As filed with the Securities and Exchange Commission on December ___, 2001
Reg. No. 333-___________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
MACATAWA BANK CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Michigan 6712 38-3391345
(State or Other (Primary Standard (IRS Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification
Organization) Code Number)
348 South Waverly Road
Holland, Michigan 49423
(616) 820-1444
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Benj. A. Smith, III
Chairman and Chief Executive Officer
106 E. 8th Street
Holland, Michigan 49423
(616) 396-0119
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
Copies of communications to:
Donald L. Johnson Gordon R. Lewis
Varnum, Riddering, Schmidt & Howlett, LLP Warner Norcross & Judd LLP
333 Bridge Street, Ste. 1700 111 Lyon Street, N.W., Suite 900
Grand Rapids, Michigan 49504 Grand Rapids, Michigan 49503-2487
(616) 336-6000 (616) 752-2000
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
Title of Each Proposed Maximum Proposed
Class of Securities Amount to be Registered(1) Offering Price Maximum Aggregate Amount of
Being Registered Per Share(2) Offering Price(2) Registration Fee(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock
(no par value) 2,459,905 $6.74 $16,569,692 $3,961
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Represents a bona fide estimate of the maximum amount of Macatawa Bank
Corporation Common Stock to be offered based on the amount and form of
consideration to be issued pursuant to the proposed transaction and the
number of options to purchase Common Stock of Grand Bank Financial
Corporation outstanding as of December 26, 2001.
(2) The registration fee has been computed pursuant to Rule 457(f)(2). Pursuant
to that rule, and solely for purposes of calculating the registration fee,
the Maximum Officer Price Per Share and Maximum Aggregate Offering Price
have been calculated on the basis of the book value of the common stock of
Grand Bank Fianncial Corporation at September 30, 2001.
We hereby amend this registration statement on this date or dates as may be
necessary to delay its effective date until we 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
Securities and Exchange Commission, acting pursuant to said Section 8(a), may
determine.
________________, 2002
The information in this Prospectus and Joint Proxy Statement is not complete and
may be changed. We may not sell these securities until the Registration
Statement filed with the Securities and Exchange Commission is effective.
GRAND
MACATAWA BANK GB
CORPORATION BANK
Prospectus and Joint Proxy Statement
Special Meetings of Shareholders of
Grand Bank Financial Corporation
and
Macatawa Bank Corporation
In Connection with an Offering of up to
2,459,905 Shares of Common Stock of
Macatawa Bank Corporation
The boards of directors of Macatawa Bank Corporation and Grand Bank
Financial Corporation are furnishing this prospectus and joint proxy statement
to you as a shareholder of either Macatawa or Grand to solicit your proxy to
vote at a special meeting of Macatawa or Grand shareholders to be held on
____________, 2002 and _____________, 2002, respectively, and at any adjournment
or postponement of these meetings. At the Macatawa special meeting, Macatawa
shareholders will vote upon approval of the Agreement and Plan of Merger with
Grand and the issuance of shares of Macatawa common stock pursuant to the Plan
of Merger. At the Grand special meeting, Grand shareholders will vote upon the
approval of the Agreement and Plan of Merger with Macatawa.
If the Merger is completed as proposed, Grand will merge with Macatawa.
Macatawa will issue 17.5979 shares of Macatawa common stock in exchange for each
outstanding share of Grand's common stock and pay cash for any fractional shares
of Grand common stock.
Austin Associates, LLC, Grand's financial advisor, has furnished the Board
of Directors of Grand with its written opinion that the terms of the Agreement
and Plan of Merger are fair from a financial point of view. Donnelly, Penman,
French, Haggarty & Co., Macatawa's financial advisor, has furnished the Board of
Directors of Macatawa with its written opinion that the exchange ratio of
17.5979 a share of Macatawa common stock in exchange for each share of Grand's
common stock is fair from a financial point of view.
After careful consideration, Macatawa's Board of Directors and Grand's
Board of Directors have each determined the Merger to be in the best interests
of its shareholders. Macatawa's Board of Directors unanimously recommends that
its shareholders vote FOR approval of the Merger Agreement and the issuance of
shares of Macatawa common stock in connection with the Merger. Grand's Board of
Directors recommends that Grand shareholders vote FOR approval of the Merger
Agreement.
The Merger cannot be completed unless, among other conditions, Grand's
shareholders approve the Merger Agreement, Macatawa's shareholders approve the
Merger Agreement and the issuance of shares of Macatawa common stock pursuant to
the Merger Agreement, and Macatawa obtains regulatory approval of the Merger.
This prospectus and joint proxy statement and the accompanying form of
proxy are being mailed on or about ____________, 2002. Your vote is important.
Even if you expect to attend the special meeting in person, please sign and date
the enclosed proxy card and mail it promptly in the enclosed envelope. Returning
a proxy will not prevent you from later voting in person at the special meeting.
_______________, 2002
Macatawa common stock is traded on The Nasdaq Stock Market under the symbol
"MCBC." Macatawa common stock is not a savings account, deposit, or other
obligation of any bank or nonbank subsidiary of Macatawa and is not insured by
the Federal Deposit Insurance Corporation or any other governmental agency.
Macatawa common stock is subject to investment risks, including possible loss of
value.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus and joint proxy statement. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
____________, 2002
Table of Contents
SUMMARY.....................................................1
The Companies..........................................1
The Merger.............................................1
Historical Selected Financial Data (Unaudited).........5
Unaudited Pro Forma Combined Condensed Financial
Information.........................................6
Comparative Per Share Information......................7
SPECIAL MEETING OF MACATAWA SHAREHOLDERS....................8
Date, Time, and Place of the Special Meeting...........8
Purpose of the Special Meeting.........................8
Shareholder Special Meeting Record Date................8
Vote Required for the Approval of the Merger
Agreement and Issuance of Shares....................8
Proxies and Effect on Vote.............................9
Revocation of Proxies..................................9
Solicitation of Proxies................................9
SPECIAL MEETING OF GRAND SHAREHOLDERS......................10
Date, Time, and Place of the Special Meeting..........10
Purpose of the Special Meeting........................10
Shareholder Special Meeting Record Date...............10
Vote Required for the Approval of the Merger
Agreement..........................................10
Proxies and Effect on Vote............................10
Revocation of Proxies.................................11
Solicitation of Proxies...............................11
THE MERGER AND MERGER AGREEMENT............................12
What Grand Shareholders Will Receive in the Merger....12
Structure of the Merger...............................12
Background of the Merger..............................12
Merger Recommendation and Reasons for the Merger......15
Opinion of Grand's Financial Advisor..................16
Opinion of Macatawa's Financial Advisor...............21
Closing and Effective Time of the Merger..............26
Regulatory Approvals..................................27
Distribution of Macatawa Common Stock.................27
Exclusive Commitment to Macatawa......................28
Conduct of Grand Pending the Completion of
the Merger.........................................28
Management of Macatawa After the Merger...............31
Conditions to Closing the Merger......................31
Termination...........................................33
Description of Macatawa Common Stock..................34
Comparison of Rights of Macatawa and Grand
Shareholders.......................................34
Restrictions on Grand Affiliates......................39
Material Federal Income Tax Consequences..............40
No Dissenters' Rights.................................41
Unaudited Pro Forma Condensed Combined
Financial Statements...............................42
Notes to Unaudited Pro Forma Condensed Combined
Balance Sheets and Statements of Income............46
GRAND BANK FINANCIAL CORPORATION...........................48
Description of Business...............................48
Grand Common Stock....................................48
Selected Financial Data...............................49
Grand's Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Periods Ended September 30, 2001 and
2000...............................................50
Grand's Discussion and Analysis of Financial
Condition and Results of Operations as of
December 31, 2000 and 1999 and for the Years
Ended December 31, 2000, 1999 and 1998.............53
Financial Statements..................................56
VOTING AND MANAGEMENT INFORMATION..........................86
Voting Securities and Principal Shareholders of
Grand..............................................86
Interests of Certain Persons in the Merger............88
GENERAL INFORMATION........................................90
Experts...............................................90
Legal Opinions........................................90
Sources of Information................................90
WHERE YOU CAN FIND MORE INFORMATION........................91
FORWARD-LOOKING STATEMENTS.................................92
Agreement and Plan of Merger.......................Appendix A
Fairness Opinion of Grand's Financial Advisor......Appendix B
Fairness Opinion of Macatawa's Financial Advisor...Appendix C
i
Summary
This summary highlights selected information from this prospectus and joint
proxy statement and may not contain all of the information that is important to
you. For a more complete description of the legal terms of the Merger of
Macatawa and Grand, you should read carefully this entire document and the
documents that are incorporated by reference in this document. In this document,
"you" and "your" refer to each holder of Macatawa common stock and Grand common
stock.
The Companies
Macatawa Bank Corporation
348 South Waverly Road
Holland, Michigan 49423
(616) 820-1444
Macatawa Bank Corporation is a bank holding company headquartered in Holland,
Michigan and owns Macatawa Bank. Macatawa Bank provides a wide range of
commercial and consumer banking services through 14 full service branches
located in Ottawa County, northern Allegan County and southwestern Kent County,
Michigan. Macatawa offers commercial and personal banking services, including
checking and savings accounts, certificates of deposit, safe deposit boxes,
travelers' checks, money orders, trust services and commercial, mortgage and
consumer loans. Since its formation in November 1997, Macatawa has grown rapidly
while maintaining asset quality and attaining and improving profitability. At
September 30, 2001, Macatawa had, on a consolidated basis, total assets of
$633.8 million, total deposits of $502.5 million, total loans of $506.7 million,
approximately 49,000 deposit accounts, and shareholders' equity of $65.8
million.
Grand Bank Financial Corporation
126 Ottawa Avenue NW
Grand Rapids, Michigan 49503
(616) 235-7000
Grand Bank Financial Corporation is a bank holding company headquartered in
Grand Rapids, Michigan and owns Grand Bank. Grand Bank operates its banking
business in Grand Rapids, Michigan and the surrounding area. Grand offers
commercial and personal banking services, including checking and savings
accounts, certificates of deposit, safe deposit boxes, travelers' checks, money
orders, trust services and commercial, mortgage and consumer loans. As of
September 30, 2001, Grand had, on a consolidated basis, total assets of $251.9
million, total deposits of $212.7 million, total portfolio loans of $217.9
million and shareholders' equity of $16.6 million.
The Merger
What Grand Shareholders Will Receive in the Merger (See Page 11)
If the Merger is completed as planned, you will receive 17.5979 (referred to as
the "Exchange Ratio") shares of Macatawa common stock for each share of Grand
common stock that you own. The Exchange Ratio is fixed and will not be adjusted
to reflect changes in the market price of Macatawa's common stock. The Exchange
Ratio will be adjusted if either Grand or Macatawa declares a stock split or
stock dividend before the completion of the Merger. No certificates representing
fractional shares will be issued. Instead, you will receive a check in payment
for any fractional shares, based on the market value of Macatawa common stock.
Example: If you own 10 shares of Grand common stock, you will receive 175 shares
of Macatawa common stock. In addition, you will receive a check equal to 0.979
(your fractional share) multiplied by the average of the closing prices per
share of Macatawa common stock reported on The Nasdaq Stock Market for the 5
consecutive full trading days ending on the business day prior to the closing of
the Merger.
You should not send in your Grand stock certificates until Macatawa instructs
you to do so after the Merger is completed.
Recommendation to Shareholders to Approve the Merger (See Page 14)
Macatawa Shareholders. After careful consideration, Macatawa's Board of
Directors has determined the Merger to be in the best interests of Macatawa's
shareholders. Macatawa's Board of Directors unanimously recommends that you vote
FOR the proposal to approve the Merger Agreement and the issuance of shares of
Macatawa common stock pursuant to the Merger Agreement.
Grand Shareholders. After careful consideration, Grand's Board of Directors has
determined the Merger to be in the best interests of Grand's shareholders.
Grand's Board of Directors recommends that you vote FOR the proposal to approve
the Merger Agreement.
1
Grand's Financial Advisor's Opinion that the Financial Terms of the Merger are
Fair (See Page 15)
In deciding to approve the Merger, Grand's Board of Directors considered the
opinion of its financial advisor, Austin Associates, LLC, that the terms of the
Agreement and Plan of Merger are fair to Grand shareholders from a financial
point of view. The written opinion of Austin Associates, LLC is attached as
Appendix B to this document.
Macatawa's Financial Advisor's Opinion that the Exchange Ratio is Fair (See Page
21)
Macatawa's Board of Directors has received the written opinion of its financial
advisor, Donnelly, Penman, French, Haggarty & Co., that the Exchange Ratio is
fair to Macatawa shareholders from a financial point of view. That written
opinion is attached as Appendix C to this document.
Time and Location of the Macatawa Shareholder Meeting (See Page 8)
Macatawa will hold a special meeting of its shareholders to vote on the approval
of the Merger Agreement and the issuance of shares pursuant to the Merger
Agreement. The special meeting will be held:
__________, ____________, 2002
___________ local time
_____________
_________________
Holland, Michigan 49423
Time and Location of the Grand Shareholder Meeting (See Page 10)
Grand will hold a special meeting of its shareholders to vote on the approval of
the Merger Agreement. This special meeting will be held:
__________, _________________, 2002
___________ local time
_____________
________________
Grand Rapids, Michigan ____________
Vote Required to Approve the Merger and Issuance of Shares
Macatawa Shareholders. (See Page 8) Only holders of record of Macatawa common
stock on ______________, 2002 have the right to vote on the Merger Agreement and
the issuance of shares of Macatawa common stock pursuant to the Merger
Agreement.
