Roney & Co. represents and warrants to the Company that each Underwriter has authorized Roney & Co. to accept delivery of its Shares and to make payment and to accept receipt therefor. Roney & Co., individually and not as the representative of the Underwriters, may (but shall not be obligated to) make payment for any Shares to be purchased by any Underwriter whose funds shall not have been received by Roney & Co. by the Firm Shares Closing Date (as defined in Section 2 below) or the Optional Shares Closing Date (as defined in Section 2 below), as the case may be, for the account for such Underwriter, but any such payment shall not relieve such Underwriter from any of its obligations under this Agreement. Roney & Co. represents and warrants that it has been authorized by each of the other Underwriters to enter into this Agreement on its behalf and to act for it in the manner herein provided. 2 3 2. DELIVERY AND PAYMENT. Delivery by the Company of the Firm Shares to Roney & Co., for the respective accounts of the Underwriters, and payment of the purchase price by certified or official bank check payable in Detroit Clearing House (next day) funds to the Company, shall take place at the offices of Roney & Co., One Griswold, Detroit, Michigan 48226, at 10:00 a.m., Detroit time, at such time and date, not later than the third (or, if the Firm Shares are priced, as contemplated by Rule 15c6-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after 4:30 p.m., Washington, D.C. time, the fourth) full business day following the first date that any of the Shares are released by the Underwriters for sale to the public, as Roney & Co. shall designate by at least 48 hours prior notice to the Company (the "Firm Shares Closing Date"); provided, however, that if the Prospectus (as defined in Section 4 below) is at any time prior to the Firm Shares Closing Date recirculated to the public, the Firm Shares Closing Date shall occur upon the later of the third or fourth, as the case the may be, full business day following the first date that any of the Shares are released by the Underwriters for sale to the public or the date that is 48 hours after the date that the Prospectus has been so recirculated. To the extent the option with respect to the Optional Shares is exercised, delivery by the Company of the Optional Shares, and payment of the purchase price by certified or official bank check payable in Detroit Clearing House (next day) funds to the Company, shall take place at the offices of Roney & Co. specified above at the time and on the date (which may be the Firm Shares Closing Date) specified in the notice referred to in Section 1(c) (such time and date of delivery and payment are called the "Optional Shares Closing Date"). The Firm Shares Closing Date and the Optional Shares Closing Date are called, individually, a "Closing Date" and, collectively, the "Closing Dates." Certificates representing the Firm Shares shall be registered in such names and shall be in such denominations as Roney & Co. shall request at least two full business days before the Firm Shares Closing Date or, in the case of the Optional Shares, on the day of notice of exercise of the option as described in Section 1(c), and shall be made available to Roney & Co. for checking and packaging, at such place as is designated by Roney & Co., at least one full business day before the Closing Date. 3. PUBLIC OFFERING. The Company understands that the Underwriters propose to make a public offering of their respective portions of the Shares, as set forth in and pursuant to the Prospectus, as soon after the Effective Date as Roney & Co. deems advisable. The Company hereby confirms that the Underwriters and dealers have been authorized to distribute each preliminary prospectus and are authorized to distribute the Prospectus (as from time to time amended or supplemented). 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Underwriters and agrees with the Underwriters as follows: 3 4 (a) The Company has carefully prepared in conformity with the requirements of the Securities Act of 1933, as amended (the "Securities Act") and the rules and regulations adopted by the Securities and Exchange Commission (the "Commission") thereunder (the "Rules"), a registration statement on Form SB-2 (No. _________), including a preliminary prospectus, and has filed with the Commission the registration statement and such amendments thereof as may have been required to the date of this Agreement. Copies of such registration statement (including all amendments thereof) and of the related preliminary prospectus have heretofore been delivered by the Company to you. The term "preliminary prospectus" means any preliminary prospectus (as defined in Rule 430 of the Rules) included at any time as a part of the registration statement. The registration statement as amended (including any supplemental registration statement under Rule 462(b) or any amendment under Rule 462(c) of the Rules) at the time and on the date it becomes effective (the "Effective Date"), including the prospectus, financial statements, schedules, exhibits, and all other documents incorporated by reference therein or filed as a part thereof, is called the "Registration Statement;" provided, however, that "Registration Statement" shall also include all Rule 430A Information (as defined below) deemed to be included in such Registration Statement at the time such Registration Statement becomes effective as provided by Rule 430A of the Rules. The term "Prospectus" means the Prospectus as filed with the Commission pursuant to Rule 424(b) of the Rules or, if no filing pursuant to Rule 424(b) of the Rules is required, means the form of final prospectus included in the Registration Statement at the time such Registration Statement becomes effective. The term "Rule 430A Information" means information with respect to the Shares and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A of the Rules. Reference made herein to any preliminary prospectus or to the Prospectus shall be deemed to refer to and include any document attached as an exhibit thereto or incorporated by reference therein, as of the date of such preliminary prospectus or the Prospectus, as the case may be. The Company will not file any amendment of the Registration Statement or supplement to the Prospectus to which Roney & Co. shall reasonably object in writing after being furnished with a copy thereof. (b) Each preliminary prospectus, at the time of filing thereof, contained all material statements which were required to be stated therein in accordance with the Securities Act and the Rules, and conformed in all material respects with the requirements of the Securities Act and the Rules, and did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Commission has not issued any order suspending or preventing the use of any preliminary prospectus. When the Registration Statement shall become effective, when the Prospectus is first filed pursuant to Rule 424(b) of the Rules, when any post-effective amendment of the 4 5 Registration Statement shall become effective, when any supplement to or pre-effective amendment of the Prospectus is filed with the Commission and at each Closing Date, the Registration Statement and the Prospectus (and any amendment thereof or supplement thereto) will comply with the applicable provisions of the Securities Act and the Exchange Act and the respective rules and regulations of the Commission thereunder, and neither the Registration Statement nor the Prospectus, nor any amendment thereof or supplement thereto, will contain any untrue statement of a material fact or will omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representation or warranty as to the information contained in the Registration Statement or the Prospectus or any amendment thereof or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by any of the Underwriters, specifically for use in connection with the preparation thereof. (c) All contracts and other documents required to be filed as exhibits to the Registration Statement have been filed with the Commission as exhibits to the Registration Statement. (d) Crowe, Chizek & Company, LLP, whose report is filed with the Commission as part of the Registration Statement, are, and during the periods covered by their report were, independent public accountants as required by the Securities Act and the Rules. (e) The Company and its subsidiary, Mercantile Bank of West Michigan, a Michigan banking corporation (the "Bank"), have been duly organized and are validly existing as a corporation or banking corporation, as applicable, in good standing under the laws of the State of Michigan. Neither the Company nor the Bank have any properties or conduct any business outside of the State of Michigan which would require either of them to be qualified as a foreign corporation or bank, as the case may be, in any jurisdiction outside of Michigan. Neither the Company nor the Bank has any directly or indirectly held subsidiary other than the Bank. The Company has all power, authority, authorizations, approvals, consents, orders, licenses, certificates and permits needed to enter into, deliver and perform this Agreement and to issue and sell the Shares. (f) The application for permission to organize the Bank (the "FIB Application") was approved by the Commissioner of the Financial Institutions Bureau for the State of Michigan (the "Commissioner") on ________, 1997, pursuant to Order No. BT-___________, subject to certain conditions specified in the Order and supplemental correspondence from the Commissioner dated the same date. The Order and supplemental correspondence from the Commissioner are collectively referred to in this Agreement as the "FIB Order." All conditions 5 6 contained in the FIB Order have been satisfied, except those conditions relating to paid-in capital of the Bank, maintenance of capital ratios and valuation reserves, the Certificate of Paid-In Capital and Surplus, and completion of the Commissioner's preopening investigation. The application to the Federal Deposit Insurance Corporation (the "FDIC") to become an insured depository institution under the provisions of the Federal Deposit Insurance Act (the "FDIC Application") was approved by order of the FDIC dated __________, 1997 (the "FDIC Order"), subject to certain conditions specified in the Order. All conditions contained in the FDIC Order required to be satisfied before the date of this Agreement have been satisfied. The Company's application to become a bank holding company and acquire all issued capital stock of the Bank (the "Bank Holding Company Application") under the Bank Holding Company Act of 1956, as amended, was approved on ____________, 1997 (the "Federal Reserve Board Approval"), subject to certain conditions specified in the Federal Reserve Board Approval. All conditions in the Federal Reserve Board Approval required to be satisfied before the date of this Agreement have been satisfied. Each of the FIB Application, FDIC Application, and Bank Holding Company Application, at the time of their respective filings, contained all required information and such information was complete and accurate in all material respects. Other than the remaining conditions to be fulfilled under the FIB Order, FDIC Order and the Federal Reserve Board Approval specified above, no authorization, approval, consent, order, license, certificate or permit of and from any federal, state, or local governmental or regulatory official, body, or tribunal, is required for the Company or the Bank to commence and conduct their respective businesses and own their respective properties as described in the Prospectus, except such authorizations, approvals, consents, orders, licenses, certificates, or permits as are not material to the commencement or conduct of their respective businesses or to the ownership of their respective properties. (g) The financial statements of the Company and any related notes thereto, included in the Registration Statement and the Prospectus, present fairly the financial position of the Company as of the date of such financial statements and for the period covered thereby. Such statements and any related notes have been prepared in accordance with generally accepted accounting principals applied on a consistent basis and certified by the independent accountants named in subsection 4(d) above. No other financial statements are required to be included in the Prospectus or the Registration Statement. (h) The Company owns adequate and enforceable rights to use any patents, patent applications, trademarks, trademark applications, service marks, copyrights, copyright applications and other similar rights (collectively, "Intangibles") necessary for the conduct of the material aspects of its business as described in the Prospectus and the Company has not infringed, is infringing, or has received any notice of infringement of, any Intangible of any other person. 6 7 (i) The Company has a valid and enforceable leasehold interest in the real property located at 216 North Division Avenue, Grand Rapids, Michigan, which is as described in the Prospectus, and is free and clear of all liens, encumbrances, claims, security interests and defects. (j) There are no litigation or governmental or other proceedings or investigations pending before any court or before or by any public body or board or threatened against the Company or the Bank and to the best of the Company's knowledge, there is no reasonable basis for any such litigation, proceedings or investigations, which would have a material adverse effect on commencement or conduct of the respective businesses of the Company or the Bank or the ownership of their respective properties. (k) The Company and Bank have filed all federal, state, and local tax returns required to be filed by them and paid all taxes shown due on such returns as well as all other material taxes, assessments and governmental charges which have become due; no material deficiency with respect to any such return has been assessed or proposed. (l) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any material adverse change in the condition (financial or other), business, properties or prospects of the Company. (m) No default exists, and no event has occurred which with notice or lapse of time, or both, would constitute a default, in the due performance and observance of any material term, covenant or condition, by the Company, the Bank or, to the best of the Company's knowledge, any other party, of any lease, indenture, mortgage, note or any other agreement or instrument to which the Company or the Bank is a party or by which either of them or either of their businesses may be bound or affected, except such defaults or events as are not material to the commencement or conduct of their respective businesses or ownership of their respective properties. (n) Neither the Company nor the Bank is in violation of any term or provision of the articles of incorporation or bylaws of the Company or the Bank. Neither the Company nor the Bank is in violation of, nor is either of them required to take any action to avoid any material violation of, any franchise, license, permit, judgment, decree, order, statute, rule or regulation. (o) Neither the execution, delivery or performance of this Agreement by the Company nor the consummation of the transactions contemplated hereby (including, without limitation, the issuance and sale by the Company of the Shares) will give rise to a right to terminate or accelerate the due date of any 7 8 payment due under, or conflict with or result in the breach of any term or provision of, or constitute a default (or an event which with notice or lapse of time, or both, would constitute a default) under, or require any consent under, or result in the execution or imposition of any lien, charge or encumbrance upon any properties or assets of the Company or the Bank pursuant to the terms of, any lease, indenture, mortgage, note or other agreement or instrument to which the Company or the Bank is a party or by which either of them or either of their businesses may be bound or affected, or any franchise, license, permit, judgment, decree, order, statute, rule or regulation or violate any provision of the articles of incorporation or bylaws of the Company or the Bank, except those which are immaterial in amount or effect. (p) The Company has authorized capital stock as set forth in the Prospectus. One share of Common Stock of the Company is issued and outstanding, which will be redeemed at or promptly following the Closing if permitted by applicable law. No shares of preferred stock are issued and outstanding. The issuance, sale and delivery of the Shares have been duly authorized by all necessary corporate action by the Company and, when issued, sold and delivered against payment therefor pursuant to this Agreement, will be duly and validly issued, fully paid and nonassessable and none of them will have been issued in violation of any preemptive or other right. Upon issuance, sale, and delivery thereof against payment therefor pursuant to the subscription agreement, all of the capital stock of the Bank will be duly authorized and validly issued, fully paid and nonassessable and will be owned by the Company, free and clear of all liens, encumbrances and security interests (subject to the provisions of the Michigan Banking Code of 1969 (the "Banking Code"), including, without limitation, Sections 77 and 201 of the Banking Code). There is no outstanding option, warrant or other right calling for the issuance of, and no commitment, plan or arrangement to issue, any share of stock of the Company or the Bank or any security convertible into or exchangeable for stock of the Company or the Bank, except for stock options described in the Registration Statement (the "Stock Options") under the 1997 Employee Stock Option Plan (the "Stock Option Plan"). The Common Stock, the Shares and the Stock Options conform to all statements in relation thereto contained in the Registration Statement and the Prospectus. (q) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, neither the Company nor the Bank has (1) issued any securities or incurred any material liability or obligation, direct or contingent, (2) entered into any material transaction, or (3) declared or paid any dividend or made any distribution on any of their stock, except liabilities, obligations, and transactions reasonably expected based on the disclosures in the Prospectus, and redemption of one share of Common Stock for $10 at or promptly following the Closing if permitted by applicable law. 8 9 (r) This Agreement has been duly and validly authorized, executed and delivered by the Company and is the legal, valid and binding agreement and obligation of the Company. (s) The Commission has not issued any order preventing or suspending the use of any preliminary prospectus. (t) Neither the Company, nor the Bank, nor, to the Company's knowledge any director, officer, agent, employee or other person associated with the Company or the Bank, acting on behalf of the Company or the Bank, has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (u) Neither the Company nor the Bank nor any affiliate of either of them has taken, and they will not take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of the Common Stock in order to facilitate the sale or resale of any of the Shares. (v) No transaction has occurred between or among the Company or the Bank and any of their officers, directors, organizers or the Company's shareholder or any affiliate or affiliates of any such officer, director, organizer, or shareholder, that is required to be described in and is not described in the Prospectus. (w) The Company is not and will not after the offering be an "investment company," or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. (x) The Company has obtained from all of its executive officers and directors their written agreement that (i) for a period of 150 days from the date of the Effective Date, they will not offer to sell, sell, transfer, contract to sell, or grant any option for the sale of or otherwise dispose of, directly or indirectly, any shares of Common Stock of the Company (or any securities convertible into or exercisable for such shares of Common Stock), except for (1) the exercise of Stock Options under the Stock Option Plan or (2) gifts of Common Stock (or other securities) to a donee or donees who agree in writing to be bound by this clause, and (ii) for a period of three months from the date of the Effective Date, they will not sell, transfer, assign, pledge, or hypothecate any shares of Common Stock acquired under Paragraph l(b), above, except with respect to Gerald R. Johnson, Jr. who may resell one share of Common Stock to the Company. 