To approve the Merger Agreement and the issuance of shares of Macatawa common
stock pursuant to the Merger Agreement, the holders of at least a majority of
the shares of Macatawa common stock that are present and voted at the special
meeting must vote FOR approval of the Merger Agreement and the issuance of
shares of Macatawa common stock pursuant to the Merger Agreement.
As of the record date, Macatawa's directors, executive officers, and their
affiliates beneficially owned shares (excluding shares subject to options), or
approximately % of the shares of Macatawa common stock entitled to vote on the
Merger Agreement and the issuance of shares of Macatawa common stock pursuant to
the Merger Agreement. Macatawa's directors, executive officers and their
affiliates are expected to vote these shares in favor of approval of the Merger
Agreement and the issuance of shares of Macatawa common stock pursuant to the
Merger Agreement.
As of the record date, Macatawa's directors, executive officers, and their
affiliates did not own any Grand common stock.
Grand Shareholders. (See Page 10) Only holders of record of Grand common stock
on ______________, 2002 have the right to vote on approval of the Merger
Agreement.
To approve the Merger Agreement, the holders of at least a majority of the
shares of Grand common stock issued and outstanding as of the record date must
vote FOR approval of the Merger Agreement.
As of the record date, Grand's directors, executive officers, and their
affiliates beneficially owned 47,142 shares (excluding shares subject to
options), or approximately 33.85% of the shares of Grand common stock entitled
to vote on the Merger Agreement. Grand's directors, executive officers and their
affiliates are expected to vote these shares in favor of approval of the Merger
Agreement.
As of the record date, Grand's directors, executive officers, and their
affiliates beneficially owned ___ shares of Macatawa common stock.
How to Cast Your Vote By Proxy
Macatawa Shareholders. (See Page 9) Please mail your signed proxy card in the
enclosed return envelope as soon as possible so that your shares of Macatawa
common stock may be represented at Macatawa's special meeting. If you properly
sign and return a proxy card but do not include instructions on how to vote your
shares, they will be voted FOR approval of the Merger Agreement and the issuance
of shares of Macatawa common stock pursuant to the Merger Agreement.
2
Grand Shareholders. (See Page 10) Please mail your signed proxy card in the
enclosed return envelope as soon as possible so that your shares of Grand common
stock may be represented at Grand's special meeting. If you properly sign and
return a proxy card but do not include instructions on how to vote your shares,
they will be voted FOR approval of the Merger Agreement.
How to Cast Your Vote If Your Shares Are Held By a Broker or Other Nominee in
Street Name
If your shares are held by your broker or other nominee in street name, your
broker does not have authority to vote your shares unless you provide your
broker instructions on how you want to vote. Your broker should send you a form
to give such instructions or you may request forms from your broker.
Macatawa Shareholders. With respect to the proposal to approve the Merger
Agreement and the issuance of shares of Macatawa common stock pursuant to the
Merger Agreement, your shares will not be voted if you do not provide your
broker with voting instructions. Failure to vote your shares on the proposal to
approve the Merger Agreement and the issuance of shares of Macatawa common stock
pursuant to the Merger Agreement will not necessarily have the same effect as
voting against the Merger Agreement and the issuance of shares of Macatawa
common stock pursuant to the Merger Agreement.
Grand Shareholders. If you do not provide your broker with voting instructions,
your shares will not be voted at the special meeting. Failure to vote Grand
shares will have the same effect as voting against approval of the Merger
Agreement.
How to Change Your Vote
If you want to change your vote, you may send the Secretary of Macatawa or
Grand, as appropriate, a later-dated, signed proxy card before the special
meeting or attend and vote at your company's special meeting. You may also
revoke your proxy by sending written notice of revocation to the Secretary of
Macatawa or Grand, as appropriate, before your company's special meeting.
Macatawa Shareholders. (See Page 9) Macatawa's shareholders should send any
later-dated proxy or notice of revocation to:
Macatawa Bank Corporation
348 South Waverly Road
Holland, Michigan 49423
Attention: Secretary
Grand Shareholders. (See Page 11) Grand's shareholders should send any
later-dated proxy or notice of revocation to:
Grand Bank Financial Corporation
126 Ottawa Avenue NW
Grand Rapids, Michigan 49503
Attention: Secretary
Bank Regulators Must Approve the Merger (See Page 22)
The Board of Governors of the Federal Reserve System, referred to as the Federal
Reserve Board, must approve the Merger. Macatawa filed its application for
approval with the Federal Reserve Board on or about December 21, 2001.
Certain Conditions Must Be Met Before the Completion of the Merger (See Page 26)
There are a number of conditions that must be met before Macatawa and Grand will
be required to complete the Merger. These conditions include the following,
among others:
o Macatawa shareholders owning at least a majority of the shares of Macatawa
common stock present and voting on the Merger Agreement must vote to approve
the Merger Agreement and the issuance of shares of Macatawa common stock
pursuant to the Merger Agreement;
o Grand shareholders owning at least a majority of the issued and outstanding
shares of Grand common stock must vote to approve the Merger Agreement;
o the Federal Reserve Board must approve the Merger; and
o Macatawa's tax counsel must provide an opinion that the Merger will be a
tax-free reorganization.
Certain conditions to the Merger may be waived by the party for whose benefit
they are provided. In addition, Macatawa and Grand have certain termination
rights discussed below.
If Macatawa's and Grand's shareholders have approved the Merger Agreement and
all regulatory approvals have been received, the closing will take place at a
time and date agreed to by Macatawa and Grand. In the absence of agreement, the
closing will take place on the earliest date specified by either Macatawa or
Grand upon five business days' written notice to the other.
Federal Income Tax Consequences of the Merger (See Page 35)
The Merger is structured so that Grand's shareholders are not expected to
recognize any gain or loss for federal income tax purposes from the Merger,
except to the
3
extent that they receive cash in lieu of fractional shares. However, due to the
complexities of federal, state, and local income tax laws, Grand shareholders
are strongly advised to consult their own tax advisors concerning the tax
consequences to them of the Merger.
No Dissenters' Rights (See Page 36)
Macatawa Shareholders. Under Michigan law, you are not entitled to dissenters'
rights with respect to approval of the proposed Merger and the issuance of
shares of Macatawa common stock pursuant to the Merger Agreement.
Grand Shareholders. Under Michigan law, you are not entitled to dissenters'
rights with respect to approval of the proposed Merger.
Interests of Grand Officers and Directors in the Merger (See Page 79)
Certain directors and officers of Grand may be considered to have interests in
the Merger in addition to their interests generally as shareholders of Grand.
Such interests include the right of certain directors and officers to receive
severance payments and extended insurance benefits pursuant to employment
agreements.
Upon the completion of the Merger, Macatawa will assume all the rights, duties,
and obligations under Grand's stock option plans. Each unexercised option
outstanding will become an option to purchase a number of shares of Macatawa
common stock equal to the number of shares of Grand common stock subject to each
option multiplied by the Exchange Ratio under the Merger Agreement. The exercise
price per share for Macatawa common stock under these options will be equal to
the exercise price per share of Grand common stock divided by the Exchange
Ratio. As of November 20, 2001, executive officers and directors of Grand as a
group held options to purchase a total of 4,404 shares of Grand common stock.
In addition, one member of Grand's Board of Directors will be added to
Macatawa's Board of Directors. This member will be selected by Grand's Board of
Directors and approved by Macatawa's Board of Directors.
Comparative Market Prices of Macatawa and Grand Stock
Macatawa common stock is traded on The Nasdaq Stock Market under the symbol
"MCBC." There is no established public trading market for Grand common stock.
The following table sets forth the closing prices per share of Macatawa common
stock (1) on November 20, 2001, the business day preceding the public
announcement that Macatawa and Grand had entered into the Merger Agreement, and
(2) on ______________, 2002, the last full trading day for which closing prices
were available at the time of the printing of this document.
The following table also sets forth the equivalent price per share of Grand
common stock on the dates indicated. The equivalent price per share is equal to
the closing price of a share of Macatawa common stock on that date multiplied by
17.5979, the number of shares of Macatawa common stock to be issued in exchange
for each share of Grand common stock.
Macatawa
Common Equivalent
Date Stock per Share
- ----------------- ------------- -------------
Nov. 20, 2001 $16.75 $294.76
Dec. 17, 2001 $17.55 $308.84
This equivalent per share price reflects the dollar value of the Macatawa common
stock that Grand shareholders would receive for each share of their Grand common
stock, based on the prices stated.
4
Historical Selected Financial Data (Unaudited)
The following financial information is provided to aid you in your analysis
of the financial aspects of the Merger. This information is derived from
Macatawa's and Grand's audited financial statements for 1996 through 2000 and
their unaudited financial statements for the nine months ended September 30,
2001. This information is only a summary. You should read it in conjunction with
the historical financial statements (and related notes) contained or
incorporated by reference in Macatawa's annual reports on Form 10-K, quarterly
reports on Form 10-Q, and other information filed with the Securities and
Exchange Commission and in Grand's financial statements, related notes,
Management's Discussion and Analysis, and other statistical information included
in this Prospectus and Joint Proxy Statement. See "Where You Can Find More
Information" below.
Nine Months Year Ended December 31
Ended -----------------------------------------------------------------
Sept. 30, 2001 2000 1999 1998 1997(1)
------------------ ----------------------------------------------------------------
Macatawa Bank Corporation (unaudited; dollars in thousands, except per share amounts)
Income Statement Data:
Net interest income $15,702 $16,599 $10,573 $3,614 $71
Provision for loan losses (1,589) (1,931) (1,967) (2,023) (8)
Net income (loss) $3,644 $3,349 $693 $(2,489) $(166)
Balance Sheet Data (period end):
Assets $633,799 $499,813 $344,921 $189,229 $10,722
Deposits 502,488 398,617 279,390 166,989 2,712
Loans 506,669 410,676 285,374 137,882 498
FHLB advances 62,588 51,000 30,000 - -
Shareholders' equity 65,828 38,128 34,526 19,611 7,972
Common Share Summary: (2)
Diluted earnings (loss) per share $.84 $.90 $.22 $(1.18) $(0.17)
Dividends per share .21 .07 0 0 0
Book value per share 12.40 10.31 9.34 7.82 8.23
Weighted average diluted shares
outstanding 4,363,065 3,711,051 3,216,625 2,103,178 968,329
Nine Months Year Ended December 31
Ended --------------------------------------------------------------------
Sept. 30, 2001 2000 1999 1998 1997 1996
----------------- --------------------------------------------------------------------
Grand Bank Financial Corporation (unaudited; dollars in thousands, except per share amounts)
Income Statement Data:
Net interest income $6,152 $7,836 $6,470 $6,022 $4,664 $3,947
Provision for loan losses (528) (490) (304) (543) (204) (135)
Net income 1,871 2,251 1,777 1,564 1,145 $1,008
Balance Sheet Data (period end):
Assets $251,904 $223,930 $178,665 $149,022 $131,752 $112,932
Deposits 212,685 193,587 152,066 124,419 117,744 100,317
Portfolio loans 217,909 180,850 149,503 123,347 94,560 81,341
FHLB advances 15,293 10,043 10,298 8,476 2,841 2,900
Notes payable 4,000 2,500 1,500 1,500 - -
Shareholders' equity 16,570 14,865 12,727 11,313 9,785 8,625
Common Share Summary:
Diluted earnings per share $13.57 $16.35 $12.95 $11.86 $8.83 $7.84
Dividends per share 1.50 2.00 1.88 1.76 1.60 1.36
Book value per share 122.78 110.14 94.30 83.88 75.20 68.16
Weighted average diluted shares
outstanding 137,883 137,664 137,232 131,938 129,579 128,555
(1) Macatawa data includes period from May 21, 1997 (date of inception)
through December 31, 1997.
(2) Restated to reflect the 3% stock dividend paid on May 4, 2001.
5
Unaudited Pro Forma Combined Condensed Financial Information
Macatawa and Grand expect that the Merger will be accounted for as a
purchase. The pro forma combined condensed financial information attempts to
estimate the effect of the Merger on Macatawa's and Grand's historical financial
positions as of the dates listed below. The pro forma combined condensed
financial information has been derived from, and should be read in conjunction
with, the historical consolidated financial statements, and the notes to those
financial statements. Macatawa's relevant financial statements are included in
or as exhibits to Macatawa's Form 10-K and 10-Q filings and are incorporated by
reference. Grand's financial statements and related notes are included in this
prospectus and joint proxy statement. The pro forma combined condensed financial
information may not be indicative of the results that actually would have
occurred if the Merger had been in effect on the dates indicated or that may be
attained in the future. In addition, Macatawa will incur restructuring and
Merger related expenses as a result of the transaction and anticipated cost
savings after the Merger. These restructuring and Merger related expenses and
anticipated cost savings are not reflected in the historical financial
information. In preparing the pro forma combined condensed financial
information, the fact that the Merger will be accounted for under the purchase
method of accounting has been given effect.
Nine Months Year
Ended Ended
September 30, 2001 December 31, 2000
---------------------- ---------------------
(dollars in thousands)
Income Statement Data:
Net interest income $ 21,854 $24,435
Provision for loan losses 2,117 2,421
Net income 5,298 5,310
Balance Sheet Data (period end)(1):
Assets 911,543
Deposits 715,174
Loans, including loans held for sale 727,168
FHLB advances 77,881
Shareholders' equity 106,624
(1) The pro forma combined condensed balance sheet data assumes the issuance of
2,374,995 shares of Macatawa common stock in exchange for all of the
outstanding shares of Grand common stock, assuming an Exchange Ratio of
17.5979 shares of Macatawa common stock for each share of Grand common
stock and that none of the outstanding Grand stock options will be
exercised before completion of the Merger.
Under the "risk-based" capital guidelines presently in effect for banks and
bank holding companies, minimum capital levels are based on the perceived risk
in the various asset categories. Certain off-balance-sheet instruments, such as
loan commitments and letters of credit, require capital allocations. Bank
holding companies such as Macatawa and Grand and banks such as Macatawa Bank and
Grand Bank are required to maintain minimum risk-based capital ratios.
Macatawa's and Grand's ratios are above the regulatory minimum guidelines and
Macatawa Bank and Grand Bank met the regulatory criteria to be categorized as
"well-capitalized" institutions at September 30, 2001. The "well-capitalized"
classification may permit banks to minimize the cost of Federal Deposit
Insurance Corporation insurance assessments by being charged a lesser rate than
those that do not meet this definition. Designation as a "well-capitalized"
institution does not constitute a recommendation by federal bank regulators. The
following table shows capital ratios and requirements as of September 30, 2001:
Risk-based Capital
Leverage Tier 1 Total
% % %
Macatawa's capital ratios 10.37 12.35 13.60
Macatawa Bank's capital ratios 7.70 9.14 10.39
Grand's capital ratios 6.82 7.09 8.34
Grand Bank's capital ratios 6.82 7.09 10.05
Pro forma combined capital ratios 9.34 10.66 11.91
Regulatory capital ratios - "well-capitalized" definition 5.00 6.00 10.00
Regulatory capital ratios minimum requirement 4.00 4.00 8.00
6
Comparative Per Share Information
The following summarizes the per share information for Macatawa and Grand
on a historical, unaudited pro forma combined, and equivalent basis. The Grand
"equivalent pro forma" amounts are calculated by multiplying the Macatawa "Pro
forma combined" per share amounts by 17.5979, which is the number of shares of
Macatawa common stock that Grand shareholders will receive in exchange for each
of their shares of Grand common stock.
The pro forma data does not show the results of future operations or the
actual results that would have occurred had the Merger occurred at the beginning
of the period presented, giving effect to the proposed transaction under the
purchase method of accounting. In addition, Macatawa will incur restructuring
and Merger related expenses as a result of the transaction and anticipates cost
savings after the Merger. These restructuring and Merger related expenses and
anticipated savings are not reflected in the historical financial information.
As a result, the pro forma combined financial condition and results of operation
of Macatawa as of and after the Effective Time of the Merger may not be
indicative of the results that actually would have occurred if the Merger had
been in effect during the periods presented. The pro forma per share data have
been included in accordance with the rules of the Securities and Exchange
Commission and are provided for comparative purposes only.
Nine Months
Ended Year Ended
Sept. 30, 2001 Dec. 31, 2000
----------------------- -----------------------
Macatawa Common Stock
Earnings per share - basic (2):
Historical (1) $0.84 $0.91
Pro forma combined (3) 0.79 0.87
Earnings per share - diluted (2):
Historical(1) 0.84 0.90
Pro forma combined (3) 0.78 0.87
Book value per share - end of period:
Historical(1) 12.40 10.31
Pro forma combined (4) 13.88 13.00
Cash dividends declared per share:
Historical(1) 0.21 0.07
Pro forma combined (5) 0.21 0.07
Grand Common Stock
Earnings per share - basic (2):
Historical 13.86 16.68
Equivalent pro forma (6) 13.90 15.31
Earnings per share - diluted (2):
Historical 13.57 16.35
Equivalent pro forma (6) 13.72 15.31
Book value per share - end of period:
Historical 122.78 110.14
Equivalent pro forma (4) 244.26 228.77
Cash dividends declared per share:
Historical 1.50 2.00
Equivalent pro forma (4) 3.70 1.23
- -------------------------------
7
(1) Restated to reflect the 3% stock dividend paid on May 4, 2001.
(2) In calculating pro forma earnings per share, no adjustments to the pro
forma amounts have been made to reflect potential expense reductions,
revenue enhancements or Merger expenses that may result from the Merger.
(3) Gives effect to the Merger as if it had occurred at the beginning of each
period presented.
(4) Gives effect to the Merger as if it had occurred at the end of each period
presented. The pro forma book value per share does not include the impact
of merger-related charges that may result from the proposed Merger.
(5) The Macatawa pro forma combined dividends per share amounts represent
historical per share dividends on Macatawa common stock only.
(6) The equivalent pro forma computations assume that for each share of Grand
common stock outstanding, Grand shareholders will receive 17.5979 shares of
Macatawa common stock.
Special Meeting of Macatawa Shareholders
Date, Time, and Place of the Special Meeting
The special meeting of shareholders of Macatawa is scheduled to be held as
follows:
__________, ___________, 2002
__________ local time
_______________________
_______________________
Holland, Michigan 49423
Purpose of the Special Meeting
The Macatawa special meeting is being held so that shareholders of Macatawa
may consider and vote upon (1) a proposal to approve the Merger Agreement and
the issuance of shares of Macatawa common stock pursuant to the Merger
Agreement, and (2) any other business that properly comes before the special
meeting or any adjournment or postponement of that meeting. Approval of the
Merger Agreement and the issuance of shares of Macatawa common stock pursuant to
the Merger Agreement, will also constitute approval of the Merger and the other
transactions contemplated by the Merger Agreement.
Shareholder Special Meeting Record Date
Macatawa has fixed the close of business on ___________________, 2002 as
the record date for determination of its common shareholders entitled to receive
notice of and to vote at the special meeting. On the record date, there were
__________ shares of Macatawa common stock outstanding, held by approximately
__________ holders of record.
Vote Required for the Approval of the Merger Agreement and Issuance of Shares
The Michigan Business Corporation Act does not require that Macatawa's
shareholders approve the Merger. However, the rules of the National Association
of Securities Dealers, Inc., which govern companies traded on The Nasdaq Stock
Market, require that Macatawa's shareholders approve the issuance of shares of
Macatawa common stock pursuant to the Merger Agreement. Under those rules, the
affirmative vote of a majority of the shares of Macatawa common stock present
and voting at the special meeting is sufficient to approve the Merger and the
issuance of shares of Macatawa common stock pursuant to the Merger Agreement.
Approval of the Merger Agreement by Macatawa's shareholders is not required by
law, but is requested as a ratification and approval of adoption of the Merger
Agreement by Macatawa's Board of Directors and is a condition to the Merger. The
affirmative vote of a majority of shares present and voting is considered to be
sufficient for this purpose. You are entitled to one vote for each share of
Macatawa common stock held by you on the record date on each proposed
shareholder action.
8
As of the record date for the special meeting, directors and executive
officers of Macatawa and their affiliates beneficially owned __________ shares
of Macatawa common stock, which represents approximately ___% of all outstanding
shares of Macatawa common stock entitled to vote at the special meeting.
Proxies and Effect on Vote
All shares of Macatawa common stock represented by properly completed
proxies received before or at the special meeting and not revoked will be voted
according to the instructions indicated on the proxy card. If a properly
completed proxy is returned and no instructions are indicated, the Macatawa
common stock represented by the proxy will be (1) considered present at the
special meeting for purposes of determining a quorum and for purposes of
calculating the vote and (2) voted FOR approval of the Merger Agreement and the
issuance of shares of Macatawa common stock pursuant to the Merger Agreement.
You are urged to mark the box on the proxy to indicate how to vote your shares.
If a properly completed proxy is returned and the shareholder has
specifically abstained from voting on the proposal to approve the Merger
Agreement and the issuance of shares of Macatawa common stock pursuant to the
Merger Agreement, the Macatawa common stock represented by the proxy will be
considered present and entitled to vote at the special meeting for purposes of
determining the existence of a quorum, but will not be considered to have been
voted in favor of or against the proposal. If a broker or other nominee holding
shares of Macatawa common stock in street name signs and returns a proxy, but
indicates on the proxy that it does not have discretionary authority to vote
certain shares on the proposal, those shares will be considered present and
entitled to vote at the special meeting. They will, therefore, be counted for
purposes of determining the presence of a quorum but will not be considered to
have been voted for or against approval of the proposal.
Because approval of the Merger Agreement and the issuance of shares of
Macatawa common stock pursuant to the Merger Agreement, requires the affirmative
vote of a majority of the shares of Macatawa common stock present and voting at
the special meeting, abstentions, failures to vote, and broker non-votes will
not be counted as shares voted, and the number of shares of which a majority is
required will be reduced by the number of shares not voted.
Macatawa does not expect that any matter other than the approval of the
Merger Agreement and the issuance of shares of Macatawa common stock pursuant to
the Merger Agreement will be brought before the special meeting. If, however,
other matters are presented, the persons named as proxies will (subject to
applicable law) vote in accordance with their judgment with respect to those
matters.
Revocation of Proxies
You may revoke your proxy at any time before it is voted at the special
meeting by:
o notifying the Secretary of Macatawa in writing that the proxy is revoked;
o sending a later-dated proxy to the Secretary of Macatawa or giving a
later-dated proxy to a person who attends the special meeting; or
o appearing in person and voting at the special meeting.
Attendance at the special meeting will not in and of itself constitute
revocation of a proxy. You should send any later-dated proxy or notice of
revocation of a proxy to:
Macatawa Bank Corporation
Attention: Secretary
348 South Waverly Road
Holland, Michigan 49423
Solicitation of Proxies
For Macatawa shareholders, the proxy that accompanies this document is
being solicited by Macatawa's Board of Directors. In addition to solicitations
by mail, directors, officers, and regular employees of Macatawa and its
subsidiaries may solicit proxies from shareholders personally or by telephone or
other electronic means. Such individuals will not receive any additional
compensation for doing so. Macatawa will bear its own costs of soliciting
proxies, which Macatawa
9
expects will be less than $7,500. Macatawa also will make arrangements with
brokers and other custodians, nominees and fiduciaries to send this document to
beneficial owners of Macatawa common stock and, upon request, will reimburse
those brokers and other custodians for their reasonable expenses in forwarding
these materials.
Special Meeting of Grand Shareholders
Date, Time, and Place of the Special Meeting
The special meeting of shareholders of Grand is scheduled to be held as
follows:
__________, ______________, 2002
___:00 ___.m. local time
___________________________
Grand Rapids, Michigan __________
Purpose of the Special Meeting
The Grand special meeting is being held so that shareholders of Grand may
consider and vote upon the proposal to approve the Merger Agreement and any
other business that properly comes before the special meeting or any adjournment
or postponement of that meeting. Approval of the Merger Agreement will also
constitute approval of the Merger and the other transactions contemplated by the
Merger Agreement.
Shareholder Special Meeting Record Date
Grand has fixed the close of business on ________________, 2002 as the
record date for the determination of Grand's common shareholders entitled to
receive notice of and to vote at the special meeting. On the record date, there
were 134,959 shares of Grand common stock outstanding, held by approximately 122
holders of record.
Vote Required for the Approval of the Merger Agreement
A majority of the outstanding shares of Grand common stock entitled to vote
at the special meeting must be represented, either in person or by proxy, to
constitute a quorum at the special meeting. Under the Michigan Business
Corporation Act, the affirmative vote of the holders of at least a majority of
the shares of Grand common stock outstanding and entitled to vote at the special
meeting is required to approve the Merger Agreement. You are entitled to one
vote for each share of Grand common stock held by you on the record date.
As of the record date for the special meeting, directors and executive
officers of Grand beneficially owned approximately 47,142 shares of Grand common
stock, which represents approximately 33.85% of all outstanding shares of Grand
common stock entitled to vote at the special meeting.
Proxies and Effect on Vote
All shares of Grand common stock represented by properly completed proxies
received before or at the special meeting and not revoked will be voted in
accordance with the instructions indicated on the proxy card. If a properly
completed proxy is returned and no instructions are indicated, the Grand common
stock represented by the proxy will be (1) considered present at the special
meeting for purposes of determining a quorum and for purposes of calculating the
vote, and (2) voted FOR approval of the Merger Agreement.
If a properly completed proxy is returned and the shareholder has
specifically abstained from voting on the proposal to approve the Merger
Agreement, the common stock represented by the proxy will be considered present
and entitled to vote at the special meeting for purposes of determining the
presence of a quorum and will not be considered to have been voted for approval
of the Merger Agreement. If a broker or other nominee holding shares of Grand
common stock in street name signs and returns a proxy but indicates on the proxy
that it does not have discretionary authority to vote certain shares on the
approval of the Merger Agreement, those shares will be considered present for
purposes of determining the presence of a quorum but will not be considered to
have voted for approval of the Merger Agreement.
10
Because approval of the Merger Agreement requires the affirmative vote of
at least a majority of all shares of Grand common stock outstanding and entitled
to vote as of the record date, abstentions, failures to vote, and broker
non-votes will have the same effect as a vote against approval of the Merger
Agreement.
Grand does not expect that any matter other than the approval of the Merger
Agreement will be brought before the special meeting. If, however, other matters
are presented, the persons named as proxies will (subject to applicable law)
vote in accordance with their judgment with respect to those matters.