9 10 5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligation of the Underwriters to purchase the Shares shall be subject to the accuracy of the representations and warranties of the Company in this Agreement as of the date of this Agreement and as of the Firm Shares Closing Date or Optional Shares Closing Date, as the case may be, to the accuracy of the statements of Company officers made pursuant to the provisions of this Agreement, to the performance by the Company of its obligations under this Agreement, and to the following additional terms and conditions: (a) The Registration Statement shall have become effective not later than 5:00 P.M., Detroit time, on the date of this Agreement or on such later date and time as shall be consented to in writing by Roney & Co.; if the filing of the Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of the Rules, the Prospectus shall have been filed in the manner and within the time period required by Rule 424(b) of the Rules; at each Closing Date, if any, no stop order shall have been issued or proceedings therefor initiated or threatened by the Commission; and any request of the Commission for inclusion of additional information in the Registration Statement, or otherwise, shall have been complied with to the reasonable satisfaction of Roney & Co. (b) At each Closing Date, Roney & Co., as representative of the Underwriters, shall have received the favorable opinion of Dickinson, Wright, Moon, Van Dusen & Freeman, counsel for the Company, dated the Firm Shares Closing Date or the Optional Shares Closing Date, as the case may be, addressed to the Underwriters and in form and scope reasonably satisfactory to counsel for Roney & Co. to the effect that: (i) Each of the Company and the Bank (A) is a corporation or banking corporation, as applicable, existing and in good standing under the laws of the State of Michigan and (B) is not required to be qualified to do business in any jurisdiction outside Michigan. (ii) Each of the Company and the Bank has full corporate power and authority and all material authorizations, approvals, orders, licenses, certificates and permits of and from all governmental bank regulatory officials and bodies necessary to own its properties and to commence and conduct its business as described in the Registration Statement and Prospectus, including, without limitation, the FIB Order, the FDIC Order and the Federal Reserve Board Approval, subject to the fulfillment of the conditions with respect to the FIB Order, the FDIC Order and the Federal Reserve Board Approval all as described in Section 4(f) above, except for such authorizations, approvals, orders, licenses, certificates and permits as are not material to the ownership of their properties or commencement or conduct of their businesses; 10 11 (iii) The Company has authorized capital stock as set forth in the Prospectus and, prior to the Closing, had one share of Common Stock issued and outstanding; the Shares have been duly and validly authorized and issued and upon receipt by the Company of payment therefor in accordance with the terms of this Agreement will be fully paid and nonassessable and are not and will not be subject to, preemptive rights; the Shares and the other capital stock and Stock Options of the Company conform in all material respects to the descriptions thereof contained in the Registration Statement and the Prospectus; (iv) To such counsel's knowledge, after due inquiry, the Company has no directly or indirectly held subsidiary other than the Bank; (v) When issued, sold, and delivered against payment therefor in accordance with the terms of the subscription agreement, the Company will be the registered holder of all of the outstanding capital stock of the Bank, and all such shares of stock so held will be validly issued and outstanding, fully paid and nonassessable and will be owned free and clear of any liens, encumbrances or other claims or restrictions whatsoever, subject to the provisions of the Banking Code, including, without limitation, Sections 77 and 201 of the Banking Code; (vi) the certificates evidencing the Shares are in the form approved by the Board of Directors of the Company, comply with the bylaws and the articles of incorporation of the Company, comply as to form and in all other material respects with applicable legal requirements; (vii) this Agreement has been duly and validly authorized, executed and delivered by the Company, and is the legal, valid and binding agreement and obligation of the Company enforceable in accordance with its terms, except (a) as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting enforcement of creditors' rights or by general equity principles (including requirements of reasonableness and good faith in the exercise of rights and remedies), whether applied by a court of equity or a court of law in an action at law or in equity, or by the discretionary nature of specific performance, injunctive relief, and other equitable remedies, including the appointment of a receiver, and (b), with respect to provisions relating to indemnification and contribution, to the extent they are held by a court of competent jurisdiction to be void or unenforceable as against public policy or limited by applicable laws or the policies embodied in them; 11 12 (viii) the Company is conveying to the respective Underwriters good and valid title to the Shares that are issued in their names, free and clear of any adverse claims, except to the extent any respective Underwriter has notice of any adverse claim; (ix) to the best of such counsel's knowledge, after due inquiry, there are (A) no contracts or other documents which are required to be filed as exhibits to the Registration Statement other than those filed as exhibits thereto, (B) no legal or governmental proceedings pending or threatened against the Company or the Bank, and (C) no statutes or regulations applicable to the Company or the Bank, or certificates, permits, grants or other consents, approvals, orders, licenses or authorizations from regulatory officials or bodies, which are required to be obtained or maintained by the Company or the Bank and which are of a character required to be disclosed in the Registration Statement and Prospectus which have not been so disclosed; (x) the statements in the Registration Statement and the Prospectus, insofar as they are descriptions of corporate documents, stock option plans, contracts, or agreements or descriptions of laws, regulations, or regulatory requirements, or refer to compliance with law or to statements of law or legal conclusions, are correct in all material respects; (xi) to the best of such counsel's knowledge, after due inquiry, the execution, delivery and performance of this Agreement, the consummation of the transactions herein contemplated and the compliance with the terms and provisions hereof by the Company will not give rise to a right to terminate or accelerate the due date of any payment due under, or conflict with or result in a breach of any of the terms or provisions of, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or require any consent under, or result in the execution or imposition of any lien, charge or encumbrance upon any properties or assets of the Company or the Bank pursuant to the terms of, any lease, indenture, mortgage, note or other agreement or instrument to which the Company or the Bank is a party or by which either of them or either of their properties or businesses is or may be bound or affected, nor will such action result in any violation of the provisions of the articles of incorporation or bylaws of the Company or the Bank or any statute or any order, rule, or regulation applicable to the Company or the Bank of any court or any federal, state, local or other regulatory authority or other governmental body, the effect of which, in any such case, would be expected to be materially adverse to the Company or the Bank; 12 13 (xii) to the best of such counsel's knowledge, after due inquiry, no consent, approval, authorization or order of any court or governmental agency or body, domestic or foreign, is required to be obtained by the Company in connection with the execution and delivery of this Agreement or the sale of the Shares to the Underwriters as contemplated by this Agreement, except those which have been obtained; (xiii) to the best of such counsel's knowledge, after due inquiry, (A) neither the Company nor the Bank is in breach of, or in default (and no event has occurred which, with notice or lapse of time, or both, would constitute a default) under, any lease, indenture, mortgage, note, or other agreement or instrument to which the Company or the Bank, as the case may be, is a party; or (B) neither the Company nor the Bank is in violation of any term or provision of either of their articles of incorporation or bylaws, or of any franchise, license, grant, permit, judgment, decree, order, statute, rule or regulation; and (C) neither the Company nor the Bank has received any notice of conflict with the asserted rights of others in respect of Intangibles necessary for the commencement or conduct of its business, the effect of which, in any such case, would be expected to be materially adverse to the Company or the Bank; (xiv) the Registration Statement and the Prospectus and any amendments or supplements thereto (other than the financial statements as to which no opinion need be rendered) comply as to form with the requirements of the Securities Act and the Rules in all material respects; and (xv) the Registration Statement is effective under the Securities Act, and, to the best of such counsel's knowledge, after due inquiry, no proceedings for a stop order are pending or threatened under the Securities Act. In rendering the foregoing opinion, such counsel may rely upon certificates of public officials (as to matters of fact and law) and officers of the Company (as to matters of fact), and include qualifications in its opinion as are reasonably acceptable to Roney & Co. Copies of all such certificates shall be furnished to counsel to Roney & Co. on the Closing Date. In addition, such counsel shall state that they have participated in conferences with officers of the Company and a representative of the Underwriters at which the contents of the Registration Statement and Prospectus and related matters were discussed and although such counsel did not independently verify the accuracy or completeness of the statements made in the Registration Statement and Prospectus and does not assume any responsibility for the accuracy or 13 14 completeness of the statements in the Registration Statement and Prospectus, on the basis of the foregoing, nothing has come to the attention of such counsel that would lead them to believe that the Registration Statement or Prospectus, as amended or supplemented, if amended or supplemented, contains any untrue statement of a material fact or omits a material fact required to be stated therein or necessary to make the statements therein not misleading; except that such statement may exclude financial statements, financial data, and statistical information included in the Registration Statement and Prospectus. (c) On or prior to each Closing Date, Roney & Co., as representative of the Underwriters, shall have been furnished such documents, certificates and opinions as they may reasonably require for the purpose of enabling them to review the matters referred to in subsection (b) of this Section 5, and in order to evidence the accuracy, completeness or satisfaction of the representations, warranties or conditions herein contained. (d) Prior to each Closing Date, (i) there shall have been no material adverse change in the condition or prospects, financial or otherwise, of the Company or the Bank; (ii) there shall have been no material transaction, not in the ordinary course of business, entered into by the Company or the Bank except as set forth in the Registration Statement and Prospectus, other than transactions referred to or contemplated therein or to which Roney & Co. has given its written consent; (iii) neither the Company nor the Bank shall be in default (nor shall an event have occurred which, with notice or lapse of time, or both, would constitute a default) under any provision of any material agreement, understanding or instrument relating to any outstanding indebtedness that is material in amount; (iv) no action, suit or proceeding, at law or in equity, shall be pending or threatened against the Company or the Bank before or by any court or Federal, state or other commission, board or other administrative agency having jurisdiction over the Company or the Bank, as the case may be, which is expected to have a material adverse effect on the Company or the Bank; and (v) no stop order shall have been issued under the Securities Act and no proceedings therefor shall have been initiated or be threatened by the Commission. (e) At each Closing Date, Roney & Co., as representative of the Underwriters, shall have received a certificate signed by the Chairman of the Board, and the President or Secretary of the Company dated the Firm Shares Closing Date or Optional Shares Closing Date, as the case may be, to the effect that the conditions set forth in subsection (d) above have been satisfied and as to the accuracy, as of the Firm Shares Closing Date or the Optional Shares Closing Date, as the case may be, of the representations and warranties of the Company set forth in Section 4 hereof. 14 15 (f) At or prior to each Closing Date, Roney & Co., as representative of the Underwriters, shall have received a "blue sky" memorandum of Dickinson, Wright, Moon, Van Dusen & Freeman, counsel for the Company, addressed to Roney & Co. and in form and scope reasonably satisfactory to Roney & Co., as representative of the Underwriters, concerning compliance with the blue sky or securities laws of the states listed in Exhibit C attached to this Agreement. (g) All proceedings taken in connection with the sale of the Shares as herein contemplated shall be reasonably satisfactory in form and substance to Roney & Co. and to counsel for Roney & Co., and Roney & Co. shall have received from counsel for Roney & Co. a favorable opinion, dated as of each Closing Date, with respect to such of the matters set forth under subsections (b) (i), (iii), (vi), (vii), and (xv) of this Section 5, and with respect to such other related matters as Roney & Co. may reasonably require, if the failure to receive a favorable opinion with respect to such other related matters would cause Roney & Co. to deem it inadvisable to proceed with the sale of the Shares. (h) There shall have been duly tendered to Roney & Co., as representative of the Underwriters, certificates representing all the Shares agreed to be sold by the Company on the Firm Shares Closing Date or the Optional Shares Closing Date, as the case may be. (i) No order suspending the sale of the Shares prior to each Closing Date, in any jurisdiction listed in Exhibit C, shall have been issued on the Firm Shares Closing Date or the Optional Shares Closing Date, as the case may be, and no proceedings for that purpose shall have been instituted or, to Roney & Co.'s knowledge or that of the Company, shall be contemplated. (j) The NASD, upon review of the terms of the public offering of the Shares, shall not have objected to the Underwriters' participation in the same. If any condition to the Underwriters' obligations hereunder to be fulfilled prior to or at the Firm Shares Closing Date or the Optional Shares Closing Date, as the case may be, is not so fulfilled, Roney & Co., as representative of the Underwriters, may terminate this Agreement pursuant to Section 9(c) hereof or, if Roney & Co., as representative of the Underwriters, so elects, waive any such conditions which have not been fulfilled or extend the time of their fulfillment. 6. COVENANTS. The Company covenants and agrees that it will: (a) Use its best efforts to cause the Registration Statement to become effective and will notify Roney & Co. immediately, and confirm the notice in 15 16 writing, (i) when the Registration Statement and any post-effective amendment thereto becomes effective, (ii)Eof the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceedings for that purpose and (iii) of the receipt of any comments from the Commission. The Company will make every reasonable effort to prevent the issuance of a stop order, and, if the Commission shall enter a stop order at any time, the Company will make every reasonable effort to obtain the lifting of such order at the earliest possible moment. (b) During the time when a prospectus is required to be delivered under the Securities Act, comply so far as it is able with all requirements imposed upon it by the Securities Act, as now and hereafter amended, and by the Rules, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Shares. If at any time when a prospectus relating to the Shares is required to be delivered under the Securities Act any event shall have occurred as a result of which, in the reasonable opinion of counsel for the Company or counsel for Roney & Co., the Registration Statement or Prospectus as then amended or supplemented includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend or supplement the Registration Statement or Prospectus to comply with the Securities Act, the Company will notify Roney & Co. promptly and prepare and file with the Commission an appropriate amendment or supplement in form satisfactory to Roney & Co. The cost of preparing, filing and delivering copies of such amendment or supplement shall be paid by the Company. (c) Deliver to the Underwriters such number of copies of each preliminary prospectus as may reasonably be requested by Roney & Co., as representative of the Underwriters, and, as soon as the Registration Statement, or any amendment or supplement thereto, becomes effective, deliver to each Underwriter three signed copies of the Registration Statement, including exhibits, and all post-effective amendments thereto and deliver to the Underwriters such number of copies of the Prospectus, the Registration Statement and supplements and amendments thereto, if any, without exhibits, as Roney & Co., as representative of the Underwriters, may reasonably request. (d) Endeavor in good faith, in cooperation with Roney & Co. and its counsel, at or prior to the time the Registration Statement becomes effective, to qualify the Shares for offering and sale under the securities laws relating to the offering or sale of the Shares of the states listed in Exhibit C. In each jurisdiction where such qualification shall be effected, the Company will, unless Roney & Co. agrees that such action is not at the time necessary or advisable, file and make such statements or reports at such times as are or may reasonably be required by 16 17 the laws of such jurisdiction. The Company will advise Roney & Co. promptly of the suspension of the qualification of the Shares for offering, sale or trading in any jurisdiction, or any initiation or threat of any proceeding for such purpose, and in the event of the issuance of any order suspending such qualification, the Company, with the cooperation of Roney & Co., will use all reasonable efforts to obtain the withdrawal thereof. (e) Furnish its security holders as soon as practicable an earnings statement (which need not be certified by independent certified public accountants unless required by the Securities Act or the Rules) covering a period of at least twelve months beginning after the effective date of the Registration Statement, which shall satisfy the provisions of Section 11(a) of the Securities Act and the Rules thereunder. (f) For a period of five years from the Effective Date, furnish to its shareholders annual audited and quarterly unaudited consolidated financial statements with respect to the Company including balance sheets and income statements. (g) For a period of five years from the Effective Date, furnish to Roney & Co. and, upon request of Roney & Co., to each of the other Underwriters, the following: (i) at the time they have been sent to shareholders of the Company or filed with the Commission three copies of each annual, quarterly, interim, or current financial and other report or communication sent by the Company to its shareholders or filed with the Commission; (ii) as soon as practicable, three copies of every press release and every material news item and article in respect of the Company or the affairs of the Company which was released by the Company; (iii) all other information reasonably requested by Roney & Co. with respect to the Company to comply with Rule 15c2-11 of the Rules and Section 4 of Schedule H of the NASD By-Laws; and (iv) such additional documents and information with respect to the Company and its affairs as Roney & Co. may from time to time reasonably request. (h) Acquire all of the Bank's outstanding capital stock, free and clear of all liens, encumbrances, or other claims or restrictions whatsoever, for not less than $___________ from the proceeds of the offering and, in all other material 17 18 respects, apply the net proceeds from the offering in the manner set forth under "Use of Proceeds" in the Prospectus. (i) Not file any amendment or supplement to the Registration Statement or Prospectus after the effective date of the Registration Statement to which Roney & Co. shall reasonably object in writing after being furnished a copy thereof. (j) Timely file with the Commission reports on Form SR (if applicable) containing the information required by that Form in accordance with the provisions of Rule 463 of the Regulation under the Act. (k) Comply with all registration, filing and reporting requirements of the Securities Act or the Exchange Act, which may from time to time be applicable to the Company. (l) Cause the proper submission of the Certificate of Paid-In Capital and Surplus, give advance written notice to the Commissioner of the Bank's projected opening date, and in all other respects use reasonable efforts to comply with the requirements of, and satisfy the conditions of, the FIB Order, the FDIC Order and the Federal Reserve Board Approval, which are required to be complied with prior to the Bank commencing the business of banking; provided, however, that it shall not be a breach of this Section 6(l) for the Company or the Bank to fail to maintain any specified level of capital, surplus, capital ratio, valuation reserve or financial or operating performance after the Bank has commenced the business of banking or to fail to satisfy any such requirement or condition if such failure is waived or performance of such requirement or condition is accepted as sufficient by the FIB, the FDIC, and/or the Federal Reserve Board, as applicable. (m) Pay, or reimburse if paid by the Underwriters, whether or not the transactions contemplated hereby are consummated or this Agreement is terminated, all costs and expenses incident to the performance of the obligations of the Company under this Agreement, including those relating to (1) the preparation, printing, filing and delivery of the Registration Statement, including all exhibits thereto, each preliminary prospectus, the Prospectus, all amendments of and supplements to the Registration Statement and the Prospectus, and the photocopying of the Underwriting Agreement and related agreements including, without limitation, the Dealer Agreement and Agreement Among Underwriters; (2) the issuance of the Shares and the preparation and delivery of certificates for the Shares to the Underwriters; (3) the registration or qualification of the Shares for offer and sale under the securities or "blue sky" laws of the various jurisdictions referred to in Exhibit C, including the fees and disbursements of counsel in connection with such registration and qualification and the preparation and printing of preliminary, supplemental, and final blue sky memoranda; (4) the furnishing (including costs of shipping and mailing) to the Underwriters of copies 18 19 of each preliminary prospectus, the Prospectus and all amendments of or supplements to the Prospectus, and of the several documents required by this Section to be so furnished; (5) the filing requirements and fees of the NASD in connection with its review of the terms of the public offering and the underwriting; (6) the furnishing (including costs of shipping and mailing) of copies of all reports and information required by Section 6(g); (7) all transfer taxes, if any, with respect to the sale and delivery of the Shares by the Company to the Underwriters; (8) the inclusion of the Shares on the OTC Bulletin Board; and (9) the Underwriters' out-of-pocket expenses, including without limitation, road show expenses and legal fees of counsel to Roney & Co. (such out-of-pocket expenses and legal fees payable by the Company shall not exceed $20,000). Upon a successful completion of the offering, the Underwriters will credit the out-of-pocket and legal fee reimbursement described in Section 6(m)(9) against the underwriting discount. (n) Not, without the prior written consent of Roney & Co., sell, contract to sell or grant any option for the sale of or otherwise dispose of, directly or indirectly, or register with the Commission, any shares of Common Stock of the Company (or any securities convertible into or exercisable for such shares of Common Stock) within 150 days after the date of the Prospectus, except as provided in this Agreement and except for grants and exercises of Stock Options under the Stock Option Plan as described in the Prospectus. (o) For not less than 3 fiscal years after the Effective Date, unless Roney & Co. shall otherwise consent in writing, (i) timely file with the Commission all reports required by Section 15(d) of the Exchange Act and not seek suspension of the duty to file such reports, and (ii) not less frequently than annually prepare a proxy statement and annual report which conform substantially to the requirements of Commission Regulation 14A and distribute such proxy statement and annual report to record and beneficial owners substantially in the manner which would be required by Commission Regulation 14A if applicable. (p) Use its best efforts to cause itself and the Bank to commence their businesses as described in the Prospectus not later than December 31, 1997. 7. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless the Underwriters and each person, if any, who controls the Underwriters within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all losses, claims, damages and liabilities, joint or several (including any reasonable investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted), to which they may become subject under the 19 20 Securities Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, the Registration Statement or the Prospectus or any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that such indemnity shall not inure to the benefit of the Underwriters (or any person controlling the Underwriters) on account of any losses, claims, damages or liabilities arising from the sale of the Shares in the public offering to any person by the Underwriters if such untrue statement or omission or alleged untrue statement or omission was made in such preliminary prospectus, the Registration Statement or the Prospectus, or such amendment or supplement, in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of the Underwriters specifically for use therein. The Company shall not be liable hereunder to an Underwriter (or any controlling person thereof) to the extent that any loss, claim, damage or other liability incurred by the Underwriter arises from the Underwriter's fraudulent act or omission. (b) Each Underwriter severally agrees to indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, each director of the Company and each officer of the Company who signs the Registration Statement, to the same extent as the foregoing indemnity from the Company to the Underwriters, but only insofar as such losses, claims, damages or liabilities arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which was made in any preliminary prospectus, the Registration Statement or the Prospectus, or any amendment thereof or supplement thereto, in reliance upon and in conformity with information furnished in writing to the Company by any of the Underwriters specifically for use therein; provided, however, that the obligation of each Underwriter to indemnify the Company (including any controlling person, director or officer thereof) hereunder shall be limited to the total price at which the Shares purchased by that Underwriter hereunder were offered to the public. The Underwriters shall not be liable hereunder to the Company (including any controlling person, director or officer thereof) to the extent that any loss, claim, damage or other liability incurred by the Company arises from a fraudulent act or omission by the Company. (c) Any party that proposes to assert the right to be indemnified under this Section will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section, notify each such 20 21 indemnifying party of the commencement of such action, suit or proceeding, enclosing a copy of all papers served, but the omission so to notify such indemnifying party of any such action, suit or proceeding shall not relieve it from any liability that it may have to any indemnified party otherwise than under this Section. In case any such action, suit or proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and the approval by the indemnified party of such counsel, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses, except as provided below and except for the reasonable costs of investigation subsequently incurred by such indemnified party in connection with the defense thereof. The indemnified party shall have the right to employ its counsel in any such action, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (1) the employment of counsel by such indemnified party has been authorized in writing by the indemnifying parties, (2) the indemnified party shall have reasonably concluded that, because of the existence of different or additional defenses available to the indemnified party or of other reasons, there may be a conflict of interest between the indemnifying parties and the indemnified party in the conduct of the defense of such action (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party) or that, under the circumstances, it is otherwise appropriate, or (3) the indemnifying parties shall not have employed counsel to assume the defense of such action within a reasonable time after notice of the commencement thereof, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying parties. An indemnifying party shall not be liable for any settlement of any action, suit, proceeding or claims effected without its written consent. 8. CONTRIBUTION. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in Section 7(a) or 7(b) is due in accordance with its terms but for any reason is held to be unavailable, the Company and the Underwriters shall contribute to the aggregate losses, claims, damages and liabilities (including any investigation, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted, but after deducting any contribution received from other persons), to which the Company and the Underwriters may be subject, in such proportion so that the Underwriters are responsible for that portion represented by the percentage that the underwriting discount appearing on the front cover page of the Prospectus bears to the public offering price appearing thereon and the Company is responsible for the balance; provided, however, that (a) in no case shall the Underwriters be responsible for any amount in excess of the underwriting discount applicable to the Shares 21 22 purchased by the Underwriters hereunder and (b) no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person, if any, who controls the Underwriters within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Underwriters, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, each officer and each director of the Company shall have the same rights to contribution as the Company, subject in each case to clauses (a) and (b) of this Section. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this Section, notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties from whom contribution may be sought shall not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have hereunder or otherwise than under this Section. No party shall be liable for contribution with respect to any action, suit, proceeding or claim settled without its written consent. In any proceeding relating to the Registration Statement, any preliminary prospectus, the Prospectus or any supplement thereto or amendment thereof, each party against whom contribution may be sought under this Section 8 hereby consents to the jurisdiction of any court in Michigan, agrees that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party. 9. TERMINATION. This Agreement may be terminated by Roney & Co. by notifying the Company at any time: (a) before the earliest of (1) 11:00 a.m., Detroit time, on the business day following the Effective Date, (2) the time of release by Roney & Co. for publication of the first newspaper advertisement with respect to the Shares and (3) the time when the Shares are first generally offered by the Underwriters to dealers by letter or telegram; (b) at or before any Closing Date if, in the judgment of Roney & Co., payment for and delivery of the Shares is rendered impracticable or inadvisable because (1) additional material governmental restrictions, not known to be in force and effect when this Agreement is signed, shall have been imposed upon trading in securities generally or minimum or maximum prices shall have been generally established on the New York Stock Exchange, on the American Stock Exchange or on the over-the-counter market, or trading in securities generally shall have been suspended on either such Exchange or on the over-the-counter market or a general banking moratorium shall have been established by federal, New York or Michigan authorities, (2) a war or other calamity shall have occurred or shall have 22 23 accelerated to such an extent as to affect adversely the marketability of the Shares, (3) the Company or the Bank shall have sustained a material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act, which, whether or not said loss shall have been insured, will in Roney & Co.'s opinion, make it inadvisable to proceed with the offering of the Shares, (4) the FIB Order, the FDIC Order, or the Federal Reserve Board Approval shall have been withdrawn or materially altered, or notice shall have been received to the effect that any of such approvals will not be received, or, if received, will be subject to conditions that the Company would not be able to fulfill in a reasonable time in Roney & Co.'s reasonable opinion, (5) in Roney & Co.'s reasonable opinion it is not probable that the Company and Bank will be able to commence business before December 31, 1997, for any reason, or (6) there shall have been such material change in the condition, business operations or prospects of the Company or the market for the Shares or similar securities as in Roney & Co.'s judgment would make it inadvisable to proceed with the offering of the Shares; or (c) at or before any Closing Date, if any of the conditions specified in Section 5 or any other agreements, representations or warranties of the Company in this Agreement shall not have been fulfilled when and as required by this Agreement. If this Agreement is terminated pursuant to any of its provisions, except as otherwise provided in this Agreement, the Company shall not be under any liability to the Underwriters (other than for obligations assumed in Section 6 hereof), and the Underwriters shall not be under any liability to the Company; provided, however, that if this Agreement is terminated by Roney & Co. because of any failure, refusal or inability on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or for any reasons provided in subparagraphs (b) (other than (b)(6)) and (c) above, the Company will reimburse the Underwriters for all accountable out-of-pocket expenses (including, without limitation, road show expenses and fees and disbursements of counsel to Roney & Co.) up to a maximum of $40,000 (including the $20,000 advance below) incurred by them in connection with the proposed purchase and sale of the Shares or in contemplation of performing their obligations hereunder. The Underwriters acknowledge receipt of a $20,000 advance from the Company. If this Agreement is terminated for any reason, the Underwriters shall be entitled to retain such advance as reimbursement for their accountable out-of-pocket expenses; provided, however, in the event that the accountable out-of-pocket expenses to be reimbursed under this paragraph are less than $20,000, the Underwriters shall pay such difference to the Company. If this Agreement is not terminated, the $20,000 shall be credited at closing against the underwriting discount. 10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties and agreements contained in this Agreement shall be deemed to be representations, warranties and agreements at the Closing Dates, and such representations, warranties and agreements of the Company, including, without limitation, the payment and reimbursement 23 24 agreements contained in Section 6 hereof and the indemnity and contribution agreements contained in Sections 7 and 8 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriters or any controlling person and shall survive termination of this Agreement and/or delivery of the Shares to and payment for the Shares by the Underwriters pursuant to this Agreement. In addition, the covenants contained in Section 6 hereof, the agreements contained in this Section 10 and in Sections 7, 8 and 9 shall survive termination of this Agreement and/or delivery of the Shares to and payment for the Shares by the Underwriters pursuant to this Agreement. 11. MISCELLANEOUS. This Agreement has been and is made for the benefit of the Underwriters, the Company and their respective successors and assigns, and, to the extent expressed herein, for the benefit of persons controlling the Underwriters or the Company, and directors and certain officers of the Company, and their respective successors and assigns, and no other person, partnership, association or corporation shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include any purchaser of Shares from the Underwriters merely because of such purchase. If any action or proceeding shall be brought by any Underwriter or the Company in order to enforce any right or remedy under this Agreement, the Underwriters and the Company hereby consent to, and agree that they will submit to, the jurisdiction of the courts of the State of Michigan and of any Federal court sitting in the State of Michigan. All notices and communications hereunder shall be in writing and mailed or delivered or by telephone or telegraph, if subsequently confirmed in writing, to the Underwriters, c/o Roney & Co., at One Griswold, Detroit, Michigan 48226 (facsimile No. (313) 963-2303) (with a copy to Donald J. Kunz, Honigman Miller Schwartz and Cohn, 2290 First National Building, Detroit, Michigan 48226 (facsimile No. (313) 962-0176)); and to the Company at 216 N. Division Avenue, Grand Rapids, Michigan 49503, Attention: Gerald R. Johnson, Jr., Chairman of the Board and Chief Executive Officer (facsimile No. (616) _________) (with a copy to Jerome M. Schwartz, Dickinson, Wright, Moon, Van Dusen & Freeman, 500 Woodward Avenue, Suite 4000, Detroit, Michigan 48226 (facsimile No. (313) 223-3598)). The laws of the State of Michigan shall govern this Agreement, its construction, and the determination of any rights, duties or remedies of the parties arising out of or relating to this Agreement. The parties acknowledge that the United States District Court for the Eastern District of Michigan or the Michigan Circuit Court for the County of Wayne shall have exclusive jurisdiction over any case or controversy arising out of or relating to this Agreement and that all litigation arising out of or relating to this Agreement shall be commenced in the United States District Court for the Eastern District of Michigan or in the Wayne County (Michigan) Circuit Court. 24 25 Please confirm that the foregoing correctly sets forth the agreement between us. Very truly yours, MERCANTILE BANK CORPORATION By: __________________________ Gerald R. Johnson, Jr. Its: Chief Executive Officer Confirmed by Roney & Co., as representative for, and on behalf of, the Underwriters named on Exhibit A: RONEY & CO., L.L.C. By:_______________________________ John C. Donnelly Director, Corporate Finance 25 26 EXHIBIT A 26 27 EXHIBIT B
Number Relationship of of Person to Name Shares to the Company ------------------ ------ --------------------------- Peter A. Cordes 25,000 Director C. John Gill 25,000 Director David M. Hecht 50,000 Director Gerald R. Johnson 50,000 Chairman of the Board, Chief Executive Officer and Director Lawrence R. Larsen 13,500 Director Calvin D. Murdock 15,000 Director Bruce Visser 50,000 Organizer Dale J. Visser 50,000 Director Robert M. Wynalda 50,000 Director
28 EXHIBIT C States Florida Indiana Michigan Ohio EX-3.1 3 EXHIBIT 3.1 1 EXHIBIT 3.1 - -------------------------------------------------------------------------------- MICHIGAN DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES - CORPORATION, SECURITIES & LAND DEVELOPMENT BUREAU Date Received Effective Date ---------------------- ------------------------- Corporate Identification Number - --------------------------- - -------------------------------------------------------------------------------- ARTICLES OF INCORPORATION OF MERCANTILE BANK CORPORATION These Articles of Incorporation are signed by the incorporator for the purpose of forming a profit corporation pursuant to the provisions of Act 284, Public Acts of 1972, as amended, as follows: ARTICLE I. Name The name of the corporation is Mercantile Bank Corporation. ARTICLE II Corporate Purpose The purpose or purposes for which the corporation is formed are to serve as a bank holding company registered under the Bank Holding Company Act of 1956, being 12 U.S.C. Sections 1841 to 1850 (as amended from time to time, and including any successor statutes) and to engage in any activity within the purposes for which corporations may be formed under the Business Corporation Act of Michigan. 2 ARTICLE III Capital Stock The total number of shares of all classes of stock which the corporation shall have authority to issue is 10,000,000 shares which shall be divided into two classes as follows; (1) 1,000,000 shares of Preferred Stock (Preferred Stock); and (2) 9,000,000 shares of Common Stock (Common Stock). The designations and the powers, preferences and relative, participating optional or other special rights, and the qualifications limitations or restrictions of the above classes of stock shall be as follows: A. PREFERRED STOCK 1. Shares of Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of Directors may determine. 2. The Board of Directors is expressly authorized at any time, and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series, 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 restriction thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors, and as are not stated and expressed in these Articles of Incorporation, or any amendment thereto, including (but without limiting the generality of the foregoing) the following: (a) The designation of such series and number of shares comprising such series, which number may (except where otherwise provided by the Board of Directors in creating such series) be increased or decreased (but not below the number of shares then outstanding) from time to time by action of the Board of Directors. (b) The dividend rate or rates on the shares of such series and the preference or relation which such dividends shall bear to the dividends payable on any other class of capital stock or on any other series of Preferred Stock, the terms and conditions upon which and the periods in respect of which dividends shall be payable, whether and upon what condition such dividends shall be cumulative and, if cumulative, the date or dates from which dividends shall accumulate. (c) Whether the shares of such series shall be redeemable, and, if redeemable, whether redeemable for cash, property or rights, including securities of any other corporations, at the option of either the holder or the corporation or upon the happening of a specified event, the limitations and restrictions with respect to such redemption, the time or times when, the price or prices or rate or rates at which, the adjustments with which and the manner in which such 2 3 shares shall be redeemable, including the manner of selecting shares of such series for redemption if less than all shares are to be redeemed. (d) The rights to which the holders of shares of such series shall be entitled, and the preferences, if any, over any other series (or of any other series over such series), upon the voluntary or involuntary liquidation, dissolution, distribution or winding up of the corporation, which rights may vary depending on whether such liquidation, dissolution, distribution or winding up is voluntary or involuntary, and, if voluntary, may vary at different dates. (e) Whether the shares of such series shall be subject to the operation of a purchase, retirement or sinking fund, and, if so, whether and upon what conditions such purchase, retirement or sinking fund shall be cumulative or noncumulative, the extent to which and the manner in which such fund shall be applied to the purchase or redemption of the shares of such series for retirement or to other corporate purposes and the terms and provisions relative to the operation thereof. (f) Whether the shares of such series shall be convertible into, or exchangeable for, at the option of either the holder or the corporation or upon the happening of a specified event, shares of any other class or of any other series of any class of capital stock of the corporation, and, if so convertible or exchangeable, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange. (g) The voting powers, full and/or limited, if any, of the shares of such series, and whether and under what conditions the shares of such series (alone or together with the shares of one or more other series having similar provisions) shall be entitled to vote separately as a single class, for the election of one or more directors, or additional directors of the corporation in case of dividend arrearages or other specified events, or upon other matters. (h) Whether the issuance of any additional shares of such series, 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. (i) Any other preferences, privileges and powers and relative, participating, option or other special rights, and qualifications, limitations or restrictions of such series, as the Board of Directors may deem advisable and as shall not be inconsistent with the provisions of these Articles of Incorporation. 3. Unless and except to the extent otherwise required by law or provided in the resolution or resolutions of the Board of Directors creating any series of Preferred Stock pursuant to this Section A, the holders of the Preferred Stock shall have no voting power with respect to any matter whatsoever. In no event shall the Preferred Stock be entitled to more than one vote in respect of each share of stock. 4. Shares of Preferred Stock redeemed, converted, exchanged, purchased, retired or surrendered to the corporation, or which have been issued and reacquired in any manner, may, upon 3 4 compliance with any applicable provisions of the Business Corporation Act of the State of Michigan, be given the status of authorized and unissued shares of Preferred Stock and may be reissued by the Board of Directors as part of the series of which they were originally a part or may be reclassified into and reissued as part of a new series or as a part of any other series, all subject to the protective conditions or restrictions of any outstanding series of Preferred Stock. B. COMMON STOCK 1. Except as otherwise required by law or by any amendment to these Articles of Incorporation, each holder of Common Stock shall have one vote for each share of stock held by him of record on the books of the corporation on all matters voted upon by the shareholders. 2. Subject to the preferential dividend rights, if any, applicable to shares of Preferred Stock and subject to applicable requirements, if any, with respect to the setting aside of sums for purchase, retirement or sinking funds for Preferred Stock, the holders of Common Stock shall be entitled to receive, to the extent permitted by law, such dividends as may be declared from time to time by the Board of Directors. 3. In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of Preferred Stock, holders of Common Stock shall be entitled to receive all of the remaining assets of the corporation of whatever kind available for distribution to shareholders ratably in proportion to the number of shares of Common Stock held by them respectively. The Board of Directors may distribute in kind to the holders of Common Stock such remaining assets of the corporation or may sell, transfer or otherwise dispose of all or any part of such remaining assets to any other corporation, trust or entity, or any combination thereof, and may sell all or any part of the consideration so received and distribute any balance thereof in kind to holders of Common Stock. The merger or consolidation of the corporation into or with any other corporation, or the merger of any other corporation into it, or any purchase or redemption of shares of stock of the corporation of any class, shall not be deemed to be a dissolution, liquidation of winding up of the corporation for the purposes of this paragraph. 