Revocation of Proxies
You may revoke your proxy at any time before it is voted at the special
meeting by:
o notifying the Secretary of Grand in writing that the proxy is revoked;
o sending a later-dated proxy to the Secretary of Grand or giving a
later-dated proxy to a person who attends the special meeting; or
o appearing in person and voting at the special meeting.
Attendance at the special meeting will not in and of itself constitute
revocation of a proxy. You should send any later-dated proxy or notice of
revocation of a proxy to:
Grand Bank Financial Corporation
Attention: Secretary
126 Ottawa Avenue, N.W., Suite 100
Grand Rapids, Michigan 49503
Solicitation of Proxies
For Grand shareholders, the proxy that accompanies this document is being
solicited by Grand's Board of Directors. In addition to solicitations by mail,
directors, officers, and regular employees of Grand and its subsidiary may
solicit proxies from shareholders personally or by telephone or other electronic
means. Such individuals will not receive any additional compensation for doing
so. Grand will bear its own costs of soliciting proxies, which Grand estimates
will be less than $2,500. Grand also will make arrangements with brokers and
other custodians, nominees and fiduciaries to send this document to beneficial
owners of Grand common stock and, upon request, will reimburse those brokers and
other custodians for their reasonable expenses in forwarding these materials.
You should not send in any stock certificates with your proxies. A
transmittal form with instructions for the exchange of your Grand stock
certificates will be mailed to you as soon as practicable after completion of
the Merger.
11
The Merger and Merger Agreement
The Agreement and Plan of Merger, attached as Appendix A (referred to as
the "Merger Agreement") is incorporated in this prospectus and joint proxy
statement by reference and should be carefully considered. Various provisions of
the Merger Agreement have been summarized in this document for your information.
However, the Merger Agreement, not this summary, is the definitive statement of
the terms of the Merger.
What Grand Shareholders Will Receive in the Merger
If Macatawa's and Grand's shareholders approve the Merger Agreement and the
Merger is completed, Grand will merge with and into Macatawa and, as a result,
Macatawa will own Grand Bank and all of the assets of Grand. In exchange, Grand
shareholders will receive 17.5979 shares of Macatawa common stock for each of
their shares of Grand common stock (referred to as the "Exchange Ratio").
Macatawa will not issue fractional shares of Macatawa common stock in the
Merger. Instead, if a Grand shareholder would otherwise be entitled to receive a
fraction of a share of Macatawa common stock, the shareholder will receive an
amount of cash determined by multiplying the amount of the fractional share by
the average closing price per share of Macatawa common stock on The Nasdaq Stock
Market for the five consecutive trading days ending on the business day before
the date of the closing of the Merger.
The Exchange Ratio is fixed and will not be adjusted to reflect changes in
the market price of Macatawa's common stock. The Exchange Ratio is subject to
certain upward or downward adjustments based upon the occurrence of certain
events between the date of this prospectus and joint proxy statement and the
completion of the Merger that would result in changes in the number of shares of
Macatawa or Grand common stock outstanding. The purpose of any such adjustment
is to prevent dilution of the respective interests of the shareholders of
Macatawa and Grand. If Macatawa declares a stock dividend or stock split and the
record date occurs before the completion of the Merger, the parties will adjust
the Exchange Ratio by multiplying it by (1) the total number of shares of
Macatawa common stock that are outstanding as of the record date for the stock
dividend or split plus the additional number of shares to be issued as part of
the stock dividend or split, (2) divided by the total number of shares of
Macatawa common stock outstanding as of the record date for the stock dividend
or split.
The Merger Agreement also provides that the Exchange Ratio may be adjusted
for other transactions, such as a reclassification, consolidation, or merger. If
one of these types of transactions occurs, Grand shareholders will be entitled
to an adjustment in the Exchange Ratio that is equitable under the
circumstances. Macatawa and Grand do not expect that any events necessitating
such an adjustment to the Exchange Ratio will occur.
At the Effective Time of the Merger, Macatawa will assume all outstanding
options to purchase shares of Grand common stock. As a result, such options will
then represent the right to purchase a number of shares of Macatawa common stock
equal to the number of shares of Grand common stock that were subject to such
option multiplied by the Exchange Ratio and rounded to the nearest whole share.
The exercise price per share of Macatawa common stock under each such option
shall be equal to the exercise price per share of the Grand common stock that
could have been purchased under that option divided by the Exchange Ratio
(rounded to the nearest whole cent). This right to purchase the amount stated
above only applies to those options that are outstanding at the Effective Time
of the Merger and that remain unexercised at and after the completion of the
Merger.
Structure of the Merger
Grand will be merged with and into Macatawa with Macatawa being the
surviving corporation in accordance with the Merger Agreement and the Michigan
Business Corporation Act.
Background of the Merger
Grand Bank was formed in 1987 and reorganized as a holding company in 1988.
Grand's Board of Directors has periodically reviewed Grand's strategic
alternatives for enhancing profitability and maximizing shareholder value,
giving consideration to the changes and ongoing consolidation of the financial
services industry.
In April 2001, Benj. A. Smith, III, Chairman and Chief Executive Officer of
Macatawa, contacted Thomas Wesholski, President of Grand, to inquire as to
Grand's interest in an affiliation with Macatawa. Mr. Wesholski discussed
12
the question with Charles Stoddard, Chairman of Grand, who in turn brought the
matter to the attention of Grand's Board of Directors.
In May 2001, Mr. Smith met with Mr. Stoddard and Mr. Wesholski and
expressed Macatawa's interest in pursuing a business combination. On June 5,
2001, the Executive Committee of Grand's Board of Directors delivered to
Macatawa a list of issues that would be important to Grand. Macatawa responded
to this list on approximately June 13, 2001 and sent a formal written proposal
to Grand on July 12, 2001.
On July 26, 2002, Grand engaged Austin Associates, LLC (referred to as
"Austin Associates") to advise the Board of Directors in connection with its
consideration of a strategic merger with Macatawa. Austin Associates had
provided on-going consulting and investment banking services to Grand. Grand's
Board of Directors was familiar with the experience and expertise of Austin
Associates in advising companies on strategic alternatives, as well as
responding to business combination proposals such as the strategic merger with
Macatawa.
On July 31, 2001, Macatawa and Grand entered into mutual confidentiality
agreements.
On August 8, 2001, the Board of Directors reviewed information concerning a
possible affiliation with Macatawa as well as other strategic alternatives,
including continuing Grand's current niche strategy but accelerating growth,
expanding by establishing multiple branch facilities, growing by acquisitions,
and reducing the number of shareholders. The Board of Directors also reviewed
the potential purchaser list prepared by Austin Associates, merger-pricing
information, information on Macatawa's performance and an analysis of Grand's
historical performance and projections. The Board of Directors authorized Austin
Associates to respond to Macatawa outlining the financial terms by which Grand
would be willing to enter into further merger discussions.
By letter dated August 9, 2001, Austin Associates presented Grand's
financial terms to Macatawa. On August 22, 2001, Austin Associates met with
representatives of Macatawa to discuss the terms of the potential merger.
Various telephone conferences and correspondence resulted in a revised proposal
from Macatawa on August 27, 2001.
Discussions continued during August and September 2001. On September 18,
2001, Macatawa provided a letter outlining new pricing terms for the proposed
Merger.
In late September 2001, Grand received an unsolicited inquiry from another
bank holding company (referred to as the "Other Bidder") with an interest in
expanding its Kent County presence through the acquisition of Grand. After
preliminary discussions and a review of financial information on Grand, the
Other Bidder verbally communicated a range of pricing and other terms to Austin
Associates.
The range of terms from the Other Bidder and the revised terms of the
September 18, 2001 Macatawa letter were discussed with Grand's Executive
Committee at a meeting held on October 9, 2001. Austin Associates presented an
analysis, which included information on and proposals by Macatawa and the Other
Bidder as well as comparisons of their relative financial and stock performance.
At this time, the Executive Committee concluded that the Macatawa merger,
including the financial terms, were superior. The Executive Committee determined
to pursue discussions with Macatawa and to cease further discussions with the
Other Bidder.
At the request of Austin Associates, Macatawa made a revised written
proposal to Grand on October 10, 2001. Grand's Board of Directors met on October
17, 2001 to consider this revised proposal. As a result of this meeting, another
meeting was scheduled between certain directors of Grand and Macatawa, and a
representative of Austin Associates. This meeting was held on October 29, 2001,
at which time a number of social and pricing issues were discussed. Subsequent
to this meeting, and acting at the direction of Grand's Executive Committee,
Austin Associates delivered a letter dated October 31, 2001, outlining revised
terms under which Grand's Board of Directors would be willing to consider a
merger with Macatawa.
By letter dated November 6, 2001, Macatawa increased its proposal to one in
which Grand shareholders would receive approximately 2,375,000 shares of
Macatawa common stock for all of the shares of Grand common stock. This offer
represented an exchange ratio of 17.5979 shares of Macatawa common stock for
every share of Grand common stock. On November 7, 2001, Austin Associates
presented the updated proposal to the Board of Directors. Austin Associates also
presented a detailed analysis of Macatawa which included an economic evaluation,
business and financial information concerning the characteristics of the
combined organizations, and an evaluation of the prospective future value of the
separate and combined organizations. Based on reports of efforts made by Austin
Associates and the Executive
13
Committee, the Grand Board of Directors determined that Macatawa's revised
proposal represented the highest and best offer available from Macatawa and
authorized management to negotiate a definitive agreement.
Negotiations continued and the parties reached agreement on the key terms
of the transaction, on or about November 9, 2001. At this time, Macatawa's legal
counsel began preparing the Agreement and Plan of Merger and due diligence was
performed by both parties. Throughout the week of November 12 through November
19, 2001, details were negotiated and finalized. Macatawa's Board of Directors
met during the afternoon of November 20, 2001, reviewed the Merger Agreement,
authorized the Merger, and adopted the Merger Agreement with Grand.
The Executive Committee of Grand met on November 19, 2001 to review the
Merger Agreement and the terms of the proposed transaction. The Executive
Committee determined to recommend the Merger Agreement to Grand's Board of
Directors.
On November 20, 2001, Grand's management, along with Austin Associates and
legal counsel, presented to the Grand Board of Directors the proposed form of
Merger Agreement by and between Macatawa and Grand pursuant to which Grand would
be merged with and into Macatawa. Legal counsel reviewed the fiduciary duties of
the Board of Directors when considering such proposals and the obligations
imposed upon the Board of Directors under Article XI of Grand's articles of
incorporation. Grand's legal counsel then presented a detailed review and
analysis of the proposed Merger Agreement. At this meeting, Austin Associates
provided the Board of Directors with a comprehensive analysis of the proposed
Merger. The proposed combination with Macatawa was contrasted with Grand's
likely future prospects on a stand alone basis. Austin Associates concluded by
advising the Board of Directors that it was that firm's opinion that the terms
of the proposed Agreement and Plan of Merger were fair to Grand and its
shareholders from a financial point of view. Grand's Board of Directors then
discussed the proposed Merger and voted to approve and authorize the Merger and
the Merger Agreement and all incidental actions.
The Merger Agreement was executed on November 20, 2001. A joint press
release regarding the Merger was issued prior to the opening of the stock market
on November 21, 2001.
The decision of the Board of Directors of Grand to select the Macatawa
proposal and to authorize and approve the Merger, the Merger Agreement, and the
related agreements was the result of extensive discussion and lengthy
deliberation. As required by Article XI of Grand's articles of incorporation,
the Board of Directors evaluated the proposal and determined, in its judgement
that the proposal would be in substantial compliance with all applicable laws.
In reaching that judgment, the Board of Directors sought and relied upon the
advice of legal counsel. The Board of Directors also considered each factor
required to be considered by Article XI of its articles of incorporation. In
brief summary, these factors include: the fairness of the consideration to be
received by the shareholders of Grand; possible social and economic impact of
the proposed offer and its consummation on Grand, Grand's employees, customers,
and suppliers, and the communities in which Grand and its subsidiaries operate;
the business and financial conditions and earnings prospects of Macatawa; the
competence, experience, and integrity of Macatawa and its management; and the
intentions of Macatawa regarding the use of the assets of Grand.
In reaching its decision, the Board of Directors of Grand gave particular
consideration to the following factors:
o the financial value of Macatawa's proposal and the premium that value
represents over the then recent sales of Grand common stock;
o the social and economic impact of Macatawa's proposal and its
consummation on the corporation and its employees, customers, and
suppliers, and the communities in which the corporation and
subsidiaries operate;
o Macatawa's agreement to retain Grand's separate charter and name for
two years after the Merger;
o Grand's imminent need to raise capital if it were to remain
independent and continue to grow, and Macatawa's relative abundance of
capital; and
14
o the Board of Directors' perception of the strategic and synergistic
business opportunities for the combined Macatawa-Grand organization to
grow into an organization that provides greater value to its
shareholders than the sum of the two previously separate corporations.
Based on this consideration, the Board of Directors determined that
Macatawa's proposal would be in the best interests of Grand and its
shareholders. In the proposed Merger, Grand's shareholders would receive
approximately 2,375,000 shares of Macatawa common stock, based on an exchange
ratio of 17.5979 shares of Macatawa common stock for each share of Grand common
stock. This exchange ratio was equivalent to approximately $294.76 in market
value per Grand share based on Macatawa's closing price of $16.75 on November
20, 2001.
Merger Recommendation and Reasons for the Merger
Grand
The Grand Board of Directors, with the assistance of outside financial and
legal advisors, evaluated the financial, legal, and market considerations
impacting the decision to proceed with the Merger. The terms of the Merger,
including the Exchange Ratio, are the result of arm's-length negotiations
between the representatives of Grand and Macatawa. In deciding to proceed with
the transaction, the Board of Directors considered a number of material factors
with a view to maximizing shareholder value in the intermediate and long-term,
including the following:
o the future prospects of Grand if it were to continue to operate as an
independent, stand-alone entity;
o the fact that the market value of the consideration to be received by
Grand's shareholders in the Merger represented a premium over prices
in sales of Grand's common stock in transactions known to its
management;
o the fact that Grand shareholders would benefit from the increased
liquidity of the shares to be received;
o the fact that Grand shareholders should not recognize any gain or loss
for federal income tax purposes upon the receipt of Macatawa common
stock in the Merger;
o the historical performance of Macatawa and its perceived future
prospects;
o the apparent competence, experience, community banking philosophy and
integrity of Macatawa's management; and
o the opinion of Austin Associates that the financial terms of the
Merger are fair to Grand shareholders from a financial point of view.
The Board of Directors of Grand also believes that, by becoming part of a
larger organization with greater resources, Grand will be able to better serve
its customers and communities and provide a broader array of products and
services that will be competitive with other financial service providers in
Western Michigan.
Grand's Board of Directors recommends that you
vote FOR the approval of the Merger Agreement.
Macatawa
Macatawa believes the proposed Merger with Grand will enable Macatawa to
establish a prominent position in the Grand Rapids, Michigan banking market.
Macatawa believes that this more rapid expansion into the Grand Rapids market
will allow Macatawa to capitalize on the opportunities in the Grand Rapids
market due to the customer dislocation associated with the recent acquisition of
the bank holding company with the largest market share in the area. The
expansion will also help Macatawa be more accessible to its current and future
customers and increase its opportunity and capacity to invest in technology to
better compete in the increasingly competitive financial services markets.
15
Macatawa's Board of Directors recommends that you vote FOR the approval of
the Merger Agreement and the issuance of shares of Macatawa common stock
pursuant to the Merger Agreement.
Opinion of Grand's Financial Advisor
Grand retained Austin Associates to provide financial advisory services in
connection with the Merger. Austin Associates is an investment banking and
consulting firm specializing in community bank mergers and acquisitions. Grand
selected Austin Associates as its financial advisor on the basis of Austin
Associates' past relationship with Grand, and Austin Associates' experience and
expertise in representing community banks in similar transactions.
In conjunction with Grand's board meeting held on November 20, 2001 to
consider the Merger and approve the Agreement, Austin Associates rendered an
oral opinion (subsequently confirmed in writing) to Grand's Board of Directors
that the terms provided for in the Merger Agreement were fair, from a financial
point of view, to the shareholders of Grand.
The preparation of a fairness opinion involves various determinations as to
the most appropriate methods of financial analysis and the application of those
methods to the particular circumstances. It is, therefore, not readily
susceptible to partial analysis or summary description. Austin Associates
believes that a partial review of the analyses and the facts considered in its
analyses could create an incomplete or inaccurate view of the process used and
the conclusions reached by Austin Associates in rendering its opinion. You
should consider the following when reading the discussion of Austin Associates'
opinion:
o The opinion should be read in its entirety for a full understanding of
the procedures followed, assumptions made, matters considered and
qualifications and limitations of the review undertaken by Austin
Associates in connection with its opinion. The summary of Austin
Associates' opinion set forth in this prospectus and joint proxy
statement is qualified in its entirety by reference to the full text
of the opinion that is attached as Appendix B to this document.
o Austin Associates expressed no opinion as to the price at which
Macatawa common stock would actually be trading at any time.
o Austin Associates' opinion rendered in connection with the Merger does
not constitute a recommendation to any Grand shareholder as to how he
or she should vote at the special meeting.
o No limitations were imposed on Austin Associates by the Grand Board of
Directors or its management with respect to the investigations made or
the procedures followed by Austin Associates in rendering its opinion.
In performing its analyses, Austin Associates made numerous assumptions
with respect to industry performance, business and economic conditions, and
other matters, many of which are beyond the control of Grand and Macatawa and
may not be realized. Any estimates contained in Austin Associates' analyses do
not purport to be appraisals or necessarily reflect the prices at which the
companies or their securities may actually be sold. Except as described below,
none of the analyses performed by Austin Associates was assigned a greater
significance by Austin Associates than any other. The summaries of financial
analyses include information presented in tabular format. The tables should be
read together with the text of those summaries.
Austin Associates has relied, without independent verification, upon the
accuracy and completeness of the information it reviewed for the purpose of
rendering its opinion. Austin Associates did not undertake any independent
evaluation or appraisal of the assets and liabilities of Grand or Macatawa.
Austin Associates has not reviewed any individual credit files of Grand or
Macatawa and has assumed that Grand's and Macatawa's loan loss reserves are, in
the aggregate, adequate to cover losses. Austin Associates' opinion is based on
economic, market and other conditions existing on the date of its opinion, and
on information as of various earlier dates made available to it which may not
necessarily be indicative of current market conditions.
In rendering its opinion, Austin Associates made the following assumptions:
o the Merger will be accounted for using purchase accounting in
accordance with generally accepted accounting principles;
16
o all material governmental, regulatory and other consents and approvals
necessary for the consummation of the Merger would be obtained without
any adverse effect on Grand, Macatawa or on the anticipated benefits
of the Merger;
o Grand and Macatawa had provided all of the information that might be
material to Austin Associates in its review; and
o management's financial projections were reasonably prepared on a basis
reflecting the best currently available estimates and judgment of the
management of Grand and Macatawa as to the future operating and
financial performance of Grand and Macatawa, respectively.
In connection with its opinion, Austin Associates reviewed:
o the Merger Agreement;
o audited financial statements of Macatawa for the three years ended
December 31, 2000 and unaudited financial statement summaries as of
September 30, 2001;
o audited financial statements of Grand for the five years ended
December 31, 2000 and unaudited financial statement summaries as of
September 30, 2001;
o financial and operating information with respect to the business,
operations and prospects of Grand and Macatawa.
In addition, Austin Associates:
o reviewed the historical market prices and trading activity for the
common stock of Macatawa, and compared the market activity of
Macatawa's common stock with that of certain publicly traded companies
which it deemed to be relevant;
o compared the results of operations of Macatawa with those of certain
financial institutions which it deemed to be relevant;
o compared the financial terms of the Merger with the financial terms,
to the extent publicly available, of other recent business
combinations of financial institutions;
o analyzed the pro forma equivalent financial impact of the Merger to
Grand per share data; and
o conducted such other studies, analyses, inquiries and examinations, as
Austin Associates deemed appropriate.
The following is a summary of all material analyses performed by Austin
Associates in connection with its opinion provided to the Grand Board of
Directors as of November 20, 2001. The summary does not purport to be a complete
description of the analyses performed by Austin Associates.
Summary of Financial Terms of Agreement. Austin Associates reviewed the
financial terms of the proposed transaction, including the form of
consideration, the exchange ratio, and the resulting price per share to Grand
common shareholders pursuant to the proposed Merger. Under the terms of the
Merger Agreement, each outstanding share of Grand common stock shall be
converted into 17.5979 shares of Macatawa common stock. The exchange ratio shall
remain fixed through closing and is not subject to adjustment based on price
movements in Macatawa's stock. The Merger Agreement further provides that stock
options previously granted by Grand be converted into and become options to
purchase Macatawa common stock. The exchange ratio was the result of negotiation
between Macatawa and Grand and was not proposed or recommended by Austin
Associates.
Contribution Analysis. Based on 134,959 shares of Grand common stock
outstanding as of the date of the Merger Agreement and the fixed exchange ratio
of 17.5979, the number of shares issued to common stock holders would equal
approximately 2,375,000. Without consideration of the stock options, Grand's
shareholders would own, in the aggregate,
17
30.9 percent of the resulting company. On a fully-diluted basis (by assuming the
exercise of all outstanding stock options at both Grand and Macatawa), ownership
to Grand would approximate 31.5 percent. Austin Associates compared the pro
forma ownership interest in Macatawa that Grand shareholders would receive, in
the aggregate, to Grand's contribution of certain balance sheet and income
statement measures.
The following table compares the pro forma ownership of Grand and Macatawa
shareholders in the combined company, on a fully-diluted basis, to each
company's respective contribution of various selected measures:
Fully Diluted Basis(1) Ratio of
---------------------- Ownership to
Grand Macatawa Contribution
----- -------- ------------
Pro Forma Ownership 31.5% 68.5% 100%
Income Statement(2) % Contribution
--------------
3rd Quarter 2001 Actual Core Net Income 32.4% 67.6% 97.2%
Estimated 2001 Core Net Income 32.9% 67.1% 95.7%
Estimated 2002 Core Net Income 30.8% 69.2% 102.2%
Balance Sheet as of September 30, 2001
Total Assets 28.4% 71.6% 110.9%
Total Deposits 29.7% 70.3% 106.1%
Shareholders' Equity 20.1% 79.9% 156.7%
(1) Considers exercise of outstanding stock options of both Grand and
Macatawa.
(2) Core net income adjusted for nonrecurring income and expense and a
portion of Grand's charitable contributions.
Merger Value. In rendering its opinion on November 20, 2001, Austin
Associates considered the stock trading values of Macatawa and the Merger value
to Grand's shareholders. Based on Macatawa's closing stock price on November 19,
2001 of $16.36, the value per share to Grand common shareholders was $287.90
($16.36 multiplied by 17.5979). The aggregate value to common shareholders, as
of November 19, 2001, equaled $38.9 million ($287.90 multiplied by 134,959
shares outstanding at Grand).
In addition, Macatawa agreed to assume and convert the 4,825 outstanding
options of Grand into options of Macatawa. These options are exercisable at a
weighted average price of $79.21 per share. Based on the $16.36 per share value
to Grand shareholders, the "in-the-money" value of the options measures
approximately $1.0 million in the aggregate. Therefore, when including the value
of consideration for the options of Grand, the aggregate value of the
transaction at November 19, 2001 was approximately $39.9 million.
Austin Associates calculated that the indicated value of $39.9 million
represented:
o 241 percent of book value at September 30, 2001;
o 16.0 times net income for the last twelve months ended September 30,
2001; and
o 9.2 percent premium over tangible equity as a percent of total assets.
Comparable Transaction Analysis. Austin Associates reviewed certain
information relating to bank sale transactions nationally announced from January
1, 2000 to November 19, 2001. The following chart highlights the criteria used
to select transactions for comparison to the Merger.
Seller Seller
Key Seller Criteria Group 1 Group 2
------------------- ------- -------
Seller's Asset Size ($mils) $100 - $500 $100 - $500
YTD ROAA > 0.0% -
YTD ROAE - > 15.0%
Most Recent Annual Asset Growth - > 10.0%
# of Transactions Included 113 11
18
Austin Associates compared the prices paid in these transactions as
compared to the transaction multiples being paid by Macatawa for Grand.
Seller Seller Macatawa/
Key Median Results Group 1 Group 2 Grand
------------------ ------- ------- ---------
Price/Earnings Multiple 17.6 x 16.6 x 16.0x
Price/Tangible Book Value Ratio 210% 241% 241%
Premium over Tangible Equity/Assets 9.1% 12.3% 9.2%
Austin Associates concluded that the multiples proposed to be paid by
Macatawa for Grand either approximate or exceed the median multiples paid for
comparable bank transactions since January 1, 2000.
Comparative Analysis of Macatawa Financial Performance. In connection with
rendering its opinion, Austin Associates compared selected results of Macatawa's
operating performance to those of four selective peer groups. The following
chart highlights the criteria used to selective companies for each peer group:
Peer Peer Peer Peer
Key Criteria for Selection (1) Group 1 Group 2 Group 3 Group 4
------------------------------ ------- ------- ------- -------
Date Formed 1995-1999 - - -
Asset Size ($Billions) - $0.3-$1.0 $0.5-$1.0 $0.5-$1.0
LTM Core ROAA > 0.0% 0.75%-1.50% > 0.0% > 0.0%
LTM Core ROAE - < 12.0% - -
1999-2000 Core EPS Growth > 0.0% - > 10.0% > 10.0%
Tangible Equity/Assets - > 9.0% - -
1999-2000 Asset Growth - - - > 15.0%
# of Companies Included 25 35 63 27
(1) Core = Net income excluding nonrecurring income and expenses.
LTM = Last twelve months.