4. Such numbers of shares of Common Stock as may from time to time be required for such purpose shall be reserved for issuance (i) upon conversion of any shares of Preferred Stock or any obligation of the corporation convertible into shares of Common Stock which is at the time outstanding or issuable upon exercise of any options or warrants at the time outstanding and (ii) upon exercise of any options, warrants or rights at the time outstanding to purchase shares of Common Stock. ARTICLE IV Board of Directors A. Number, Election and Term of Directors. The business and affairs of the corporation shall be managed by or under the direction of a Board of Directors. The number of directors of the 4 5 corporation shall be fixed from time to time by resolution adopted by the affirmative vote of a majority of the entire Board of Directors of the corporation, except that the minimum number of directors shall be fixed at no less than 6 and the maximum number of directors shall be fixed at no more than 15. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly equal in number as possible, of one-third of the total number of directors constituting the entire Board of Directors. Initially, Class I directors shall be elected for a one-year term, Class II directors for a two-years term and Class III directors for a three-year term. At each succeeding annual meeting of shareholders, beginning in 1998, successors of the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible. B. Shareholder Nomination of Director Candidates. Nominations for election to the Board of Directors of the corporation at a meeting of shareholders may be made by the Board of Directors, on behalf of the Board of Directors by any nominating committee appointed by the Board of Directors, or by any shareholder of the corporation entitled to vote for the election of directors at the meeting. Nominations, other than those made by or on behalf of the Board of Directors, shall be made by notice in writing delivered to or mailed, postage prepaid, and received by the Secretary of the corporation at least 60 days but no more than 90 days prior to the anniversary date of the immediately preceding Annual Meeting of Shareholders. The notice shall set forth (i) the name and address of the shareholder who intends to make the nomination; (ii) the name, age, business address and, if known, residence address of each nominee; (iii) the principal occupation or employment of each nominee; (iv) the number of shares of stock of the corporation which are beneficially owned by each nominee and by the nominating shareholder; (v) any other information concerning the nominee that must be disclosed by nominees in a proxy solicitation pursuant to Regulation 14A of the Securities Exchange Act of 1934 (or any subsequent provisions replacing such Regulation); and (vi) the executed consent of each nominee to serve as a director of the corporation, if elected. The chairman of the meeting of shareholders may, if the facts warrant, determine that a nomination was not made in accordance with the foregoing procedures, and if the chairman should so determine, the chairman shall so declare to the meeting and the defective nomination shall be disregarded. C. Newly Created Directorships and Vacancies. Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum, or by a sole remaining director. Any director of any class chosen to fill a vacancy in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the next annual meeting for the year in which his or her term expires and until such director's successor shall have been elected and qualified. D. Removal. Any director may be removed from office only for cause and only by the affirmative vote of the holders of at least a majority of the voting power of all the shares of the corporation entitled to vote generally in the election of directors, voting together as a single class. 5 6 E. Preferred Stock. Notwithstanding the foregoing paragraphs, whenever the holders of any one or more classes or series of Preferred Stock issued by the corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of shareholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Articles of Incorporation applicable thereto. The then authorized number of directors of the corporation shall be increased by the number of additional directors to be elected, and such directors so elected shall not be divided into classes pursuant to this Article unless expressly provided by such terms. F. Amendment or Repeal. Notwithstanding anything contained in these Articles of Incorporation or the By-laws of the corporation to the contrary, the affirmative vote of the holders of at least 66 2/3% of the voting power of all the shares of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend, repeal or adopt any provision inconsistent with the purpose and intent of this Article. ARTICLE V Directors' Liability A director of the corporation shall not be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its shareholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) a violation of Section 551(1) of the Michigan Business Corporation Act, or (iv) for any transaction from which the director derived any improper personal benefit. If the Michigan Business Corporation Act is amended after the date of these Articles of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Michigan Business Corporation Act, as so amended. Any repeal or modification of the foregoing paragraph by the shareholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. ARTICLE VI Indemnification Directors and officers of the corporation shall be indemnified as of right to the fullest extent now or hereafter permitted by law in connection with any actual or threatened civil, criminal, administrative or investigative action, suit or proceeding (whether brought by or in the name of the corporation, a subsidiary, or otherwise) arising out of their service to the corporation or a subsidiary, or to another organization at the request of the corporation or a subsidiary. Persons who are not directors or officers of the corporation may be similarly indemnified in respect of such service to the extent authorized at any time by the Board of Directors of the corporation. The 6 7 corporation may purchase and maintain insurance to protect itself and any such director, officer or other person against any liability asserted against him and incurred by him in respect of such service whether or not the corporation would have the power to indemnify him against such liability by law or under the provisions of this paragraph. The provisions of this paragraph shall be applicable to directors, officers and other persons who have ceased to render such service, and shall inure to the benefit of the heirs, executors, and administrators of the directors, officers and other persons referred to in this paragraph. ARTICLE VII Shareholder Action Except as otherwise required by law, any action required or permitted to be taken on or after September 30, 1997 by any shareholders of the corporation must be effected at a duly called annual or special meeting of such shareholders and may not be effected by any consent in writing by such shareholders. Except as may be otherwise required by law, special meetings of shareholders of the corporation may be called only by the Board of Directors or the Chairman of the Board. Notwithstanding anything contained in these Articles of Incorporation or the By-laws of the corporation to the contrary, the affirmative vote of at least 66 2/3% of the voting power of all the shares of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend or adopt any provision inconsistent with the purpose and intent of this Article. ARTICLE VIII Registered Office and Agent The address of the initial registered office of the corporation is: 500 Woodward Avenue, Suite 4000, Detroit, Michigan 48226. The name of the resident agent is: Jerome M. Schwartz. 7 8 ARTICLE IX Incorporator The name and address of the incorporator of the corporation is as follows: Jerome M. Schwartz Dickinson, Wright, Moon, Van Dusen & Freeman 500 Woodward Avenue, Suite 4000 Detroit, Michigan 48226 I, the incorporator, sign my name this 15th day of July, 1997. /s/ Jerome M. Schwartz --------------------------------- Incorporator, Jerome M. Schwartz Fees remitted by and document to be returned to: Jerome M. Schwartz Dickinson, Wright, Moon, Van Dusen and Freeman 500 Woodward Avenue, Suite 4000 Detroit, Michigan 48226 8 EX-3.2 4 EXHIBIT 3.2 1 EXHIBIT 3.2 BYLAWS OF MERCANTILE BANK CORPORATION ARTICLE I. OFFICES SECTION 1. PRINCIPAL OFFICE. The principal office shall be in the City of Grand Rapids, State of Michigan. SECTION 2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Michigan as the board of directors may from time to time determine or the business of the Corporation may require. ARTICLE II. MEETINGS OF SHAREHOLDERS SECTION 1. TIMES AND PLACES OF MEETINGS. All meetings of the shareholders shall be held at such times and places, within or without the State of Michigan, as may be fixed from time to time by the board of directors. If no designation of the place of a meeting is made, such meeting shall be held at the principal office of the Corporation in Grand Rapids, Michigan. SECTION 2. ANNUAL MEETINGS. Annual meetings of the shareholders shall be held each year at such time on such business day in the month of April as may be designated by the board of directors, or if no such designation is made, at 10 a.m. on the third Tuesday in April, or if that day is a legal holiday, then on the next succeeding business day at such place and hour as shall be fixed by the board of directors. SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders may be called by resolution of a majority of the board of directors or by the Chairman of the Board and shall be held on a date fixed by the board of directors or the Chairman of the Board. 1 2 SECTION 4. NOTICE OF MEETINGS. Written notice of each meeting of shareholders, stating the time, place and purposes thereof, shall be given to each shareholder entitled to vote at the meeting not less than ten (10) nor more than sixty (60) days before the date fixed for the meeting. Notice of a meeting need not be given to any shareholder who signs a waiver of notice before or after the meeting. Attendance of a shareholder at a meeting shall constitute both (a) a waiver of notice or defective notice except when the shareholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to holding the meeting or transacting any business because the meeting has not been lawfully called or convened, and (b) a waiver of objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, except when the shareholder objects to considering the matter when it is presented. SECTION 5. SHAREHOLDER LIST. The officer or agent who has charge of the stock ledger of the Corporation shall prepare and make a complete list of the shareholders entitled to vote at each meeting, arranged by class or series of shares in alphabetical order, showing the address of and the number of shares registered in the name of each shareholder. The list shall be produced and kept at the time and place of the meeting and may be inspected during the whole time of the meeting by any shareholder who is present at the meeting. SECTION 6. QUORUM. Unless a greater or lesser quorum is provided in the Articles of Incorporation or by law, shares entitled to cast a majority of the votes at a meeting constitute a quorum at the meeting. Except when the holders of a class or series of shares are entitled to vote separately on an item of business, shares of all classes and series entitled to vote shall be combined as a single class and series for the purpose of determining a quorum. When the holders of a class or series of shares are entitled to vote separately on an item of business, shares of that class or series entitled to cast a majority of the votes of that class or series at a meeting constitute a quorum of that class or series at the meeting, unless a greater or lesser quorum is provided in the Articles of Incorporation or by law. If there is no quorum, the officer of the Corporation presiding as chairman of the meeting shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present, when any business may be transacted which might have been transacted at the meeting as first convened had there been a quorum. However, if the adjournment is for more than thirty (30) days, or if after the adjournment the board fixes a new record date for the adjourned meeting, notice of the time, place and purposes of such meeting shall be given to each shareholder of record on the new record date. Once a quorum is determined to be present, the shareholders present in person or by proxy at such meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. If a meeting is adjourned solely for the purpose of receiving the results of voting by shareholders, such meeting need not be reconvened. If not reconvened, such meeting shall stand adjourned pending submission of the results of voting to the Secretary of the Corporation, whereupon such meeting shall stand adjourned until the next regular or special meeting of shareholders. SECTION 7. VOTE REQUIRED. When a quorum is present at a meeting, any action to be taken by a vote of the shareholders, other than the election of directors, shall be authorized by a 2 3 majority of the votes cast by the holders of shares entitled to vote on the action, unless a greater vote is required by the Articles of Incorporation or express provision of statute. Except as otherwise provided by the Articles of Incorporation, directors shall be elected by a plurality of the votes cast at an election. SECTION 8. VOTING RIGHTS. Except as otherwise provided by the Articles of Incorporation or the resolution or resolutions of the board of directors creating any class of stock, each shareholder shall at every meeting of the shareholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such shareholder. Each proxy to vote shall be in writing and signed by the shareholder or his or her duly authorized representative, and no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. SECTION 9. CONDUCT OF MEETINGS. Meetings of shareholders generally shall follow accepted rules of parliamentary procedure, subject to the following: (a) The chairman of the meeting shall have absolute authority over matters of procedure, and there shall be no appeal from the ruling of the chairman. If, in his or her absolute discretion, the chairman deems it advisable to dispense with the rules of parliamentary procedure as to any meeting of shareholders or part thereof, he or she shall so state and shall clearly state the rules under which the meeting or appropriate part thereof shall be conducted. (b) If disorder should arise which, in the absolute discretion of the chairman, prevents the continuation of the legitimate business of the meeting, the chairman may quit the chair and announce the adjournment of the meeting, and upon his or her so doing, the meeting is immediately adjourned without the necessity of any vote or further action of the shareholders. (c) The chairman may require any person who is not a bona fide shareholder of record on the record date, or a validly appointed proxy of such a shareholder, to leave the meeting. (d) The chairman may introduce nominations, resolutions or motions submitted by the board of directors for consideration by the shareholders without a motion or second. Except as the chairman shall direct, a resolution or motion not submitted by the board of directors shall be considered for a vote only if proposed by a shareholder of record on the record date or a validly appointed proxy of such a shareholder, and seconded by such a shareholder or proxy other than the individual who proposed the resolution or motion. (e) Except as the chairman shall direct, no matter may be presented to the meeting which has not been submitted in writing to the Secretary for inclusion in the agenda at least 10 days before the date of the meeting. 3 4 (f) When all shareholders present at a meeting in person or by proxy have been offered an opportunity to vote on any matter properly before a meeting, the chairman may at his or her discretion declare the polls to be closed, and no further votes may be cast or changed after such declaration. If no such declaration is made by the chairman, the polls shall remain open and shareholders may cast additional votes or change votes until the inspectors of election have delivered their final report to the chairman. (g) When the chairman has declared the polls to be closed on all matters then before a meeting, the chairman may declare the meeting to be adjourned pending determination of the results by the inspectors of election. In such event, the meeting shall be considered adjourned for all purposes, and the business of the meeting shall be finally concluded upon delivery of the final report of the inspectors of election to the chairman at or after the meeting. (h) When the chairman determines that no further matters may properly come before a meeting, he or she may declare the meeting to be adjourned, without motion, second, or vote of the shareholders. (i) When the chairman has declared a meeting to be adjourned, unless the chairman has declared the meeting to be adjourned until a later date, no further business may properly be considered at the meeting even though shareholders or holders of proxies representing a quorum may remain at the site of the meeting. SECTION 10. INSPECTORS OF ELECTION. The board of directors or, if they shall not have so acted, the chairman, may appoint at or prior to any meeting of shareholders one or more persons (who may be directors or employees of the Corporation) to serve as inspectors of election. The inspectors so appointed shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes or ballots, hear and determine challenges and questions arising in connection with the right to vote, count and tabulate votes or ballots, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. SECTION 11. VOTING. When any vote is taken by written ballot at any meeting of shareholders, an unrevoked proxy submitted in accordance with its terms shall be accepted in lieu of, and shall be deemed to constitute, a written ballot marked as specified in such proxy. ARTICLE III. RECORD DATE SECTION 1. FIXING OF RECORD DATE BY BOARD. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, or to express consent to or dissent from any corporate action in writing without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the 4 5 distribution or allotment of any rights or evidences of interests arising out of any change, conversion or exchange of capital stock, or for the purpose of any other action, the board of directors may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting, nor more than sixty (60) days prior to the effectuation of any other action proposed to be taken. Only shareholders of record on a record date so fixed shall be entitled to notice of, and to vote at, such meeting or to receive payment of any dividend or the distribution or allotment of any rights or evidences of interests arising out of any change, conversion or exchange of capital stock. SECTION 2. PROVISION FOR RECORD DATE IN THE ABSENCE OF BOARD ACTION. If a record date is not fixed by the board of directors: (a) the record date for determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the day next preceding the day on which notice is given, or, if no notice is given, the day next preceding the day on which the meeting is held; and (b) the record date for determining shareholders entitled to express consent to corporate action in writing, without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed; and (c) the record date for determining shareholders for any other purpose shall be the close of business on the day on which the resolution of the board relating thereto is adopted. SECTION 3. ADJOURNMENTS. When a determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders has been made as provided in this Article, the determination applies to any adjournment of the meeting, unless the board fixes a new record date for the adjourned meeting. ARTICLE IV. DIRECTORS SECTION 1. NUMBER AND QUALIFICATION OF DIRECTORS. Each director shall be at least twenty-one (21) years of age. A director need not be a shareholder, a citizen of the United States, or a resident of the State of Michigan. The number of directors shall be fixed by resolution of the board of directors as provided in the Articles of Incorporation. SECTION 2. VACANCIES. Vacancies and newly created directorships resulting from any increase in the authorized number of directors shall be filled in the manner provided in the Articles of Incorporation. SECTION 3. POWERS. The business and affairs of the Corporation shall be managed by its board of directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the shareholders. SECTION 4. FEES AND EXPENSES. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at 5 6 each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 5. RESIGNATION AND REMOVAL. Any director may resign at any time and such resignation shall take effect upon receipt of written notice thereof by the Corporation, or at such subsequent time as set forth in the notice of resignation. Directors may be removed only as provided by statute or the Articles of Incorporation. ARTICLE V. MEETINGS OF DIRECTORS SECTION 1. PLACE OF MEETINGS. The board of directors of the Corporation may hold meetings, both regular and special, either within or without the State of Michigan. SECTION 2. FIRST MEETING OF NEWLY ELECTED BOARD. The first meeting of each newly elected board of directors shall be held immediately following the annual meeting of shareholders, and no notice of such meeting shall be necessary to the newly elected directors to legally constitute the meeting, provided a quorum shall be present. In the event such meeting is not held immediately following the annual meeting of shareholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. SECTION 3. REGULAR MEETINGS. Regular meetings of the board of directors may be held with or without notice at such time and at such place as shall from time to time be determined by the board. SECTION 4. SPECIAL MEETINGS. Special meetings of the board may be called by the Chairman of the Board or the President on two (2) days' notice to each director, either personally, by mail, by telegram or by facsimile transmission; special meetings shall be called by the Chairman of the Board or the President in like manner and on like notice on the written request of two (2) directors. SECTION 5. PURPOSE NEED NOT BE STATED. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice of such meeting. SECTION 6. QUORUM. At all meetings of the board of directors a majority of the total number of directors shall constitute a quorum for the transaction of business, and the acts of a majority of the directors present at any meeting at which there is a quorum shall be the acts of the board of directors, except as may be otherwise specifically provided by statute or by the Articles of Incorporation. If a quorum is not present at any meeting of the board of directors, the directors 6 7 present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. SECTION 7. ACTION WITHOUT A MEETING. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if, before or after the action, all members of the board or of such committee, as the case may be, consent thereto in writing and such written consent is filed with the minutes or proceedings of the board or committee. SECTION 8. MEETING BY TELEPHONE OR SIMILAR EQUIPMENT. Members of the board of directors or any committee designated by the board of directors may participate in a meeting of such board, or committee, by means of conference telephone or similar communications equipment by means through which all persons participating in the meeting can communicate with each other. Participation in a meeting pursuant to this Section shall constitute presence in person at the meeting. SECTION 9. WAIVER OF NOTICE. Attendance of a director at or participation in a meeting of the board of directors or any committee constitutes a waiver of notice of the meeting, except where a director attends a meeting for the express purpose of objecting, at the beginning of the meeting or upon his or her arrival, to the meeting or the transaction of any business because the meeting has not lawfully been called or convened, and the person does not thereafter vote for or assent to any action taken at the meeting. Notice of any meeting of the board or a committee need not be given to any person entitled thereto who waives such notice in writing, either before or after the meeting. ARTICLE VI. COMMITTEES OF DIRECTORS SECTION 1. COMMITTEES. The board of directors may from time to time appoint committees, whose membership shall consist of such members of the board of directors as it may deem advisable, to serve at the pleasure of the board. The board of directors may also appoint directors to serve as alternates for members of each committee in the absence or disability of regular members. The board of directors may fill any vacancies in any committee as they occur. SECTION 2. EXECUTIVE COMMITTEE. The Executive Committee, if there is one, shall have and may exercise the full powers and authority of the board of directors in the management of the business affairs and property of the Corporation during the intervals between meetings of the board of directors. The Executive Committee shall also have the power and authority to declare distributions and dividends and to authorize the issuance of stock. SECTION 3. AUDIT COMMITTEE. 7 8 (a) Function. The Audit Committee shall perform the function of an audit committee for the Corporation and may perform such function for any subsidiary of the Corporation. The Audit Committee, except as otherwise specified by the board of directors, shall have the following duties and responsibilities: (i) causing a suitable examination of the financial records and operations of the Corporation and each of its subsidiaries to be made by the internal auditor of the Corporation; (ii) recommending to the board of directors the employment of independent public accountants who fulfill the requirements established by Section 36 of the Federal Deposit Insurance Act, as amended, and any regulations issued pursuant to such act by the Federal Deposit Insurance Corporation or any successor of such corporation; (iii) reviewing with the independent public accountants and management of the Corporation and its subsidiaries the bases for reports required by Section 36 of the Federal Deposit Insurance Act, as amended, and any regulations issued pursuant to such act by the Federal Deposit Insurance Corporation or any successor of such corporation; (iv) reviewing examination reports of the Corporation prepared by regulatory authorities and such other information concerning examination reports of the Corporation's subsidiaries as the committee deems advisable; and (v) reporting to the board of directors at least once each calendar year concerning the results of examinations made and such conclusions and recommendations as the Audit Committee deems advisable. (b) Eligibility of Members. Directors who fulfill all of the following conditions shall be eligible to serve on the Audit Committee: (i) members may not be current employees of the Corporation or any of its subsidiaries; and (ii) members must satisfy the requirements established by Section 36 of the Federal Deposit Insurance Act, as amended, and any regulations issued pursuant to such act by the Federal Deposit Insurance Corporation or any successor of such corporation. (c) Authorized Actions. The Audit Committee shall have the power to take and effect such actions as it deems necessary or advisable in the performance of its duties. The committee may engage counsel and other consultants to assist the committee in performing its duties. Such counsel and other consultants may but need not be otherwise engaged by 8 9 the Corporation unless otherwise prohibited by applicable laws or regulations. SECTION 4. COMPENSATION COMMITTEE. (a) Function. The Compensation Committee shall perform the function of a compensation committee for the Corporation. The Compensation Committee, except as otherwise specified by the board of directors, shall have the following duties and responsibilities: (i) making recommendations to the board of directors regarding benefit plans of the Corporation; (ii) submitting recommendations to the board of directors regarding compensation and personnel policies and programs of the Corporation; (iii) submitting recommendations to the board of directors regarding the compensation of the Chief Executive Officer, and individual salaries of other executive officers; and (iv) preparing an annual report that may be submitted to the Corporation's shareholders concerning the compensation policy of the Corporation and the committee's compensation decisions during the previous fiscal year. (b) Eligibility of Members. Directors who are not current employees of the Corporation or any of its subsidiaries shall be eligible to serve on the Compensation Committee. SECTION 5. NOMINATING COMMITTEE. The Nominating Committee, if there is one, shall consider candidates for the board of directors, propose to the board of directors candidates for directors for submission to the shareholders at the annual meeting, and review the retirement policy for directors and make recommendations to the board of directors concerning this policy. SECTION 6. OTHER COMMITTEES. The board of directors may designate such other committees as it may deem appropriate, and such committees shall exercise the authority delegated to them. SECTION 7. MEETINGS. Each committee provided for above shall meet as often as its business may require and may fix a day and time for regular meetings, notice of which shall not be required. Whenever the day fixed for a meeting shall fall on a holiday, the meeting shall be held on the following business day or on such other day as the chairman of the committee may determine. Special meetings of committees may be called by any member, and notice thereof may be given to the members by telephone, telegram, letter or facsimile transmission. A majority of the members of a committee shall constitute a quorum for the transaction of the business of the committee. A record of the proceedings of each committee shall be kept and presented to the board of directors. SECTION 8. SUBSTITUTES. In the absence or disqualification of a member of a committee, 9 10 the members thereof present at a meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the board to act at the meeting in place of such absent or disqualified member. ARTICLE VII. OFFICERS AND TITLED POSITIONS SECTION 1. APPOINTMENT OF OFFICERS. The board of directors at its first meeting after the annual meeting of shareholders, or as soon as practicable after the election of directors in each year, shall appoint from its number a Chairman of the Board. The board of directors shall also appoint a President, a Secretary, and a Treasurer, all of whom shall be officers of the Corporation. The board of directors may also appoint and expressly designate such other individuals as it may deem proper to be officers of the Corporation, with such titles as the board of directors may deem appropriate. If the offices of Chairman of the Board and President are held by a single person, that officer shall be the Chief Executive Officer of the Corporation; if not, the board of directors shall designate either the Chairman of the Board or the President to be the Chief Executive Officer of the Corporation. The dismissal of an officer, the appointment of an officer to fill the office of one who has been dismissed or has ceased for any reason to be an officer, the appointment of any additional officers, and the change of an officer to a different or additional office, may be made by the board of directors at any later meeting. Any two or more offices may be filled by the same person. SECTION 2. APPOINTMENTS TO TITLED POSITIONS. The board of directors or the Chief Executive Officer may from time to time appoint individuals to fill titled positions. Holders of titled positions who may from time to time be appointed pursuant to this Section shall hold such titles as are assigned by the board of directors or the Chief Executive Officer and shall perform such duties and exercise such authority as may be assigned by the board of directors or the Chief Executive Officer. Dismissal of the holder of a titled position, appointment of a replacement for a holder of a titled position, appointment of any additional titled position holders, and change of a titled position holder to a different or additional position, may be made by the board of directors or the Chief Executive Officer. Any two or more titled positions may be filled by the same person. SECTION 3. AUTHORITY OF OFFICERS. The Chairman of the Board, the Chief Executive Officer, the President, the Secretary, the Treasurer, and such other persons as the board of directors shall have appointed and expressly designated as officers shall be the only officers of the Corporation. Only the officers of the Corporation shall have discretionary authority to determine the fundamental policies of the Corporation. Holders of titled positions who have not been expressly designated as officers of the Corporation in this Section or by the board of directors shall not be officers of the Corporation regardless of their titles. SECTION 4. AUTHORITY OF TITLED POSITIONS. Holders of titled positions who are not officers shall not have discretionary authority to determine fundamental policies of the Corporation and shall not, by reason of holding such titled positions, be entitled to have access to any files, records or other information relating or pertaining to the Corporation, its business and finances, or 10 11 to attend or receive the minutes of any meetings of the board of directors or any committee of the Corporation, except as and to the extent expressly authorized and permitted by the board of directors or the Chief Executive Officer. SECTION 5. TERM OF SERVICE. Each officer and holder of a titled position shall serve at the pleasure of the board. The board of directors may remove any officer or holder of a titled position from that office or position for cause or without cause. Any officer or holder of a titled position may resign his or her office or position at any time, such resignation to take effect upon receipt of written notice thereof by the Corporation unless otherwise specified in the resignation. SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at all meetings of the shareholders and all meetings of the board of directors. SECTION 7. PRESIDENT. The President shall, subject to the direction of the board of directors, see that all orders and resolutions of the board are carried into effect, and shall perform all other duties necessary or appropriate to his or her office, subject, however, to his or her right and the right of the directors to delegate any specific powers to any other officer or officers of the Corporation. In case of the absence or inability to act of the Chairman of the Board, the President shall exercise all of the duties and responsibilities of the Chairman until the board shall otherwise direct. SECTION 8. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, in addition to his or her duties as Chairman of the Board or President, as the case may be, shall have final authority, subject to the control of the board of directors, over the general policy and business of the Corporation. The Chief Executive Officer shall have the power, subject to the control of the board of directors, to appoint, suspend or discharge and to prescribe the duties and to fix the compensation of such agents and employees of the Corporation, other than the officers appointed by the board, as he or she may deem necessary. SECTION 9. VICE CHAIRMEN OF THE BOARD. Each Vice-Chairman of the Board shall have such powers and perform such duties as may be assigned to him or her from time to time by the board of directors or the Chief Executive Officer. In case of the absence or inability to act of the Chairman of the Board and the President, the duties of his or her office shall, unless otherwise specified by these Bylaws, be performed by the Vice-Chairmen of the Board in the order of their seniority or such other priority as may be established by the board or by the Chief Executive Officer, unless and until the board shall otherwise direct, and, when so acting, the duly authorized Vice-Chairman of the Board shall have all the powers of, and shall be subject to the restrictions upon, the Chairman of the Board or the President. SECTION 10. VICE PRESIDENTS. Each Executive Vice President, Senior Vice President, Vice President, Assistant Vice President and such other vice presidents as may be designated by the board of directors shall have such powers and perform such duties as may be assigned to him or her from time to time by the board of directors or the Chief Executive Officer. In case of the absence or inability to act of the President, and in the absence or inability to act of the Vice-Chairmen of the 11 12 Board, the duties of the President shall, unless otherwise specified by these Bylaws, be performed by the Executive Vice Presidents, the Senior Vice Presidents, the Vice Presidents, the Assistant Vice Presidents and then such other vice presidents as may be designated by the board in the order of their seniority or such other priority as may be established by the board or by the Chief Executive Officer, unless and until the board shall otherwise direct, and, when so acting, the duly authorized Executive Vice President, Senior Vice President, Vice President or Assistant Vice President shall have all the powers of, and shall be subject to the restrictions upon, the President. Executive Vice Presidents, Senior Vice Presidents, Vice Presidents and Assistant - Vice Presidents have the authority to sign or execute contracts and other documents which shall be binding on the Corporation and to fulfill the terms thereof, but such Executive Vice Presidents, Senior Vice Presidents, Vice Presidents and Assistant Vice Presidents shall not have the discretionary policy-making authority conferred upon the officers by these Bylaws unless expressly designated as an officer by the board of directors. SECTION 11. SECRETARY. The Secretary shall attend all sessions of the board of directors and all meetings of the shareholders and shall record all votes and the minutes of all proceedings in a book to be kept for that purpose. The Secretary shall perform like duties for committees when required. He or she shall give, or cause to be given, notice of all meetings of the shareholders and meetings of the board of directors. He or she shall keep in safe custody the seal of the Corporation and shall see that it is affixed to all documents the execution of which, on behalf of the Corporation under its seal, is necessary or appropriate, and when so affixed may attest the same. He or she shall perform such other duties as may be prescribed by the board of directors or the Chief Executive Officer. SECTION 12. TREASURER. The Treasurer shall have custody of the corporate funds and securities, except as otherwise provided by the board, shall cause to be kept full and accurate accounts of receipts and disbursements in books belonging to the Corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the board of directors. He or she shall disburse the funds of the Corporation as may be ordered by the board or directors, taking proper vouchers for such disbursements, and shall render to the directors, at the regular meetings of the board or whenever they may require it, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. SECTION 13. ABSENCE. In the case of the absence or inability to act of any officer or holder of any titled position, or for any other reason that the board may deem sufficient, the board of directors or the Chief Executive Officer may delegate for the time being the powers or duties of such officer or holder of any titled position, to any other director or officer. To the extent that the enumerated powers or duties do not involve participation in major policy-making functions of the Corporation or the exercise of discretionary authority to that end, said powers or duties may be delegated for the time being to the holder of a titled position, but shall be exercised under the supervision of an officer. 12 13 ARTICLE VIII. INDEMNIFICATION SECTION 1. INDEMNIFICATION OTHER THAN IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. 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 Corporation) by reason of the fact that he or she is or was a director or officer of the Corporation or a subsidiary, or, while serving as such a director or officer, is or was serving at the request of the Corporation or a subsidiary 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, shall be indemnified by the Corporation against expenses (including attorneys' 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 Corporation or its shareholders, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation or its shareholders, or with respect to any criminal action or proceeding, that he or she had reasonable cause to believe that his or her conduct was unlawful. Persons who are not directors or officers of the Corporation or a subsidiary may be similarly indemnified in respect of such service to the extent authorized at any time by the board of directors, except as otherwise provided by statute or the Articles of Incorporation. SECTION 2. INDEMNIFICATION IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation 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 Corporation or a subsidiary, or, while serving as such a director or officer, is or was serving at the request of the Corporation or a subsidiary 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, shall be indemnified by the Corporation against expenses (including attorneys' 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 Corporation or its shareholders. Indemnification shall not be made for any claim, issue or matter in which such person has been found liable to the Corporation except to the extent authorized in Section 6 of this Article. Persons who are not directors or officers of the Corporation or a subsidiary may be similarly indemnified in respect of such service to the extent authorized at any time by the board of directors, except as otherwise provided by statute or the Articles of Incorporation. SECTION 3. EXPENSES. To the extent that a director or officer, or other person whose 13 14 indemnification is authorized by the board of directors, has been successful on the merits or otherwise, including the dismissal of an action without prejudice, in the defense of any action, suit or proceeding referred to in Section 1 or 2 of this Article, or in the defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith and any action, suit or proceeding brought to enforce the mandatory indemnification provided in this Section. SECTION 4. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under Section 1 or 2 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification is proper in the circumstances because the person has met the applicable standard of conduct set forth in this Article and upon an evaluation of the reasonableness of expenses and amounts paid in settlement. Such determination shall be made (a) by the board of directors by a majority vote of a quorum consisting of directors who are not parties or threatened to be made parties to such action, suit or proceeding, or if such a quorum cannot be obtained, by a majority vote of a committee duly designated by the board consisting solely of two or more directors not at the time parties or threatened to be made parties to such action, suit or proceeding; (b)by independent legal counsel (who may be the regular counsel of the Corporation) in a written opinion, which counsel shall be selected as provided in (a) above, provided that if a committee cannot be designated as provided in (a) above, then the board shall select such independent counsel; (c) by all Independent Directors (as that term is defined in the Michigan Business Corporation Act) who are not parties or threatened to be made parties to such action, suit or proceeding; or (d) by the shareholders, but shares held by directors, officers, employees or agents who are parties or threatened to be made parties to such action, suit or proceeding may not be voted. In designating a committee under (a) above, or in the selection of independent legal counsel in the event a committee cannot be designated pursuant to (b)above, all directors may participate. The Corporation may indemnify a person for a portion of expenses (including reasonable attorneys' fees), judgments, penalties, fees and amounts paid in settlement for which the person is entitled to indemnification under Section 1 or 2 of this Article, even though the person is not entitled to indemnification for the total amount of such expenses, judgments, penalties, fees and amounts paid in settlement. SECTION 5. ADVANCING OF EXPENSES. Expenses incurred by any person who is or was serving as a director or officer of the Corporation or a subsidiary in defending a civil or criminal action, suit or proceeding described in Section 1 or 2 of this Article shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding if (a) the person furnishes the Corporation a written affirmation of his or her good faith belief that he or she has met the applicable standard of conduct set forth in Section 1 or 2 of this Article; (b)the person furnishes the Corporation a written undertaking, executed personally or on his or her behalf, to repay the advance if it is ultimately determined that he or she did not meet the applicable standard of conduct; and (c) a determination is made that the facts then known to those making the determination would not preclude indemnification under the Michigan Business Corporation Act. Persons who are or were not serving as a director or officer of the Corporation or a subsidiary may receive similar advances of expenses to the extent authorized at any time by the board of directors, except as otherwise provided by statute or the Articles of Incorporation. Determinations under this Section shall be 14 15 made in the manner specified in Section 4 of this Article. Notwithstanding the foregoing, in no event shall any advance be made in instances where the board or independent legal counsel reasonably determines that such person deliberately breached his or her duty to the Corporation or its shareholders. SECTION 6. RIGHT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE UPON APPLICATION. A director, officer or other person who is a party or threatened to be made a party to an action, suit or proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court may order indemnification if it determines that the person is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not he or she met the applicable standard of conduct set forth in Section 1 or 2 of this Article or was adjudged liable as described in Section 2 of this Article, provided, however, that if he or she was adjudged liable, his or her indemnification shall be limited to reasonable expenses incurred. SECTION 7. INDEMNIFICATION UNDER BYLAWS NOT EXCLUSIVE. The indemnification or advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Articles of Incorporation, any bylaw, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the heirs, executors and administrators of such a person. The total amount of expenses advanced or indemnified from all sources shall, not exceed the amount of actual expenses incurred by the person seeking indemnification or advancement of expenses. All rights to indemnification under this Article shall be deemed to be provided by a contract between the Corporation and the director, officer, employee or agent who serves in such capacity at any time while these Bylaws and other relevant provisions of the general corporation law and other applicable law, if any, are in effect. Any repeal or modification thereof shall not affect any rights or obligations then existing. SECTION 8. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article. SECTION 9. MERGERS. For the purposes of this Article, references to the "Corporation" include all constituent Corporations absorbed in a consolidation or merger, as well as the resulting or surviving Corporation, so that any person who is or was a director, officer, employee or agent of such constituent Corporation, or is or was serving at the request of such constituent Corporation 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, shall stand in the same 15 16 position under the provisions of this Article with respect to the resulting or surviving Corporation as if he or she had served the resulting or surviving Corporation in the same capacity. SECTION 10. SAVINGS CLAUSE. If this Article or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, officer or other person whose indemnification is authorized by the board of directors as to expenses (including attorneys' fees), judgments, fees and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including a grand jury proceeding and an action by the Corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated or by any other applicable law. ARTICLE IX. SUBSIDIARIES SECTION 1. SUBSIDIARIES. The board of directors, the Chairman of the Board, the Chief Executive Officer, the President, or any other officer designated by the board of directors may vote the shares of stock owned by the Corporation in any subsidiary, whether wholly or partly owned by the Corporation, in such manner as they may deem in the best interests of the Corporation, including, without limitation, for the election of directors of any subsidiary corporation, or for any amendments to the charter or bylaws of any such subsidiary corporation, or for the liquidation, merger or sale of assets of any such subsidiary corporation. The board of directors, the Chief Executive Officer, or any other officer designated by the board of directors may cause to be elected to the board of directors of any such subsidiary corporation such persons as they shall designate, any of whom may, but need not be, directors, officers, or other employees or agents of the Corporation. SECTION 2. SUBSIDIARY OFFICERS NOT EXECUTIVE OFFICERS. The officers of any subsidiary corporation shall not, by virtue of holding such title and position, be deemed to be officers of the Corporation, nor shall any such officer of a subsidiary corporation, unless he or she is also a director or officer of the Corporation, be entitled to have access to any files, records or other information relating or pertaining to the Corporation, its business and finances, or to attend or receive the minutes of any meetings of the board of directors or any committee of the Corporation, except as and to the extent expressly authorized and permitted by the board of directors or the Chief Executive Officer. 16 17 ARTICLE X. CERTIFICATES OF STOCK SECTION 1. FORM. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman of the Board, a Vice Chairman of the Board, the President, an Executive Vice President, a Senior Vice President, or a Vice President and the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him or her in the Corporation. The certificate may but need not be, sealed with the seal of the Corporation, or a facsimile thereof. SECTION 2. FACSIMILE SIGNATURES. Where a certificate is signed (a) by a transfer agent or an assistant transfer agent, or (b) by a transfer clerk acting on behalf of the Corporation and a registrar, the signatures of the Chairman of the Board, Vice Chairman of the Board, President, Executive Vice President, Senior Vice President, Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be facsimiles. In case any officer(s) or any holder(s) of a titled position who has signed, or whose facsimile signature(s) has been used on, any certificate shall cease to be such officer(s) or holder(s) before such certificate has been delivered by the Corporation, such certificate may nevertheless be issued and delivered as though the person(s) who signed such certificate or whose facsimile signature(s) appears thereon continued to be such officer(s) or holder(s) of such titled position. SECTION 3. LOST CERTIFICATES. The officers may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the officers may, in their discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or-his or her legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as they may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. SECTION 4. REGISTERED OWNER. The Corporation shall be entitled to recognize the exclusive rights of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares; the Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Michigan. 17 18 ARTICLE XI. GENERAL PROVISIONS SECTION 1. CHECKS. Any signature on any check, demand or note may be signed by the facsimile signature of any person authorized by the board of directors to sign under this Section 1 of Article XI. If any officer who has signed or whose facsimile signature has been used shall cease to be such officer, such document may nevertheless be signed by means of such facsimile signature and delivered as though the person who signed such document or whose facsimile signature has been used thereon had not ceased to be such officer. SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the board of directors. SECTION 3. SEAL. The corporate seal shall have inscribed thereon the name of the Corporation and the words "Corporate Seal, Michigan." The seal may be used by causing it or a facsimile thereof to be impressed, affixed, reproduced or otherwise. SECTION 4. VOTING SECURITIES. The Chairman of the Board, the Chief Executive Officer, the President, or any officer designated by the board of directors shall have full power and authority on behalf of the Corporation to attend and to act and to vote, or to execute in the name or on behalf of the Corporation a proxy authorizing an agent or attorney-in-fact for the Corporation to attend and to act and to vote, at any meetings of security holders of corporations in which the Corporation may hold securities, and at such meetings he or she and his or her duly authorized agent or attorney-in-fact shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Corporation might have possessed and exercised if present. SECTION 5. DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the board of directors at any regular or special meeting pursuant to law. Dividends may be paid in cash, in property, or in shares of capital stock, subject to the provisions of the Articles of Incorporation. SECTION 6. RESERVES. Before payment of any dividends, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interests of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. 18 19 ARTICLE XII. AMENDMENTS These Bylaws may be amended, altered, changed, added to or repealed by the shareholders at any regular or special meeting of the shareholders if notice of such action be contained in the notice of such meeting, or by the board of directors at any regular or special meeting of the board of directors. 19 EX-4.1 5 EXHIBIT 4.1 1 EXHIBIT 4.1 COMMON STOCK COMMON STOCK CERTIFICATE IS TRANSFERABLE IN BOSTON AND NEW YORK CUSIP ------------------- MERCATILE BANK CORPORATION SEE REVERSE FOR CERTAIN DEFINITIONS INCORPORATED UNDER THE LAWS OF THE STATE OF MICHIGAN THIS CERTIFIES THAT IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF MERCATILE BANK CORPORATION transferable only on the books of the Corporation in person or by attorney upon surrender of this certificate properly endorsed. This certificate is issued by the Corporation and accepted by the holder subject to all of the terms and conditions contained in the Articles of Incorporation and By-Laws of the Corporation and is not valid unless countersigned by the Transfer Agent. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. FACSIMILE OF NEED SIGNATURE DATED: COUNTERSIGNED AND REGISTERED STATE STREET BANK AND TRUST COMPANY CHAIRMAN AND CHIEF EXECUTIVE OFFICER (BOSTON) [CORPORATE SEAL OF MICHIGAN] FACSIMILE OF TRANSFER AGENT AND REGISTRAR NEED SIGNATURE AUTHORIZED OFFICER SECRETARY
2 MERCANTILE BANK CORPORATION The Corporation will furnish to each shareholder upon request and without charge a full statement of the designation, relative rights, preferences and limitations of the shares of each class of stock of this Corporation authorized to be issued, the designation, relative rights, preferences, and limitations of each series thereof so far as the same have been prescribed and the authority of the Board of Directors of this Corporation to designate and prescribe the relative rights, preferences and limitations of other series. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT- Custodian ------------- -------------- (Cust) (Minor) TEN ENT - as tenants by the entireties under Uniform Gifts to Minors JT TEN - as joint tenants with right of survivorship Act and not as tenants in common ----------------------------------- (State) Additional abbreviations may also be used though not in the above list. For value received, hereby sell, assign and transfer unto ---------------------------------------------------- PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ----------------------------------------------- - -----------------------------------------------
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ________________________________________________________________________shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _______________________________________________________________________Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated ------------------------------ --------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. EX-5 6 EXHIBIT 5 1 EXHIBIT 5 DICKINSON, WRIGHT, MOON, VAN DUSEN & FREEMAN 500 WOODWARD AVENUE, SUITE 4000 DETROIT, MICHIGAN 48226-3425 TELEPHONE: (313) 223-3500 FACSIMILE: (313) 223-3598 August 5, 1997 Securities and Exchange Commission Judiciary Plaza 450 Fifth Street Washington, D.C. 20549 RE: MERCANTILE BANK CORPORATION Gentlemen: We are acting as counsel to Mercantile Bank Corporation, a Michigan corporation (the "Company") in connection with the proposed issuance and sale by the Company of shares of its common stock ("Common Stock"). The Common Stock is described in a registration statement on Form SB-2 (the "Registration Statement") filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"). Based upon our examination of such corporate records and other documents and certificates as we deemed it necessary to examine, it is our opinion that: 1. The Company is a corporation validly existing under the laws of the State of Michigan; and 2. The Common Stock, when issued and sold by the Company, will be legally issued, fully paid and non-assessable. We hereby consent to the use of this opinion as Exhibit 5 to the Registration Statement and to the use of our firm name under the caption "Legal Matters" in the related Prospectus. In giving such consent, we do not concede that we are experts within the meaning of the Act or the rules or regulations thereunder or that this consent is required by Section 7 of the Act. Very truly yours, /s/ Dickinson, Wright, Moon, Van Dusen & Freeman EX-10.1 7 EXHIBIT 10.1 1 EXHIBIT 10.1 MERCANTILE BANK CORPORATION 1997 EMPLOYEE STOCK OPTION PLAN ----------------------- As adopted by the Board of Directors on July 22, 1997 ----------------------- ARTICLE I - PURPOSE The purpose of the 1997 Employee Stock Option Plan (the "Plan") of Mercantile Bank Corporation (the "Company") is to enable key employees of the Company or any Subsidiary to participate in the Company's future growth and profitability by offering them long-term performance-based incentive compensation. The Plan also provides a means through which the Company and its Subsidiaries can attract and retain key employees. ARTICLE II - DEFINITIONS 2.1 The following terms have the meaning described below when used in the Plan: (a) "Board of Directors" shall mean the board of directors of the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended, and as it may be further amended from time to time. (c) "Common Stock" shall mean the Common Stock of the Company. (d) "Company" shall mean Mercantile Bank Corporation. (e) "Fair Market Value" on a particular date shall mean (i) if the Common Stock is quoted on the OTC Bulletin Board (the "Bulletin Board"), the mean between the closing high bid and low asked quotations for such day (or, in the event that the Common Stock was not quoted on such day, the most recent preceding business day on which the Common Stock was quoted) of the Common Stock on the Bulletin Board, (ii) if the Common Stock is quoted on The Nasdaq Stock Market ("Nasdaq"), the mean between the closing high bid and low asked quotations for such day of the Common Stock on Nasdaq, or (iii) if neither clause (i) nor (ii) is applicable, a value determined by any fair and reasonable means prescribed by the Board of Directors. 2 (f) "Incentive Stock Option" shall mean a stock option granted under Article VI that is intended to meet the requirements of Section 422 of the Code. (g) "Non-Qualified Stock Option" shall mean a stock option granted under Article VI that is not intended to be an Incentive Stock Option. (h) "Option" shall mean an Incentive Stock Option or Non-Qualified Stock Option. (i) "Participant" shall mean an eligible employee who has been granted an Option. (j) "Subsidiary" shall mean a corporation a majority of the outstanding voting capital stock of which is owned by the Company. ARTICLE III - ADMINISTRATION 3.1 Stock Option Plan Administration. The Board of Directors of the Company shall administer the Plan. The Board of Directors shall have full power and authority to grant to eligible employees (as determined by the Board of Directors) Options under Article VI of the Plan, to interpret the provisions of the Plan and any agreements relating to Options granted under the Plan, and to administer the Plan. In making determinations of eligibility for the Plan, 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. (b) Decisions of Board of Directors. All decisions made by the Board of Directors pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including the Company, its shareholders and employees, and beneficiaries of employees. ARTICLE IV - SHARES SUBJECT TO THE PLAN 4.1 (a) Number of Shares. Subject to adjustment as provided for in Section 4.1(b), the maximum number of shares of Common Stock with respect to which Options may be granted shall be 130,000 shares of Common Stock. Shares of Common Stock shall be made available from the authorized but unissued shares of the Company (including shares reacquired by the Company). If an Option granted under the Plan shall expire or terminate for any reason, the shares subject to, but not delivered, under such Option shall be available for other Options to be issued under the Plan. (b) Adjustments. All as may be deemed appropriate by the Board of Directors, the aggregate number of shares of Common Stock which may be issued under the Plan, the number of shares covered by each outstanding Option, and the price per share in each Option, may be proportionately adjusted for any increase or decrease in the number of issued 2 3 shares of Common Stock of the Company resulting from a subdivision or consolidation of shares or any other capital adjustment, a stock split, the payment of a stock dividend, or other increase or decrease in such shares effected without receipt of consideration by the Company. ARTICLE V - ELIGIBILITY 5.1 The persons eligible to participate in the Plan and receive Options under the Plan are officers and other key employees of the Company and its Subsidiaries, including directors who are full time employees, as determined by the Board of Directors. ARTICLE VI - STOCK OPTIONS 6.1 Grant of Options. Subject to the limitations of the Plan, the Board of Directors, after such consultation with and consideration of the recommendations of management as the Board of Directors considers desirable, shall select from eligible employees Participants to be granted Options and determine the time when each Option shall be granted and the number of shares subject to each Option. Options may be either Incentive Stock Options or Non-Qualified Stock Options. More than one Option may be granted to the same person. The Board of Directors may not grant a Participant Incentive Stock Options which in the aggregate are first exercisable during any one calendar year with respect to Common Stock the aggregate Fair Market Value of which (determined as of the time of grant) exceeds $100,000. 6.2 Option Agreements. Each Option under the Plan shall be evidenced by an option agreement that shall be signed by an officer of the Company and the Participant and shall contain such provisions as may be approved by the Board of Directors. Any such option agreement may be amended from time to time as approved by the Board of Directors and the Participant, provided that the terms of such option agreement after being amended conform to the terms of the Plan. 6.3 Option Price. The price at which shares of Common Stock may be purchased upon exercise of an Option shall be not less than one hundred percent (100%) of the Fair Market Value of such shares on the date such Option is granted. 6.4 Exercise of Options. (a) The period during which each Option may be exercised shall be fixed by the Board of Directors at the time such Option is granted, but such period in no event shall expire later than ten (10) years from the date the Option is granted. (b) Subject to the terms and conditions of the option agreement and unless canceled prior to exercise, each Option shall be exercisable in whole or in part in installments at such time or times as the Board of Directors may prescribe and specify in the applicable option agreement. 3 4 (c) No shares shall be delivered pursuant to any exercise of an Option until payment in full of the option price therefor is received by the Company. Such payment shall be made in cash or through the delivery of shares of Common Stock of the Company with a value equal to the total option price or a combination of cash and shares. Any shares so delivered shall be valued at their Fair Market Value on the exercise date. No Participant shall be deemed to be a holder of any shares subject to any Option prior to the issuance of such shares upon exercise of such Option. 6.5 Ten-Percent Shareholder Rule. If a Participant owns more than ten percent (10%) of the total combined voting power of all classes of the Company or of any Subsidiary's stock at the time an Incentive Stock Option is granted to such Participant, the option price to such Participant shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of the Common Stock on the date of grant, and such Incentive Stock Option by its terms shall not be exercisable after the expiration of five (5) years from the date of grant. 6.6 Non-Transferability of Options. No Option or any rights with respect thereto shall be subject to any debts or liabilities of a Participant, nor be assignable or transferable except by Will or the laws of descent and distribution, nor be exercisable during the Participant's lifetime other than by the Participant, nor shall Common Stock be issued to or in the name of one other than the Participant; provided, however, that an Option may after the death or disability of a Participant be exercised pursuant to Section 6.7; and provided further that any Common Stock issued to a Participant hereunder may at the request of the Participant, and with the consent of the Company, be issued in the names of the Participant and one other person, as joint tenants with right of survivorship and not as tenants in common, or in the name of a trust for the benefit of the Participant or for the benefit of the Participant and others. 6.7 Termination of Employment; Death and Disability. Subject to the condition that no Option may be exercised in whole or in part after the expiration of the option period specified in the applicable option agreement: (a) Except as hereinafter provided, an Option may be exercised by the Participant only while such Participant is in the employ of the Company or a Subsidiary. In the event that the employment of a Participant to whom an Option has been granted under the Plan shall terminate (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 shall be extended to twelve (12) months. (b) In the event of the permanent disability of a Participant as determined by the Board of Directors, an Option which is otherwise exercisable may be exercised by the Participant's legal representative or guardian. In the event of the death of the Participant, an Option which is otherwise exercisable may be exercised by the person or persons whom the Participant shall have designated in writing on forms prescribed by and filed with the Board of Directors ("Beneficiaries"), or, if no such designation has been made, by the person or persons to 4 5 whom the Participant's rights shall have passed by Will or the laws of descent and distribution ("Successors"). The Board of Directors may require an indemnity and/or such evidence or other assurances as the Board of Directors in its sole and absolute discretion may deem necessary in connection with an exercise by a legal representative, guardian, Beneficiary or Successor. ARTICLE VII - GENERAL PROVISIONS 7.1 Change in Control. (a) In the case of a Change in Control (as defined below) of the Company, unless the Board of Directors determines otherwise, each Option then outstanding shall become exercisable in full immediately prior to such Change in Control. (b) Any determination by the Board of Directors made pursuant to subsection (a) above may be made as to all outstanding Options or only as to certain Options specified by the Board of Directors and any such determinations shall be made in cases covered by subparagraphs 7.1(c)(i) and (ii) below prior to or as soon as practicable after the occurrence of such event and in the cases covered by subparagraphs 7. 