Austin Associates noted the following selected financial measures for the
peer group banks as compared to Macatawa:
Median Results
-------------------------------------------
Key Performance Measures Peer 1 Peer 2 Peer 3 Peer 4 Macatawa
------------------------ ------ ------ ------ ------ --------
Asset Size ($mils) $150 $450 $665 $649 $634
LTM Core ROAA 0.69% 1.12% 1.01% 1.03% 0.87%
LTM Core ROAE 6.95% 9.94% 13.14% 13.24% 10.11%
99-00 Core E.P.S. Growth 69.4% 3.6% 11.4% 28.4% 328.6%
LTM Efficiency Ratio 67.7% 60.1% 62.0% 61.9% 61.8%
Tangible Equity/Assets 9.25% 11.16% 7.60% 7.72% 10.39%
NonperformingAssets/Assets 0.32% 0.53% 0.54% 0.41% 0.10%
Austin Associates noted that Macatawa had performed better than a
comparable group of banks formed during 1995 to 1999 (Peer 1) in terms of
growth, profitability and asset quality. Compared with Peer Groups 2-4,
Macatawa's relatively high asset growth has resulted in a slightly lower ROAA
result. While Macatawa's higher capital position has resulted in a lower ROE
result, Macatawa's ROE is higher than the median for peer group 2. Macatawa's
asset quality measures compare very favorably to each peer group. Austin
Associates concluded that Macatawa's financial performance compared favorably to
the industry and is particularly favorable to banks formed within the last five
years.
19
Comparative Analysis of Macatawa's Stock Performance. Austin Associates
also reviewed stock trading information for Macatawa, as of November 19, 2001 to
each of the previously defined peer groups. The following represents a summary
of this review:
Macatawa
Key Stock Median Results @$16.36
Performance Measures Peer 1 Peer 2 Peer 3 Peer 4 Per Share
-------------------- ------ ------ ------ ------ ---------
Market Price to Core EPS 16.7 x 13.2 x 12.2 x 12.0 x 14.6x
Market Price to Tangible BVPS 129% 132% 151% 163% 132%
Dividend Yield 0.0% 3.7% 2.0% 1.7% 1.8%
Avg. Daily Trading Volume 351 956 3,563 5,542 8,356
Austin Associates noted that Macatawa's market price to core EPS is above
three of the peer groups. The disparity in P/E multiples is considered
reasonable given the higher EPS growth rate at Macatawa. The market price to
tangible book ratio approximates peer groups 1-2 and is below peer groups 3-4.
Macatawa's recent stock offering has resulted in a lower price/book multiple
than most of the peer companies. Macatawa's stock trading volume is higher than
the median results for each peer group. Austin Associates concluded that
Macatawa's stock price was in a reasonable range for the financial condition and
performance of the company, relative to other comparable banking companies.
Pro Forma Merger Analysis. Austin Associates performed a pro forma merger
analysis by combining the projected balance sheets and income statements to
determine the financial impact of the Merger on Grand and Macatawa shareholders.
Austin Associates made certain assumptions regarding the accounting treatment,
acquisition adjustments and cost savings to calculate the financial impact the
Merger would have on key performance measures of the pro forma company. The pro
forma merger analysis was based in part on published earnings estimates, Austin
Associates' long-term estimated earnings and growth rates, and on management's
estimates of earnings growth and the expected cost savings. Austin Associates
assumed 100 percent of the expected cost savings would be achieved in 2002. The
following chart highlights the key results:
Stand-Alone Stand-Alone Equivalent %
Grand(1) Macatawa Pro Forma Per Share to Change to
2002 Projected Performance Results Company(2) Grand Grand
- ---------------------------------- ----------- ------------ ---------- ------------- ----------
ROAA 1.11% 0.98% 1.08% - -
ROAE 16.92% 10.29% 9.98% - -
Net Income ($mils) $3.2 $7.2 $10.9 - -
Basic Earnings Per Share $23.45 $1.35 $1.42 $25.06 6.9%
Dividends Per Share $2.35 $0.34 $0.34 $5.95 153.2%
Book Value Per Share $149.19 $13.65 $14.80 $260.53 74.6%
Tangible Book Value Per Share $149.19 $13.65 $11.99 $211.00 41.4%
(1) Excludes portion of charitable contributions in calculating net income.
(2) Includes estimated cost savings and amortization expense.
Pro Forma Equivalent Earnings and Book Value. This analysis indicates that
the Merger is expected to increase Grand's equivalent stand-alone 2002 earnings
per share by 6.9 percent. Grand's equivalent 2002 tangible book value per share
would equal $211.00 in the pro forma company representing a 41.4 percent
increase over its stand-alone projection of $149.19.
Pro Forma Equivalent Dividends. Austin Associates reviewed the projected
cash dividends to be paid by Macatawa and Grand. Based on the exchange ratio,
Grand's estimated equivalent dividends from Macatawa would equal $5.95 per share
in 2002, compared to estimated stand-alone dividends of $2.35 for 2002. This
represents a 153 percent increase over the stand-alone 2002 dividend of Grand.
Discounted Cash Flow Analysis. The discounted cash flow value analysis is a
widely used valuation methodology but relies on numerous assumptions, including
asset and earnings growth rates, implied price to earnings multiples and
discount rates. The analysis does not purport to be indicative of the actual
values or expected values of Grand's or Macatawa's common stock.
20
Austin Associates estimated the present value of future cash flows assuming
that Grand would remain independent and the shareholder held the stock for five
years and sold it at the end of that period. Austin Associates also estimated
the present value of future cash flows that would accrue to a holder of
Macatawa. Finally, Austin Associates estimated the equivalent present value of
future cash flows in the pro forma company to Grand shareholders, assuming the
Merger were to close at year-end 2001, and assuming the shareholder held the
stock through 2006 and sold it at the end of 2006.
The following chart highlights the key assumptions and results of the
discounted cash flow analyses:
Stand-Alone Stand-Alone Equivalent DCF % Change
Grand Macatawa Value to Grand to Grand
Discounted Cash Flow Key Assumptions Shareholders
- ------------------------------------ ----------- ----------- -------------- ------------
Annual Growth Rate in Earnings 16% 19% -
Dividend Growth Rate 16% 20% -
Discount Rate 12.5% 13.0% 13.0%
Implied Price/EPS Multiple 11.1 x 11.1 x 11.1 x
Discounted Cash Flow Value $262.79 $17.63 $293.10 11.5%
Projected cash flows were discounted at rates between 12.5 percent and 13.0
percent. These rates were selected based on Austin Associates' experience and
the expected risk-adjusted rate of return that investors in Grand and Macatawa
would require. Based on the results from the discounted cash flow analysis,
Grand shareholders would receive an approximate 11.5 percent increase in value
with the pro forma company as compared to remaining independent.
Additional Limiting Conditions. The opinion expressed by Austin Associates
was based on market, economic and other relevant considerations as they existed
and could be evaluated as of the date of the opinion. Events occurring after the
date of issuance of the opinion, including but not limited to, changes affecting
the securities markets, the results of operations or material changes in the
financial condition of either Macatawa or Grand could materially affect the
assumptions used in preparing this opinion.
Grand has agreed to pay Austin Associates a cash fee of .75 percent of the
aggregate merger value with $60,000 paid through the execution of the Merger
Agreement. In addition, Grand has agreed to reimburse Austin Associates for its
reasonable out-of-pocket expenses, and to indemnify Austin Associates against
certain liabilities, including liabilities under securities laws. During the
past two years, Grand engaged Austin Associates on one prior occasion in
connection with an earlier consideration by Grand of acquisition prospects and
strategic alternatives. On that occasion, Grand paid Austin Associates a total
of $12,246.81 for its services. Except for the foregoing, Austin Associates has
not had any material relationship with Grand, Macatawa, any of their affiliates
and no future relationship is now mutually contemplated.
Opinion of Macatawa's Financial Advisor
Macatawa retained Donnelly, Penman, French, Haggarty & Co. ("DPFH") to act
as Macatawa's financial advisor in connection with the Merger and related
matters based upon its qualifications, expertise and reputation, as well as its
general familiarity with Macatawa.
At the November 20, 2001 special meeting of the Board of Directors of
Macatawa, the Board of Directors conditioned its approval of the Merger upon
receipt of an opinion dated as of the date of the Merger Agreement stating that
the terms of the Merger are fair to Macatawa's shareholders from a financial
point of view. On December 28, 2001, DPFH rendered its oral opinion to senior
management of Macatawa, that, as of the date of the Merger Agreement, the
Exchange Ratio pursuant to the Merger Agreement was fair to the shareholders of
Macatawa from a financial point of view. DPFH intends to confirm its oral
opinion with a written opinion to the Board of Directors of Macatawa. No
limitations were imposed by Macatawa on the scope of DPFH's investigation or on
the procedures followed by DPFH in rendering its opinion.
21
DPFH was retained by the Macatawa Board to express an opinion as to the
fairness, from a financial point of view, to the holders of Macatawa common
stock of the Exchange Ratio. DPFH did not address Macatawa's underlying business
decision to proceed with the Merger and did not make any recommendation to the
Macatawa Board of Directors or to the shareholders of Macatawa with respect to
any approval of the Merger.
The full text of the opinion of DPFH, which will set forth, among other
things, assumptions made, procedures followed, matters considered and limits on
the review of stock undertaken by DPFH, will be attached as Appendix C to this
prospectus and joint proxy statement. Holders of Macatawa common stock are urged
to read the opinion in its entirety. DPFH's opinion is directed only to the
Exchange Ratio in the Merger and does not constitute a recommendation to any
Macatawa shareholder as to how such shareholder should vote at the Macatawa
Shareholder Meeting. The summary set forth in this prospectus and joint proxy
statement of the opinion of DPFH is qualified in its entirety by reference to
the full text of the opinion to be attached hereto as Appendix C.
In arriving at its opinion, DPFH reviewed: (i) the Merger Agreement; (ii)
certain publicly-available information for Macatawa, including each of the
Annual Reports on Form 10-K for the years ended December 31, 1998, December 31,
1999 and December 31, 2000 of Macatawa and each of the quarterly reports of
Macatawa on Form 10-Q for each of the quarters ended March 31, 2001, June 30,
2001 and September 30, 2001; (iii) audited financial statements of Grand for the
fives years ended December 31, 2000 and unaudited financial statement summaries
as of September 30, 2001 (iv) certain information, including financial
forecasts, relating to earnings, assets, liabilities and prospects of Macatawa
and Grand furnished to DPFH by senior management of Macatawa and Grand, as well
as the amount and timing of the cost savings, revenue enhancements and other
synergies expected to result from the Merger ("Expected Synergies") furnished to
DPFH by senior management of Macatawa; (v) certain third party analysts'
estimates as to the future financial performance of Macatawa and internal
estimates as to the financial performance of Grand; (vi) discussions that DPFH
had with certain members of the management of each of Macatawa and Grand
concerning the historical and current business operations, financial conditions
and prospects of Macatawa and Grand and such other matters as DPFH deemed
relevant; (vii) the respective financial conditions of Macatawa and Grand as
compared to the financial conditions of certain other companies that DPFH deemed
relevant; (viii) certain financial terms of the Merger as compared to the
financial terms of selected other business combinations that DPFH deemed
relevant; and (ix) such other information, financial studies, analyses and
investigations and such other factors that DPFH deemed relevant for the purposes
of its opinion.
In conducting its review and arriving at its opinion, as contemplated under
the terms of its engagement by Macatawa, DPFH, with the consent of Macatawa,
relied, without independent investigation, upon the accuracy and completeness of
all financial and other information provided to it by Macatawa or Grand,
respectively, or publicly available information. DPFH did not undertake any
responsibility for the accuracy, completeness or reasonableness of, or any
obligation independently to verify, such information. DPFH further relied upon
the assurance of management of Macatawa that they were unaware of any facts that
would make the information provided or available to Macatawa incomplete or
misleading in any respect. With respect to the financial forecast information
and Expected Synergies furnished to or discussed with DPFH by Macatawa or Grand,
DPFH has assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgments of the senior management of Macatawa
and Grand as to the future financial performance of Macatawa, Grand or the
combined entity, as the case may be. DPFH did not make or obtain any independent
evaluations, valuations or appraisals of the assets or liabilities of Macatawa
or Grand, nor was DPFH furnished with such materials. DPFH has not reviewed any
individual credit files of Grand or Macatawa and has assumed, without
independent verification, that the aggregate allowances for credit losses for
Macatawa and Grand were adequate to cover such losses. DPFH's opinion was
necessarily based upon economic and market conditions and other circumstances as
they existed and evaluated by DPFH on the date of its opinion. DPFH does not
have any obligation to update its opinion, unless requested by Macatawa in
writing to do so, and DPFH expressly disclaimed any responsibility to do so in
the absence of any such request.
22
In connection with rendering its opinion to the Board of Directors of
Macatawa, DPFH performed a variety of financial analyses, which are summarized
below. DPFH believes that its analyses must be considered as a whole and that
selecting portions of its analyses and the factors considered by it, without
consideration of all factors and analyses, could create a misleading view of the
analyses and the processes underlying DPFH's opinion. DPFH arrived at its
opinion based on the results of all the analyses it undertook assessed as a
whole, and it did not draw conclusions from or with regard to any one method of
analysis. The preparation of a fairness opinion is a complex process involving
subjective judgments, and is not necessarily susceptible to partial analysis or
summary description. With respect to the comparable company analysis and
comparable merger transaction analysis summarized below, no public company
utilized as a comparison is identical to Macatawa or Grand, and such analyses
necessarily involve complex considerations and judgments concerning the
differences in financial and operating characteristics of the financial
institutions and other factors that could affect the acquisition or public
trading values of the financial institutions concerned. The financial forecast
information and Expected Synergies furnished by management of Macatawa or Grand
contained in or underlying DPFH's analyses are not necessarily indicative of
future results or values, which may be significantly more or less favorable than
such forecasts and estimates. The forecasts and estimates were based on numerous
variables and assumptions that are inherently uncertain, including without
limitation factors related to general economic and competitive conditions. In
that regard, DPFH assumed, with Macatawa's consent, that the financial
forecasts, including, without limitation, the Expected Synergies had been
reasonably prepared on a basis reflecting the best currently available judgments
of Macatawa and Grand, and that such forecasts will be realized in the amounts
and at the times contemplated thereby. The estimates contained in such analyses
and the range of valuations resulting from any particular analysis are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than those suggested by such analyses.
Estimates of values of financial institutions or assets do not purport to be
appraisals or necessarily reflect the prices at which financial institutions or
their securities actually may be sold. Accordingly, actual results could vary
significantly from those assumed and the financial forecasts and related
analyses. None of the analyses performed by DPFH were assigned a greater
significance by DPFH than any other.
The following is a brief summary of the analyses performed by DPFH in
connection with its oral opinion delivered to Macatawa's senior management on
December 28, 2001, which DPFH intends to confirm later in writing.:
Analysis of Comparable Merger Transactions
DPFH analyzed Midwest bank acquisition transactions announced and completed
since January 1, 1999 ("Midwest Transactions") in which each selling bank had
total assets of between $150 million and $1 billion, a return on average assets
between 1.0% and 1.5%, a return on average equity between 10.0% and 17.0% and a
total shareholders equity to total assets ratio of less than 10.0%. This
analysis also showed that the Exchange Ratio represented a multiple of: (i) 2.4x
Grand's reported book value per share, compared to a high multiple of 4.2x, a
mean multiple of 2.9x, a median multiple of 3.0x and a low multiple of 1.1x;
(ii) 2.4x Grand's tangible book value per share, compared to a high multiple of
4.2x, a mean multiple of 3.6x, a median multiple of 3.6x and a low multiple of
3.1x; (iii) 16.3x Grand's latest 12 months fully diluted normalized earnings per
share, compared to a high multiple of 32.5x, a mean multiple of 23.9x, a median
multiple of 27.2x and a low multiple of 9.0x; and represented (iv) 18.8% of
Grand's total deposits, compared to a high of 40.3%, a mean of 30.7%, a median
of 33.5% and a low of 15.3%. DPFH recognized that no transaction reviewed was
identical to the Merger and that, accordingly, any analysis of comparable
transactions necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics of the parties
to the transactions being compared.
23
DPFH also analyzed national bank acquisition transactions announced and
completed since January 1, 1999 ("National Transactions") in which each selling
bank had total assets between $150 million and $1 billion and a return on
average assets between 1.0% and 1.5% and a return on average equity between
10.0% and 17.0% and a total shareholders equity to total assets ratio of less
than 10.0%. This analysis also showed that the Exchange Ratio represented a
multiple of: (i) 2.4x Grand's reported book value per share, compared to a high
multiple of 4.3x, a mean multiple of 2.6x, a median multiple of 2.6x and a low
multiple of 1.1x; (ii) 2.4x Grand's tangible book value per share, compared to a
high multiple of 4.4x, a mean multiple of 2.8x, a median multiple of 2.7x and a
low multiple of 1.4x; (iii) 16.3x Grand's latest 12 months fully diluted
normalized earnings per share, compared to a high multiple of 32.5x, a mean
multiple of 21.1x, a median multiple of 20.2x and a low multiple of 9.0x; and
represented (iv) 18.8% of Grand's total deposits, compared to a high of 40.3%, a
mean of 26.0%, a median of 25.9% and a low of 12.1%. DPFH recognized that no
transaction reviewed was identical to the Merger and that, accordingly, any
analysis of comparable transactions necessarily involves complex considerations
and judgments concerning differences in financial and operating characteristics
of the parties to the transactions being compared.
DPFH also analyzed national merger of equal bank acquisition transactions
completed since January 1, 1999 ("Merger of Equal Transactions") with a deal
value between $12 million and $90 million. For purposes of this analysis, the
data refers to the selling institutions in each Merger of Equal Transactions as
the "seller." This analysis showed: (i) Grand's (the seller) earnings
contribution of 32.9% compared to the high of 87.6%, the mean of 55.3%, the
median of 52.2% and the low of 32.3%; (ii) Grand's pro forma ownership of 31.5%
compared to the high of 64.7%, the mean of 50.0%, the median of 48.0% and the
low of 30.9%; and (iii) Grand's ownership to earnings contribution of 95.7%
compared to the high of 132.5%, the mean of 96.0%, the median of 96.2% and the
low of 47.8%. DPFH recognized that the Merger may not be considered a true
Merger of Equals and that no transaction reviewed was identical to the Merger
and that, accordingly, any analysis of comparable transactions necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the parties to the transactions being
compared.
Analysis of Selected Comparable Companies
DPFH compared selected operating results of Grand to two groups including
the following: 13 banks from 13 selected Midwestern states whose total assets
were between $150 million and $1 billion; return on average assets was between
1.0% and 1.5%; return on average equity was between 10.05% and 17.0%; and the
total shareholder equity divided by total assets ratio was less than 10.0%. This
group is referred to as the "Midwest Companies." DPFH applied the exact same
criteria to all banks nationally. This group is referred to as the "National
Companies." This comparison showed, among other things, that for the nine months
ended September 30, 2001 (i) Grand's net interest margin was 3.8%, compared with
a mean of 4.3% for the Midwest Companies and 4.5% for the National Companies,
(ii) Grand's efficiency ratio was 61.5%, compared with a mean of 58.0% for the
Midwest Companies and 59.3% for the National Companies, (iii) Grand's annualized
return on average assets was 1.1%, compared to a mean of 1.2% for the Midwest
Companies and 1.2% for the National Companies and (iv) Grand's annualized return
on average equity was 15.9%, compared to a mean of 14.0% for the Midwest
Companies and 14.0% for the National Companies. This comparison also indicated
that (i) at September 30, 2001, Grand's ratio of nonperforming assets to total
assets was .24%, compared with a mean of .44% for the Midwest Companies and .42%
for the National Companies.
No financial institution used in the above analyses as a comparison is
identical to Grand. Accordingly, an analysis of the results of the foregoing
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics of the companies and other factors
that could affect the public trading values of Grand and the financial
institutions to which it is being compared.
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Discounted Cash Flow Analysis
DPFH prepared a discounted dividend stream analysis of Grand, which
estimated the future after tax cash flows ("net income available for dividends")
that Grand might produce over the period from January 1, 2002 through December
31, 2006 assuming Grand continued to operate as an independent company. These
estimates were derived from discussions with Grand management and were deemed
reasonable by Grand management. The estimates assumed that Grand would grow its
earnings at a compound rate of approximately 14% annually, from 2002 to 2006.
DPFH further assumed, with Grand management's consent, that a 12% dividend
payout ratio would be utilized. This payout ratio was utilized in part to
maintain certain minimum capital levels deemed appropriate by Grand management.
These dividend cash flows were then discounted to a present value using
different discount rates (ranging from 12% to 14%) chosen to reflect different
required rates of return of holders or prospective buyers of Grand common stock
assumed to be reasonable. DPFH also estimated the terminal values for Grand
common stock (ranging from 15.3 to 19.3 times Grand's 2006 estimated net
income). This range of multiples was chosen based on recent multiples of
selected mergers and acquisitions transactions for banks with assets of between
$250 million and $1 billion, as reported by SNL Securities, LP. This discounted
dividend analysis indicated an implied value range of $305.43 to $373.23 per
share for Grand common stock, compared to the Exchange Ratio value of $294.76
per share for Grand. The analysis was based upon Grand and Macatawa's senior
management's projections of Grand's future performance on a stand alone basis,
which were based upon many factors and assumptions deemed reasonable by Grand
and Macatawa management. This analysis did not purport to be indicative of
actual values or actual future results and did not purport to reflect the prices
at which any securities may trade at the present or at any time in the future.
DPFH included this analysis because it is a widely used valuation methodology,
but noted that the results of such methodology are highly dependent upon the
numerous assumptions that must be made, including earnings growth rates,
dividend payout rates, terminal values and discount rates.
Pro Forma Merger Analysis
DPFH analyzed the financial impact of the Merger on the holders of Macatawa
common stock and Grand common stock. This analysis showed that the Exchange
Ratio would result in a pro forma ownership, including converted options, of the
combined entity of approximately 68.5% by shareholders of Macatawa and
approximately 31.5% by shareholders of Grand.
Accretion/(Dilution) Analyses
DPFH analyzed the pro forma financial impact of the Merger on Macatawa's
earnings per share and cash earnings per share. For purposes of these analyses,
DPFH utilized financial forecasts, relating to earnings, assets, liabilities and
prospects of Macatawa and Grand furnished to DPFH by senior management of
Macatawa and Grand, as well as the amount and timing of the cost savings,
revenue enhancements and other synergies expected to result from the Merger
furnished to DPFH by senior management of Macatawa. DPFH's analyses of the
Merger from Macatawa's perspective showed that the Merger, compared to continued
operation of Macatawa on a stand-alone basis, would be accretive to Macatawa's
estimated earnings and cash earnings starting in 2002 assuming the financial
forecast (including Expected Synergies) provided to DPFH by Grand and Macatawa
would be achieved, although there is no assurance that such financial forecasts
will be achieved.
25
Summary Contribution Analysis
DPFH computed the contribution of each of Macatawa and Grand to the
combined entity's income statement, balance sheet and market capitalization,
excluding any Merger related adjustment. This analysis showed that Macatawa
contributed 66.1% and Grand contributed 33.9% to the combined entity's net
income for the nine months ended September 30, 2001 and that Macatawa
contributed 67.3% and Grand contributed 32.7% to the combined entity's
forecasted net income for 2001. This analysis further showed that, at September
30, 2001, Macatawa contributed 71.6% of combined assets, 70.3% of combined
deposits and 79.9% of combined equity of the combined entity, before any
purchase accounting adjustments are made.
The Macatawa Board retained DPFH based upon the recognized experience and
expertise of DPFH's financial institutions group. DPFH is a recognized
investment banking and advisory firm. DPFH, as a part of its investment banking
and advisory business, is continually engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. Macatawa selected DPFH as its financial adviser because of its
reputation and because of its substantial experience in transactions such as the
Merger.
Closing and Effective Time of the Merger
Macatawa and Grand have agreed to schedule the closing of the Merger on a
mutually agreed upon date and anticipate that the closing will occur in March or
April 2002. If they cannot agree upon a date, either party may schedule the
closing by giving the other party five business days' prior written notice of
the desired closing date. However, neither party may give such notice unless and
until (1) all applicable consents to or government approvals of the Merger have
been obtained (including the expiration of any applicable waiting periods), and
(2) Grand's shareholders have approved the Merger Agreement, and (3) Macatawa's
shareholders have approved the Merger Agreement and the issuance of Macatawa
common stock pursuant to such agreement.
The "Effective Time of the Merger" is the date and time following the
closing that the Merger is legally completed. The Effective Time of the Merger
will be specified in the Certificate of Merger filed with the state of Michigan
and will be a time and date selected by Macatawa. The Effective Time of the
Merger may not be later than three business days after the closing occurs.
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Regulatory Approvals
Before Macatawa and Grand may complete the Merger, Macatawa must receive
the approval of the Federal Reserve Board. In addition, if and when the Federal
Reserve Board approves the Merger, Macatawa and Grand must wait an additional 30
days before completing the Merger to allow the U.S. Department of Justice to
take further action to delay or block the Merger. However, if the Department of
Justice does not issue adverse comments during the first 15 days of this period,
Macatawa and Grand may complete the Merger at that time. Macatawa filed its
application for approval of the Merger with the Federal Reserve Board on or
about December 21, 2001. While Macatawa expects to receive Federal Reserve Board
approval, no assurance can be made as to whether or when the approval will be
given.
Distribution of Macatawa Common Stock
At the Effective Time of the Merger, Grand's shareholders will cease to own
shares of Grand. Old Grand stock certificates that represented shares of Grand
common stock outstanding immediately before the Merger will then represent the
right to receive (1) shares of Macatawa common stock and (2) cash in lieu of
fractional shares.
If Macatawa declares a dividend on the Macatawa common stock payable to
shareholders of record of Macatawa as of a record date after the Merger, holders
of the old Grand stock certificates will be entitled to receive that dividend.
However, holders of old Grand stock certificates will not actually receive
dividends payable to holders of record of Macatawa common stock after the Merger
until they physically deliver the old Grand stock certificates with properly
submitted transmittal materials. Upon physical exchange of the old Grand stock
certificates, former Grand shareholders will be entitled to receive from
Macatawa an amount equal to all such dividends declared and paid with respect to
those shares (without interest and less the amount of taxes, if any, that may
have been imposed or paid).
As soon as practicable after the Merger, Macatawa will cause Registrar and
Transfer Company or another bank or trust company that Macatawa may designate as
the Exchange Agent to send former Grand shareholders transmittal materials to be
used to exchange the old Grand stock certificates. Holders of the old Grand
stock certificates may then elect (1) to receive Macatawa common stock
certificates; or (2) to enroll in Macatawa's dividend reinvestment program. If
you elect to enroll in Macatawa's dividend reinvestment program, your shares of
Macatawa common stock will be credited to your account under the dividend
reinvestment program and any cash payable to you for fractional shares will be
invested in Macatawa common stock at the next regular investment date under the
dividend reinvestment program. The transmittal materials will contain
instructions with respect to the surrender of old Grand stock certificates and
the selection of these exchange options. In the absence of a selection by you of
any of these options, you will receive Macatawa common stock certificates for
your old Grand stock certificates without enrolling in Macatawa's dividend
reinvestment program. Macatawa will deliver to the Exchange Agent that number of
shares of Macatawa common stock issuable in the Merger and the amount of cash
payable for fractional shares in the Merger.