1 (c) (iii) or (iv) prior to the occurrence of such event. (c) A Change in Control shall occur if: (i) Any "person" or "group of persons" as such terms are defined in Section 13(d) and 14(c) of the Securities Exchange Act of 1934 (the "Exchange Act") directly or indirectly purchases or otherwise becomes the "beneficial owner" (as defined in the Exchange Act) or has the right to acquire such beneficial ownership (whether or not such right is exercised immediately, with the passage of time or subject to any condition) of voting securities representing forty percent (40%) or more of the combined voting power of all outstanding voting securities of the Company, (ii) During any period of two consecutive calendar years the individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least the majority of the members thereof unless (1) there are five or more directors then still in office who were directors at the beginning of the period and (2) the election or the nomination for election by the Company's shareholders of each new director was approved by at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period, (iii) The shareholders of the Company shall approve an agreement to merge or consolidate the Company with or into another corporation as a result of which less than fifty percent (50%) of the outstanding voting securities of the surviving or resulting entity are or are to be owned by the former shareholders of the Company (excluding from former shareholders a shareholder who is or as a result of the transaction in question, becomes an affiliate as defined in Rule 12b-2 under the Exchange Act of any party to such consolidation or merger), or 5 6 (iv) The shareholders of the Company shall approve the sale of all or substantially all of the Company's business and/or assets to a person or entity that is not a wholly-owned subsidiary of the Company. 7.2 No Right of Continued Employment. Neither the establishment of the Plan, the granting of Options or any action of the Company or of the Board of Directors shall be held or construed to confer upon any person any legal right to be continued in the employ of the Company or its Subsidiaries, each of which expressly reserves the right to discharge any employee whenever the interest of any such company in its sole discretion may so require without liability to such company or the Board of Directors, except as to any rights that may be expressly conferred upon such employee under the Plan. 7.3 No Segregation of Cash or Shares. The Company shall not be required to segregate any shares of Common Stock that may at any time be represented by Options, and the Plan shall constitute an "unfunded" plan of the Company. No employee shall have rights with respect to shares of Common Stock prior to the delivery of such shares. The Company shall not, by any provisions of the Plan, be deemed to be a trustee of any Common Stock or any other property and the liabilities of the Company to any employee pursuant to the Plan shall be those of a debtor pursuant to such contract obligations as are created by or pursuant to the Plan, and the rights of any employee, former employee or beneficiary under the Plan shall be limited to those of a general creditor of the Company. 7.4 Delivery of Shares. No shares shall be delivered pursuant to any exercise of an Option under the Plan unless the requirements of such laws and regulations as may be deemed by the Board of Directors to be applicable thereto are satisfied. All certificates for shares of Common Stock delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Board of Directors may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed, and any applicable Federal or state securities law, and the Board of Directors may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. 7.5 Governing Law. The Plan and all determinations made and action taken pursuant thereto shall be governed by the laws of the State of Michigan and construed in accordance therewith. 7.6 Payments and Tax Withholding. The delivery of any shares of Common Stock under the Plan shall be for the account of the Company and any such delivery or distribution shall not be made until the recipient shall have made satisfactory arrangements for the payment of any applicable withholding taxes. 6 7 ARTICLE VIII - AMENDMENT AND TERMINATION 8.1 Amendment or Termination. The Board of Directors may amend or terminate the Plan provided, however, that no such amendment or termination shall adversely affect any Option then in effect unless the prior approval of the Participant so affected is obtained and provided further that any amendment to the Plan shall be subject to shareholder approval to the extent necessary to satisfy the requirements of Section 16 under the Exchange Act. No Option may be granted under the Plan after July 1, 2002. ARTICLE IX - EFFECTIVENESS OF PLAN 9.1 The Plan was adopted by the Board of Directors on July 22, 1997 subject to the approval by the sole shareholder of the Company and was approved by such shareholder on July 22, 1997. ARTICLE X - SEVERABILITY 10.1 If any provision of the Plan, or any term or condition of any Option granted thereunder, is invalid, such provision, term, condition or application shall to that extent be void (or, in the discretion of the Board of Directors, such provision, term or condition may be amended so as to avoid such invalidity or failure), and shall not affect other provisions, terms or conditions or applications thereof, and to this extent such provisions, terms and conditions are severable. 7 EX-10.2 8 EXHIBIT 10.2 1 EXHIBIT 10.2 LEASE THIS LEASE is entered into as of AUGUST 6, 1997, by and between DIVISION AVENUE PARTNERS, L.L.C., a Michigan limited liability company of Grand Rapids, Michigan ("Landlord"), and MERCANTILE BANK OF WEST MICHIGAN, a Michigan corporation ("Tenant"). 1. PREMISES For the rent and in consideration of the agreements contained in this Lease, Landlord leases to Tenant and Tenant rents from Landlord the warehouse and office space, comprising approximately eleven thousand one hundred (11,100) square feet located at 216 N. Division, Grand Rapids, Kent County, Michigan (the "Building"), as more particularly described on Exhibit A attached hereto together with that portion of the parking lot lying contiguous to, and south of the Building, identified on Exhibit A attached hereto, containing approximately twenty-four (24) parking spaces, together with all of the easements, rights, privileges and appurtenances thereunto belonging and together with all of the improvements presently constructed thereon in their present condition and together with all fittings and fixtures of every kind whatsoever now or hereafter owned by Landlord and used or procured for use in connection with the operations and maintenance of said improvements (all of the foregoing are hereinafter referred to as the "Premises"). This Lease is not subject to any conditions, covenants, easements, restrictions or right-of-ways, nor are the Premises encumbered with the leasehold interest of any other party except for the leasehold interest of Brian's Books which occupies 1,850 square feet of the Premises, and which Landlord warrants is terminable upon sixty days notice in writing, which notice was given on July 22, 1997. 2. ACCEPTANCE OF PREMISES The Landlord represents to Tenant that the Premises are in good condition, and Tenant agrees to accept the Premises in the condition in which it is on the date that this Lease is executed. 3. TERM The term of this Lease shall commence upon the date Tenant's contractors are ready to commence making of improvements to the Premises, but no later than September 1, 1997. The foregoing notwithstanding, the term of this Lease with respect to that portion of the Premises occupied by Brian's Books shall commence when Brian's Books vacates the Premises. Landlord shall use its best efforts to cause Brian's Books to vacate the Premises in a timely manner, including commencement and diligent prosecution of an eviction proceeding, if necessary. The term of this Lease shall end on August 31, 2007. 2 Tenant shall have the option to extend the term of this lease for four (4) successive 5-year periods by delivering notice, in writing, to Landlord at Landlord's address or otherwise where designated by Landlord, no later than 12 months prior to the end of the term of this lease, or any extension. Such extension or extensions shall be upon the same terms and conditions as herein set forth and such extension shall be treated as if a part of the original term of this Lease. 4. USE It is understood and agreed between the parties that the Premises during the continuance of this Lease shall be used and occupied only for lawful purposes and uses in connection with Tenant's business as it is presently constituted, and for no other purpose or purposes without the prior written consent of Landlord. Tenant shall not use the Premises or permit the Premises to be used for the doing of any act or anything that constitutes the violation of any law, order, ordinance, or regulation of any governmental authority and any rules, regulations, standards or guidelines issued pursuant to any of the aforesaid. Tenant shall not, in any manner, deface or injure the Premises, or permit any objectionable noise or odor, or any hazardous substances, material, contaminate or waste to be released, emitted, or spilled or permit anything to be done on the Premises intending to create a health hazard or a nuisance or to disturb others or to injure the reputation of the Premises. 5. RENT (a) Tenant agrees to pay to Landlord as rent for the Premises during the term of this Lease the sum of twelve thousand four hundred eighty-seven dollars and fifty cents ($12,487.50) each month, commencing on the 1st day of October, 1997, and on the same day of each month thereafter, payable to Landlord at the address of Landlord or such other place as may be designated in writing by Landlord. Past due payments of rent shall bear interest at the rate of 18% per annum. The foregoing notwithstanding, rent (to be prorated on the basis of area) with respect to that portion of the Premises occupied by Brian's Books shall not commence until such time as Brian's Books has vacated the Premises. (b) Commencing with the due date of the first monthly rent payment of the second lease year and every lease year thereafter the rent shall be increased by the greater of three percent (3%) of the rent for the preceding lease year, or by the same percentage as there is an increase in the "Consumer Price Index for All Urban Consumers (United States) (1984=100)", or any successor Consumer Price Index, as published by the Bureau of Labor Statistics, United States Department of Labor (the "Index"). On such date, if rent is to be increased by the percentage increase in the Index, rent shall be subject to increase (but not decrease) based upon the following formula: 2 3 First, the figure shown by such Index for the date of calculation shall be divided by the figure shown by such Index for the Lease commencement date or the date of the last rent adjustment (as applicable), and the integer one (1) shall be subtracted from the quotient so obtained. Second, the fraction obtained in step one shall be multiplied by the amount of the annual rent for the most recently concluded lease year; and Third, the product obtained in step two shall be added to the annual rent for the most recently concluded lease year and the sum so obtained shall be the new annual rent until the next adjustment made pursuant to this Lease. 6. TAXES (a) Tenant shall pay, before any penalty or interest attaches, all real estate taxes, special assessments, water charges, sewer service charges, and other governmental charges of any kind whatsoever, levied or assessed against or with respect to the Premises at any time during the term of this Lease, and shall, upon written request, furnish to Landlord duplicate receipts therefore. In the event Tenant fails to make payment as required under this Section, Landlord shall be entitled to make payment directly to the appropriate governmental subdivision. Tenant agrees that it will, on demand, reimburse Landlord for the amount of such payment. For purposes of this paragraph, real property taxes shall be prorated on a calendar year basis for the first and last calendar years of this Lease. (b) Tenant shall pay before any penalty or interest attaches, all personal property taxes levied or assessed against the personal property of Tenant located upon the Premises, and shall, upon written request, furnish to Landlord duplicate receipts thereof. (c) Tenant shall have the right to contest the amount or validity, in whole or in part, of any tax, assessment or charge described in (a) or (b) above by appropriate proceedings diligently conducted in good faith. (d) Tenant shall have a right to seek a reduction in the valuation of the Premises assessed for tax purposes and to prosecute any action or proceeding heretofore commenced by Tenant. To the extent to which any tax refund payable as a result of any such proceeding which Tenant may institute, or payable by reason of the compromise or settlement of any such proceeding, may be based upon a payment made by Tenant and shall not relate to a period as to which apportionment thereof has been made with 3 4 Landlord, Tenant shall be authorized to collect the same, subject to Tenant's obligation to reimburse Landlord forthwith for any expenses and fees incurred by Landlord in connection therewith. Landlord may at its own expense and for its and Tenant's benefit, if it shall so desire, endeavor at any time or times to obtain a lowering of the assessed valuation upon the Premises or any part thereof for the purpose of reducing taxes thereon, and in such event, Tenant will cooperate in effecting such a reduction. If required by law in order to so contest such tax, assessment, valuation or charge, Landlord shall join in such proceedings or permit the same to be brought in its name. Landlord shall not ultimately be subjected to any liability for the payment of any costs or expenses in connection with any proceedings brought by Tenant, and Tenant will indemnify and save harmless Landlord from any such costs and expenses, including, without limitation, reasonable attorneys fees. 7. ALTERATIONS AND INSTALLATIONS DURING TERM AND REMOVAL OF IMPROVEMENTS BY TENANT (a) Tenant shall not, without the prior written approval of Landlord, which approval shall not unreasonably be withheld, make any material alterations, improvements, or additions to the Premises. Any alteration, improvement or addition shall conclusively be deemed material if it involves alterations, improvements or additions exceeding in cost the sum of Ten Thousand Dollars ($10,000.00). If Tenant desires to make any material alterations, improvements, or additions to the Premises, Tenant shall first submit to Landlord plans and specifications therefore and obtain Landlord's written approval thereof, which approval shall not unreasonably be withheld. Landlord shall not withhold or delay its approval of any nonstructural alterations unless, in the opinion of Landlord, Tenant's proposal would be detrimental to the long term value of the Premises. Any such approved alterations, improvements, or additions shall be made at Tenant's sole expense with such contractor or contractors, as shall be approved by Landlord, which approval shall not unreasonably be withheld. Unless otherwise directed by Landlord in writing, no alterations, improvements, additions or physical changes made by Tenant, shall be removed by Tenant from the Premises at the termination of the Lease with the exception of, (i) Tenant's trade fixtures, (ii) those improvements identified on Exhibit B, attached hereto, as from time-to-time supplemented by mutual agreement of the parties. In the event the parties are unable to agree upon a characterization of a particular asset as a trade fixture, the matter shall be submitted to arbitration under the auspices of the American Arbitration Association. All alterations, improvements, or additions exclusive of those assets enumerated above, shall immediately upon installation become Landlord's property and shall be deemed to be a part of the Premises. 4 5 (b) Tenant shall, before making any improvements, alterations, additions, installations or improvements, at its expense, obtain all permits, approvals and certificates required by any governmental or quasi-governmental bodies and (upon completion) certificates of final approval therefore, and shall deliver promptly, upon request, duplicates of all such permits, approvals and certificates to Landlord, and Tenant agrees to carry and will cause Tenant's contractors and sub-contractors to carry such workers' compensation, general liability, and personal and property damage insurance as Landlord may reasonably require. (c) Nothing in this Lease shall authorize Tenant to, and Tenant shall not, do any act which will in any way encumber the title of Landlord to the Premises. If a lien is filed against the Premises or Tenant's interest therein to secure payment of an indebtedness or other obligation of the Tenant, Tenant shall, within ten (10) days after receiving a request from the Landlord that such lien be discharged, discharge such lien either by payment of the indebtedness due the lien claimant or by filing a bond (as provided by statute) as security therefor. If Tenant fails to discharge such lien, Landlord shall have the right to procure its discharge by filing such bond or making payment to such lien claimant and Tenant shall reimburse Landlord for all costs and expenses incurred by Landlord as additional rent upon the first day that rent shall become due thereafter. 8. REPAIRS AND MAINTENANCE BY TENANT (a) Tenant shall, at its expense, keep and maintain the Premises, and each component of the Premises, and all of Tenant's property upon the Premises, in good and clean operating condition. Tenant's obligations shall include, but not be limited to, roadway, parking, landscaping, exterior and structural maintenance, reconstruction and repairs (including all necessary replacements), the replacement of broken glass and the repair and maintenance (including all necessary replacements) of the interior portions and components of the Premises, such as the walls, ceiling, heating, air conditioning, electrical, plumbing, dust collecting and sprinkler systems, any building security system and other interior components. Landlord shall be given notice of and Tenant's plan for any major repair or replacement undertaken. Tenant shall also, at its expense, remove snow, ice and rubbish from the Premises. (b) If Tenant does not renew the term of this Lease through the full amortization period or acquire ownership of the Premises at or before the termination of this Lease, Landlord agrees to reimburse Tenant for the unamortized cost for the replacement of any building elements treated for tax purposes as capital assets and required to have been replaced by Tenant under the terms of this Lease. Any such reimbursement shall be made by 5 6 Landlord to Tenant no later than the date the Lease terminates. The unamortized cost of any such replacements shall be agreed upon by the parties. If the parties are unable to agree, the matter shall be submitted to arbitration under the auspices of the American Arbitration Association. (c) If Landlord reasonably deems any unperformed cleaning maintenance, repairs or replacements by Tenant necessary, it may demand that Tenant make the same. If Tenant refuses or neglects to do so or fails to complete the same within a reasonable time, Landlord may make or cause such reasonable cleaning, maintenance, repairs or replacements to be made and shall not be responsible to Tenant for any loss or damage that may accrue to Tenant by reason thereof. Tenant agrees that it will, on demand, pay to Landlord the cost of any such cleaning, maintenance, repairs or replacements. 9. UTILITIES Charges for utilities used in or about the Premises, including, without limitation, gas, electricity, light, heat, power and telephone or other communication services, water and sewage, to be paid by Tenant as they are incurred. Tenant shall furnish to Landlord upon demand receipts or other satisfactory proof of payment of such charges. 10. INSURANCE (a) Tenant, at its sole cost and expense, shall keep the Premises with all improvements thereon insured under a policy or policies of "all risk" fire and casualty coverage insurance, to the full extent of their replacement costs, underwritten by such carriers as Landlord shall approve, which approval shall not unreasonably be withheld. Landlord shall be named as an additional insured in such policy or policies. In the case of damage, the proceeds of the policy shall be paid over jointly to Landlord and Tenant, and applied to the restoration of the Premises. The foregoing notwithstanding, if the Lease is terminated under paragraph 12, as a consequence of the damage or destruction of the Premises, the proceeds of the insurance shall be paid over solely to Landlord. (b) Tenant shall maintain, at its expense, public liability and property damage insurance in the amounts of not less than one million dollars ($1,000,000) for each occurrence, one million dollars ($1,000,000) for each accident, and one million dollars ($1,000,000) for property damage, which insurance shall name Landlord as additional insured. (c) With respect to the insurance to be provided by Tenant in this Paragraph, policies or certificates of insurance, in form and substance satisfactory to Landlord and written by companies acceptable to Landlord, 6 7 shall be furnished to Landlord. Such policies shall be non-cancelable unless ten (10) days prior written notice to Landlord is given. (d) All policies of insurance purchased by the parties with respect to the Premises shall contain clauses or endorsements under which the insurer waives all right of subrogation against Landlord or Tenant, as the case may be, or any of their agents, employees, invitees and licensees, with respect to losses payable under any such policy or policies. 11. INDEMNIFICATION The Tenant agrees to indemnify and save harmless the Landlord against and from any and all claims by or on behalf of any person or persons, firm or firms, corporation or corporations arising from the conduct or management of or from any work or thing whatsoever done (other than by Landlord or its contractors or the agents or employees of either) in and on the premises during the term of this Lease and during the period of time, if any, prior to the term commencement date that the Tenant may have been given access to the premises for the purpose of making improvements, and will further indemnify and save the Landlord harmless against and from any and all claims arising from any condition of the premises due to or arising from any act or negligence of the Tenant or any of its agents, contractors, servants, employees, licensees or invitees, and from and against all costs, expenses and liabilities incurred in or in connection with any such claim or claims or action or proceeding brought thereon; and in case any action or proceeding be brought against the Landlord by reason of any such claim, the Tenant, upon notice from the Landlord, agrees to resist or defend such action or proceeding and to employ counsel therefor reasonably satisfactory to the Landlord. 12. DAMAGE OR DESTRUCTION OF PREMISES Landlord and Tenant agree that if at any time during the continuance of this Lease the Premises shall be destroyed or so injured by fire, or by other casualty as to be unfit for occupancy, and such destruction or injury can reasonably be repaired within one hundred eighty (180) days from the date of such destruction or injury, then Tenant shall not be entitled to surrender possession of said Premises; but in case of any such destruction or injury, Tenant shall immediately commence the restoration of the Premises and shall complete the same with all reasonable speed. The restoration of the Premises shall be performed by contractors approved in advance by Landlord. If the Premises shall be so destroyed or injured by fire or other casualty that such destruction or injury, cannot reasonably be repaired within one hundred eighty (180) days from the date of such destruction or injury either Landlord or Tenant shall have the option, upon written notice given to the other within thirty (30) days from the date of destruction or injury, to terminate this Lease. In the event of such a termination, Landlord shall be entitled to all insurance proceeds with respect to the Premises. Tenant shall be entitled to make use of the proceeds of insurance upon the Premises to pay for the restoration of the Premises. If the insurance proceeds are inadequate to restore the Premises as nearly as possible to the 7 8 condition existing immediately prior to such occurrence it shall be the obligation of the Tenant to pay the additional cost required. Irrespective of the tenantability of the Premises rent shall not abate. If the Lease is terminated under the terms of this paragraph 12, Tenant shall be relieved of the obligation to repair the Premises and to make future payments of rent. 13. EMINENT DOMAIN In the event the Premises or any part thereof shall be taken for public or quasi-public use or condemned under eminent domain, then if and when there is an actual taking of physical possession of the Premises or of any part thereof which shall render the remainder unfit for use by Tenant as hereinafter defined, Tenant shall have the right to terminate this Lease. The Premises shall be deemed to be unfit for use by Tenant if the area of such portion remaining after such taking is less than reasonably sufficient to accommodate the activities of Tenant conducted from the Premises immediately prior to such taking. If Tenant elects to terminate this Lease as provided above, it shall give written notice to Landlord within thirty (30) days after the entry of the final order of the court authorizing the taking or appropriation or the date of settlement, as the case may be. If the term of this Lease is terminated by Tenant, Tenant shall be entitled to receive that portion of any award of damages specifically allocated in the final order to the loss of its leasehold estate or costs of relocation. The balance of any award of damages shall be the property of Landlord. In the event of any such taking which does not result in the termination of this Lease, rent shall abate in proportion to the value of the Premises taken. 14. DEFAULT (a) Events of Default. In the event of any default by Tenant in the payment of any rent provided for herein on the day it becomes due and payable, and if such default continues for ten (10) days, after notice, in writing, is given by Landlord to Tenant , or if default shall be made or suffered by Tenant in any of the other covenants and conditions of this Lease required to be kept or performed by Tenant (other than payment of rent), and if Tenant fails to commence to cure such default or defaults within ten (10) days after written notice thereof given by Landlord to Tenant, specifying the default or defaults complained of, and thereafter to diligently cure such default or defaults; or, if Tenant shall become insolvent or make an assignment for the benefit of creditors, file, or have filed against it, a petition in bankruptcy, which shall not be vacated, set aside or dismissed within thirty (30) days, or seek the benefit of any bankruptcy, composition or insolvency law or act, of if Tenant shall be adjudged a bankrupt, or if Tenant's leasehold interest herein shall be levied on execution, or a receiver be appointed for Tenant, whether by virtue of state or Federal law; then Landlord may, in addition to any other remedy, re-enter into and repossess the Premises and remove Tenant and every other occupant, and may relet the Premises or any part 8 9 thereof for any term, either shorter, longer, or the same, at a higher, lower, or the same rental, making such alterations as may be necessary, and the Lease shall terminate. (b) Expenses of Default. If Landlord shall, on any such default by Tenant, obtain possession of the Premises by re-entry, summary proceedings, or otherwise, Tenant shall pay to Landlord all expenses incurred in obtaining possession of the Premises, including reasonable attorneys fees, all expenses and commissions which may be paid for the reletting of the same, and all other damages resulting from Tenant's default. (c) Termination of Lease. No termination of this Lease pursuant to this Section or repossession of the Premises or any part thereof shall relieve Tenant of its liabilities and obligations under this Lease, all of which shall survive any such termination or repossession. Tenant shall pay to Landlord, as and for liquidated and agreed damages for Tenant's default, (i) the then present value of the rent and other sums and charges to be paid by Tenant until what would have been the end of the term in the absence of such termination or repossession (the "Scheduled Amount"), less (ii) the then present value of the net proceeds, if any, of the reletting of the Premises (including any parts thereof), for any periods within such term, after deducting all of Landlord's expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage and management commissions, operating expenses, legal expenses, attorney fees, alteration costs and expenses of preparation of such reletting (the "Reletting Amount"). The Tenant shall be entitled to the benefit of all Reletting Amounts, whenever arising or determined, and Landlord shall promptly pay to Tenant any overpayments that are made to Landlord under the prior sentence as additional Reletting Amounts are determined. Landlord shall use reasonable efforts to re-let the Premises and otherwise mitigate damages. Exercise of any remedy hereunder by the Landlord shall not exclude the right to exercise any other remedy hereunder, but in no event will Landlord be entitled to be paid more than once for the same loss. 15. ACCESS Landlord shall have the right to enter upon the Premises at all reasonable hours for the purpose of inspecting the same. 16. SIGNS AND ADVERTISING Tenant shall have the right to install, maintain and display upon the Premises such inside and outside signs as Tenant may reasonably deem necessary or desirable for the carrying on of its business at Tenant's expense; provided, however, that it is Tenant's obligation to comply with any and all applicable laws or ordinances affecting the placing, location, size and type of signs. 9 10 17. SUBORDINATION; ATTORNMENT; ESTOPPEL CERTIFICATE (a) This Lease shall, at the option of Landlord or its lenders, be subject and subordinate to the interests of the holders of any notes secured by mortgages on the Property or the Premises, now or in the future, and to all renewals, modifications, consolidations, replacements and extensions thereof. While the provisions of this section are self-executing, Tenant shall execute such documents as may be desired by Landlord or any mortgagee to affirm or give notice of such subordination. In turn, Tenant shall be entitled to receive the customary non-disturbance agreement from each such lender whereby the lender agrees to recognize Tenant's rights under this Lease following foreclosure so long as Tenant is not in default hereunder. (b) Tenant shall attorn to any foreclosing mortgagee, or to any purchaser of the Property or the Premises at any foreclosure sale, or sale in lieu of foreclosure, for the balance of the Term on all the terms and conditions herein contained. (c) At the request of Landlord, Tenant shall within ten (10) days, deliver to Landlord, Tenant shall within ten (10) days, deliver to Landlord, or anyone designated by Landlord, a certificate stating and certifying to such information as may reasonably be requested to verify the state of the Landlord-Tenant relationship established by this Lease. 18. RIGHT OF FIRST REFUSAL (a) Landlord agrees that if at any time during the term of this Lease, Landlord shall receive a bonafide offer (the "Offer"), acceptable to Landlord for the sale of the Premises, Landlord, prior to acceptance thereof, will give Tenant, with respect to the Offer, written notice thereof, and a copy of the Offer, including the name and address of the proposed purchaser, Tenant shall have the option of first refusal for thirty (30) days after receipt of such notice, within which to elect to purchase the Premises on the terms of the Offer. If Tenant shall elect to purchase the Premises, it shall provide written notice of such election to Landlord within said 30-day period, and upon such notice having been given, the transaction shall be closed on the terms of the Offer, except that any such closing shall be no longer than 90 days after the date of Tenant's notice to Landlord. Tenant's rights under this paragraph shall terminate upon the termination of this Lease for any reason. (b) James B. Peterson and Nancy M. Peterson ("Peterson"), the owners of one hundred percent (100%) of the membership interests in Landlord, do hereby grant to Tenant a right of first refusal to purchase their membership interests in the event they receive a bonafide offer (the "Offer") 10 11 acceptable to them for the sale of more than fifty percent (50%) of their membership interest. Upon the receipt of an Offer acceptable to Peterson, Peterson will give Tenant, with respect to the Offer, written notice thereof, including the name and address of the proposed purchaser, and Tenant shall have the option of first refusal for thirty (30) days after receipt of such notice, within which to elect to purchase Peterson's membership interest upon the terms of the Offer. If Tenant shall elect to purchase the membership interest of Peterson, it shall provide written notice of such election to Peterson within said thirty (30) day period, and upon such notice having been given, the transaction shall be closed upon the terms of the Offer except that any such closing shall be no longer than ninety (90) days after the date of Tenant's notice to Peterson. Tenant's right under this paragraph shall terminate upon the termination of this Lease for any reason. The foregoing notwithstanding, Peterson shall have the right to make gifts of any portion of their membership interest in Landlord to family members or to any Inter-vivos Trust established by Peterson, so long as the transferred interests shall remain subject to Tenant's right of first refusal. 19. OPTION TO PURCHASE (a) If this Lease is not terminated by Landlord for a default by Tenant, and if Landlord should refuse to extend the term of this Lease upon the same terms and conditions as herein set forth following the exercise by Tenant of its rights to extend under paragraph 3 hereof, and for continuing and successive five (5) year terms, Tenant shall have the option to purchase the Premises for its fair market value minus, (i) the unamortized cost of any capital improvements exclusive of trade fixtures made to the Premises by Tenant, and (ii) the amount of all Landlord's indebtedness and other obligations of Landlords secured by a lien on all or any part of the Premises which is not discharged by Landlord prior to the Closing. Fair market value shall be determined by an appraiser mutually agreed upon by the parties. If the parties are unable to agree upon an appraiser then each party shall select an appraiser and the two parties selected shall select a third. The average value of the appraisals of the two appraisals most closely approximately one another shall control for purposes of determining fair market value. If the parties are unable to agree upon the unamortized cost of capital improvements, the matter shall be submitted to arbitration under the auspices of the American Arbitration Association. (b) Tenant shall exercise its option to purchase by delivering notice in writing, to Landlord, no later than forty-five (45) days following the date Tenant has given notice in writing of Landlord's refusal to extend the term of the Lease beyond the period described in subparagraph (a). (c) At the closing which shall occur no later than sixty (60) days after Tenant exercises its option to purchase, Landlord shall convey title to 11 12 the Premises to Tenant by warranty deed subject only to easements and restrictions of record. (d) The purchase price of the Premises shall be payable in immediately available funds at the closing. 20. HOLDING OVER It is agreed that, in the event Tenant holds over after the termination of the term of this Lease, the tenancy shall be from month-to-month in the absence of a written agreement to the contrary. 21. ASSIGNMENT AND SUBLETTING Tenant shall not, without Landlord's prior written consent, which consent shall not be unreasonably withheld, have the right to sublease the Premises or assign Tenant's rights under this Lease. Notwithstanding any such sublease or assignment, Tenant and all assignees and sublessees shall remain liable for the performance of all of Tenant's obligations contained in this Lease. Any assignee or sublessee will be required to execute an instrument in writing assuming all of Tenant's obligations and liabilities to Landlord. Notwithstanding any other provision of this Lease, Tenant may at any time and for any period, sublease all or any portion of the Premises to Mercantile Bank Corporation (which is or will be an affiliate of the Tenant), or any other entity or entities, at least a majority of which is owned directly or indirectly, by Mercantile Bank Corporation. 22. ESTOPPEL AGREEMENT Tenant shall, without charge and at any time and from time to time, within ten (10) days after request by the Landlord, certify by written instrument, duly executed, acknowledged and delivered to any mortgagee, assignee of any mortgagee or purchaser, or any proposed mortgagee, proposed assignee or proposed purchaser, or any other person, firm or corporation specified by Landlord: (a) That this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications); (b) Whether or not there are then existing, to the best of its knowledge, any set-offs or defenses against the enforcement of any of the agreements, terms, covenants or conditions hereof upon the part of Tenant to be performed or complied with (and, if so, specifying the same); and (c) The dates, if any, to which the rental(s) and other charges hereunder have been paid in advance. 12 13 23. SURRENDER OF PREMISES The Tenant shall surrender the Premises to the Landlord at the expiration of this Lease in like condition as when taken, reasonable use and wear thereof and damage by the elements excepted. 24. ENVIRONMENTAL LAWS; INDEMNIFICATION (a) At all times during the term hereof or any extension or renewal thereof, Tenant shall comply with the requirements of all applicable Federal, State and local environmental, health, safety and sanitation laws, ordinances, codes, rules and regulations and orders of any regulatory and administrative authority with respect thereto. (b) Tenant agrees to indemnify, defend and hold harmless Landlord from and against all loss, liability, damage and expense, including costs associated with administrative and judicial proceedings and attorney's fees, ever suffered or incurred by Landlord on account of (i) Tenant's failure to comply with any environmental, health, safety or sanitation law, code, ordinance, rule or regulation or any interpretation or order of any regulatory or administrative authority with respect thereto; (ii) any release by Tenant or its agents of petroleum products, or hazardous materials or substances on, upon, into or from the Premises that was caused by Tenant; and (iii) any and all damage to natural resources or real property and/or harm or injury to persons resulting or alleged to have resulted from such failure by Tenant to comply and/or such release of petroleum products, or hazardous materials or substances that was caused by Tenant. (c) Landlord agrees to indemnify, defend and hold Tenant harmless from and against all loss, liability, damage and expense, including costs associated with administrative and judicial proceedings and attorney's fees, ever suffered or incurred by Tenant on account of (i) any failure to comply with the requirements of all applicable Federal, State and local environmental, health, safety and sanitation laws, ordinances, codes, rules and regulations of any regulatory and administrative authority having occurred prior to the commencement date of this lease; (ii) any release of petroleum products or hazardous materials or substances on, upon, into or from the Premises having occurred prior to the commencement date of this Lease; and (iii) any and all damages to natural resources or real property and/or harm or injury to persons resulting or alleged to have resulted from such failure to comply and/or such release of petroleum products or hazardous materials or substances. 13 14 25. TERMINATION OF LEASE FOR OTHER CAUSES Notwithstanding any other provisions contained in this Lease, in the event (i) Tenant or its successors or assignees shall become insolvent or bankrupt, or if it or their interests under this Lease shall be levied upon or sold under execution or other legal process, or (ii) the depository institution then operating on the Premises is closed, or is taken over by any depository institution supervisory authority ("Authority"), Landlord may, in either such event, terminate this Lease only with the concurrence of any Receiver or Liquidator appointed by such Authority; provided, that in the event this Lease is terminated by the Receiver or Liquidator, the maximum claim of Landlord for rent, damages, or indemnity for injury resulting from the termination, rejection, or abandonment of the unexpired Lease shall by law in no event be in an amount equal to all accrued and unpaid rent to the date of termination. 26. NOTICES Any notice to be given hereunder shall be deemed duly served if mailed by certified mail addressed, if to Tenant, at its business address, or if to Landlord, to its business address, and the customary certified mail receipt shall be conclusive evidence of such service. Either party hereto may change its address to which said notice shall be sent by giving written notice of such change to the other party hereto as here provided. 27. MISCELLANEOUS QUIET ENJOYMENT. If Tenant shall pay the rents and perform all of the covenants and conditions of this Lease by it to be paid and performed, Tenant shall, during the term hereof, peaceably and quietly have, hold and enjoy the full possession of the Premises, the tenements, hereditaments, and appurtenances, appertaining, or belonging thereto, and the rights and privileges granted herein without interference or hindrance by Landlord, or by any person holding under or through Landlord. REMEDIES CUMULATIVE. All rights and remedies of Landlord herein enumerated shall be cumulative and none shall exclude any other right or remedy allowed by law or equity, and said rights and remedies may be exercised and enforced concurrently and whenever and as often as occasion therefore arises. ENTIRE AGREEMENT. This writing constitutes the entire agreement between the parties hereto. No oral or written prior or contemporaneous agreements shall have any force or effect, nor shall any subsequent agreements have any force or effect unless signed and embodied in writing. SEVERABILITY. Any provision or portion of any provision of this Lease which is found to be illegal or void shall be treated as if it had never been a part hereof and shall have no effect whatsoever on the entire agreement or provisions hereof. 14 15 CONSTRUCTION. This Lease shall be interpreted, construed, enforced and performed pursuant to the laws of the State of Michigan. BINDING EFFECT. The covenants and agreement herein contained shall be binding upon and shall inure to the benefit of the parties hereto and their respective representatives, successors, assigns, lessees and sublessees. CAPTIONS. The captions of this Lease shall not be considered part of this Lease but shall be considered as descriptive only. GENDER. Any references herein to the neuter gender shall be deemed also to refer to the masculine and feminine and any references herein to the singular shall also be deemed to refer to the plural. [SIGNATURE BLOCK FOLLOWS] 15 16 IN WITNESS WHEREOF, the parties, by their authorized representatives, have executed this Lease on the day and year first written above. WITNESSES: LANDLORD: DIVISION AVENUE PARTNERS, L.L.C. /s/ SHEILA L. TURBET /s/ JAMES B. PETERSON - -------------------- --------------------------------- James B. Peterson MEMBER /s/ NANCY M. PETERSON /s/ ROBERT B. KAMINSKI --------------------------------- - ---------------------- Nancy M. Peterson MEMBER INDIVIDUALLY: /s/ JAMES B. PETERSON --------------------------------- James B. Peterson /s/ NANCY M. PETERSON --------------------------------- Nancy M. Peterson TENANT: MERCANTILE BANK OF WEST MICHIGAN (a Michigan banking corporation in formation), by Mercantile Bank Corporation, a Michigan corporation /s/ GERALD R. JOHNSON, JR. By: --------------------------- Gerald R. Johnson, Jr. Its: Chairman of the Board and Chief Executive Officer 16 17 EXHIBIT A Legal Description of the Leased Premises City of Grand Rapids, Michigan KENT COUNTY 216 Division Avenue North Grand Rapids, MI 49503 The South 15 feet of Lot 12, all of Lots 13 and 16, and the North 1/2 of Lot 17, Block 23; Dexter Fraction in the City of Grand Rapids, Kent County, Michigan, as recorded in Liber 39 of Plats, Page 12. This parcel contains 23,800 square feet (0.546 Acres). 17 18 EXHIBIT B IMPROVEMENTS Office Equipment Furniture Partitions and Office Dividers whether or not affixed to the Premises Vault and Safety Deposit Boxes Automatic Teller Machines 18 EX-21 9 EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT ------------------------------- Mercantile Bank of West Michigan, a Michigan banking corporation, is in the process of being organized and will become a subsidiary of the Company. EX-23.2 10 EXHIBIT 23.2 1 EXHIBIT 23.2 Consent of Crowe, Chizek and Company LLP CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use of our report dated July 22, 1997 on the financial statements of Mercantile Bank Corporation for the period ended July 21, 1997, to be included within this Registration Statement on Form SB-2 and Prospectus of Mercantile Bank Corporation. We also consent to the use of our name as "Experts" in the Prospectus. /s/ Crowe, Chizek and Company LLP Crowe, Chizek and Company LLP Grand Rapids, Michigan August 5, 1997 EX-27 11 EXHIBIT 27
9 OTHER DEC-31-1997 JUL-15-1997 JUL-21-1997 0 232,940 0 0 0 0 0 0 0 278,500 0 0 306,232 0 0 0 0 (27,732) 278,500 0 0 0 0 0 0 0 0 0 27,732 (27,732) (27,732) 0 0 (27,732) 0 0 0 0 0 0 0 0 0 0 0 0 0 0
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