Promptly after former Grand shareholders deliver their old Grand stock
certificates to the Exchange Agent, the Exchange Agent will register the shares
of Macatawa common stock issuable to them in the name and at the address
appearing on Grand's stock records as of the time of the Merger or such other
name or address as is requested by them in the transmittal materials. The
Exchange Agent will not be required to register the shares in that manner until
it has received all of your old Grand stock certificates (or an affidavit of
loss and indemnity bond for such certificate or certificates), together with
properly executed transmittal materials. Such old Grand stock certificates,
transmittal materials, and affidavits must be in a form and condition reasonably
acceptable to Macatawa and the Exchange Agent. The Exchange Agent will have
discretion to determine reasonable rules and procedures relating to the exchange
(or lack thereof) of old Grand stock certificates and the payment for fractional
shares.
After the Merger, ownership of shares represented by old Grand stock
certificates may be transferred only on the stock transfer records of Macatawa.
After the Merger, Macatawa will not transfer any shares of Grand common stock
that were issued and outstanding immediately before the Merger on the stock
transfer books of Grand. If, after the Merger, a former Grand shareholder
properly presents old Grand stock certificates to the Exchange Agent for
transfer, the Exchange Agent will cancel and exchange the old Grand stock
certificates for shares of Macatawa common stock as provided in the Merger
Agreement.
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Exclusive Commitment to Macatawa
Board Recommendation
In the Merger Agreement, the Board of Directors of Grand has agreed to
recommend approval of the Merger Agreement and the Board of Directors of
Macatawa has agreed to recommend approval of the Merger Agreement and the
issuance of Macatawa common stock pursuant to the Merger Agreement to their
respective shareholders. However, Grand's Board of Directors may abstain from
recommending the approval of the Merger Agreement to its shareholders if a
"Superior Proposal" has been received in writing and is still pending. A
"Superior Proposal" means any bona fide unsolicited offer, proposal, or
expression of interest made by a third party on terms that the Grand Board of
Directors determines in good faith, having considered the written advice of
Austin Associates or another financial advisor of recognized reputation, to be
materially more favorable to Grand shareholders than the Merger Agreement from a
financial point of view.
Withdrawal or modification of the Grand Board of Directors' recommendation
of the Merger will not be a breach of the Merger Agreement if a "Fiduciary
Event" has occurred and Grand provides Macatawa at least ten business days'
advance notice. A "Fiduciary Event" will be considered to have occurred if and
when the Grand Board of Directors has:
o received in writing a Superior Proposal that is then still pending;
o determined in good faith (having considered the advice of legal counsel)
that its fiduciary duties to Grand's shareholders under applicable law
would require the Board of Directors to so withdraw, modify, or change its
recommendation; and
o determined to accept and recommend the Superior Proposal to Grand
shareholders.
If Grand terminates the Merger Agreement after the occurrence of a Fiduciary
Event, Macatawa will have the right to be paid a $2,000,000 fee pursuant to the
Merger Agreement. The existence of such a right under the Merger Agreement may
reduce the likelihood that a Superior Proposal will be received (see "Payment
after Certain Events" below).
No Negotiations with Third Parties
In addition to the commitment of the Board of Directors of Grand to
recommend the Merger to its shareholders, Grand has agreed that it (and its
directors, officers, employees, attorneys, investment bankers, and other agents)
will not directly or indirectly invite, initiate, solicit or encourage any other
party to make any proposal involving the sale of Grand or Grand Bank. Further,
Grand has agreed that it (and its directors, officers, employees, attorneys,
investment bankers, and other agents) will not negotiate with any other party
regarding a possible sale of Grand or, except as required by applicable law,
provide any nonpublic information about itself or any of Grand's subsidiaries to
any party other than Macatawa, unless a Fiduciary Event has occurred and is
continuing or there is a reasonable likelihood that a Superior Proposal would
result. Before disclosing any information to a party other than Macatawa under
such circumstances, Grand must obtain from such party a confidentiality
agreement with terms no less favorable to Grand than the terms of the
confidentiality agreement between Macatawa and Grand, and Grand can provide to
such person only information that has been previously disclosed to Macatawa.
Payment after Certain Events
If, after the Plan of Merger is executed, the Board of Directors of Grand
or the shareholders of Grand accept or approve any Acquisition Proposal or
Superior Proposal which competes or is otherwise inconsistent with the
transactions contemplated by the Merger Agreement or terminates the Merger
Agreement due to a Fiduciary Event, then Grand shall promptly pay to Macatawa a
fee of $2,000,000.
Conduct of Grand Pending the Completion of the Merger
In the Merger Agreement, Grand made certain covenants to Macatawa. These
covenants, which remain in effect until the Merger is completed or until the
Merger Agreement has been terminated, are summarized below.
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Ordinary Course of Business
Grand has agreed to conduct its business, and manage its property only in
the usual, regular, and ordinary course in substantially the same manner as
before the Merger Agreement was signed. In particular, Grand has agreed, among
other things, to:
o refrain from taking any action that would be inconsistent with or contrary
to the Merger Agreement;
o comply in all material respects with all laws, regulations and court and
administrative orders;
o make no change in its articles of incorporation, bylaws, or capital stock
except as effected by the Merger Agreement;
o use all reasonable efforts to maintain its property and assets in their
present condition and to preserve its business organization intact; to keep
available the services of their present officers and employees and to
preserve its goodwill;
o use all reasonable efforts to maintain and keep in full force and effect
insurance coverage on the assets, properties, premises, personnel and other
business operations;
o charge off loans and maintain its allowance for loan losses in accordance
with its prior practices and regulatory and accounting standards;
o make no material change in any policies and procedures applicable to the
conduct of its business, including any loan and underwriting policies, loan
loss and charge-off policies (except as contemplated by the Merger
Agreement or required by law or regulatory agency), investment policies,
and employment policies;
o except to reelect incumbent officers and directors at annual meetings, not
increase the number of directors or elect or appoint any person to an
executive office without first consulting Macatawa;
o take no action to increase the salary, severance or other compensation
payable to, or fringe benefits of, or pay any bonus to, any officer or
director, or any other class or group of employees as a class or group,
except as previously disclosed and described in the Grand Disclosure
Statement furnished to Macatawa prior to execution of the Merger Agreement
and increases, agreements and payments which are reasonable in amount and
consistent with the prior year;
o take no action to enter into any employment agreement that is not
terminable by Grand or its subsidiaries without cost or penalty upon 30
days or less notice, except as approved by Macatawa in writing;
o take no action to borrow money except in the ordinary course of business;
take no action to sell, mortgage, or otherwise dispose of any of its
property or assets unless the property or asset(s) individually has a fair
market value of less than $25,000 or collectively have an aggregate fair
market value of less than $75,000;
o maintain its books, accounts, and records in the usual and ordinary course;
o notify Macatawa of the threat or commencement of any material lawsuit or
other proceeding against or relating to Grand or its subsidiaries, their
directors, officers, or employees in their capacities as such, their
assets, liabilities, businesses or operations, or the Merger or the Merger
Agreement;
o take no action to introduce or change any pension, profit sharing plan or
employee benefit plan, fringe benefit program or other plan for the benefit
of its employees unless required by law or this Merger Agreement, or
necessary or advisable in the opinion of counsel to reinforce any tax
qualified status;
o refrain from entering into any new service agreements that are not
terminable by Grand or its subsidiary Grand Bank without penalty upon 30
days or less notice, except for contracts for services which do not exceed
$25,000 in the aggregate, excepting the renewal of contracts for data
processing and other services reasonably believed to be necessary for the
conduct of business in the ordinary course; or
29
o take no action to open, enlarge or materially remodel any bank or other
facility or to lease, purchase or otherwise acquire any real property for
use as a branch bank, or apply for regulatory approval of any new branch
bank, except for prior commitments made by Grand that were disclosed to
Macatawa before entering into the Merger Agreement.
Dividends
Grand may not pay any dividends or other distributions, or purchase or
redeem any shares of Grand common stock, other than the payment of regular
quarterly cash dividends in an amount per share not to exceed $0.50 per share
per quarter, payable in a manner and on dates consistent with Grand's prior
practice. Macatawa and Grand have agreed that they will cooperate to assure that
the then-former shareholders of Grand will not receive a duplication of
dividends, and not fail to receive a dividend, for any calendar quarter with
respect to their Grand common stock and Macatawa common stock that any such
holder receives in exchange for shares of Grand common stock.
Environmental Investigation
Grand has agreed to permit Macatawa to conduct an environmental assessment
of each parcel of Grand's currently owned real property, and any real estate
acquired by Grand in satisfaction of a debt previously contracted.
If any environmental conditions are found, reasonably suspected, or would
tend to be indicated by the report of the consultant which may be contrary to
the representations and warranties set forth in the Merger Agreement, without
regard to any exceptions that may be contained in the Grand Disclosure
Statement, then Macatawa shall obtain from one or more mutually acceptable
consultants or contractors, as appropriate, an estimate of the cost of any
further environmental investigation, sampling, analysis, remediation, or other
follow-up work that may be necessary to address those conditions in accordance
with applicable environmental laws. Macatawa shall forward copies of any such
estimates to Grand upon receipt.
Upon receipt of the estimate of the costs of all follow-up work or any
subsequent investigation that may be conducted, the parties shall attempt to
agree upon a course of action for further investigation and remediation of any
environmental condition suspected, found to exist, or that would tend to be
indicated by the report of the consultant. All work plans for any removal or
remediation actions that may be performed, shall be mutually satisfactory to the
parties. If the work plans or removal or remediation actions would entail a
material cost to complete, the parties shall discuss a mutually acceptable
modification to the Merger Agreement.
If Macatawa and Grand are unable to agree upon a course of action for
further investigation and remediation of an environmental condition or issue
raised by an environmental assessment and/or a mutually acceptable modification
to the Merger Agreement, and the condition or issue is not one for which it can
be determined to a reasonable degree of certainty that the risk and expense to
which Macatawa and its subsidiaries (after the Merger) would be subject as owner
or operator of the property involved can be quantified and limited to an amount
which would not have a material adverse effect on the business or financial
condition of Grand and its subsidiaries on a consolidated basis, then Macatawa
may abandon the Merger Agreement.
Accrual of Transaction Expenses
Grand shall immediately prior to the Effective Time of the Merger accrue
and charge against its earnings all transaction expenses which Grand has
incurred or will incur as a result of the transactions contemplated by the
Merger Agreement (including, without limitation, any retention or change of
control payments approved by Macatawa, and Grand's legal, accounting, actuarial,
tax services, and investment advisor's fees).
Charitable Giving
Grand shall be permitted to make charitable contributions, authorized by
its Board of Directors, with respect to Grand's 2001 fiscal year (some of which
will be payable in 2002) in an amount equal to 10% of pretax profits for 2001,
provided such charitable contributions are properly accrued as an expense for
the year ended on or before December 31, 2001.
30
Insurance and Indemnification
Macatawa has agreed to honor any and all rights to indemnification and
advancement of expenses existing, at the time of the Merger, in favor of the
present and former directors and officers of Grand and its subsidiaries under
their articles of incorporation or existing bylaws. These enforceable
contractual rights will remain in effect following the Merger with respect to
acts or omissions occurring before the Merger with the same force and effect as
before the Merger.
In addition, Macatawa has agreed to use all reasonable efforts to cause the
officers and directors of Grand immediately prior to the Merger to be covered
for a period of at least six years immediately following the Merger by the
directors' and officers' liability insurance policy maintained by Grand with
respect to acts or omissions occurring before the Merger that were committed by
such officers and directors in their capacities as such. Macatawa may substitute
for Grand's current coverage new coverage under policies offering comparable
coverage and amounts to Macatawa's policies for its own officers and directors.
However, in no event will Macatawa be required to pay, directly or indirectly
through Grand or its subsidiaries, more than $96,000 in the aggregate either to
maintain or to procure insurance coverage pursuant to the Merger Agreement. If
Macatawa does not advise Grand in writing before the scheduled date of the
meeting of Grand shareholders for the purpose of adopting the Merger Agreement,
that it has procured comparable or better coverage for the six-year period,
Grand will be permitted, after giving Macatawa three business days' prior
written notice and an additional two business days' to purchase such coverage,
in lieu of receiving the foregoing insurance coverage, to purchase tail coverage
for past acts and omissions for a single premium amount not in excess of the
limit of $96,000.
Management of Macatawa After the Merger
Upon completion of the Merger, Macatawa's Board of Directors and executive
officers will remain the same, except that one person nominated by Grand, with
the approval of Macatawa's Board of Directors, will be added to Macatawa's Board
of Directors. The person to be so nominated has not yet been selected as of the
date of this prospectus and joint proxy statement.
Conditions to Closing the Merger
Mutual Conditions to Close
The obligations of each of Macatawa and Grand to complete the Merger are
subject to the fulfillment of certain conditions, including the following:
o the shareholders of Macatawa must have approved the Merger Agreement and
the issuance of Macatawa common stock pursuant to the Merger Agreement and
the shareholder's of Grand must have approved the Merger Agreement;
o each company's representations and warranties to the other in the Merger
Agreement must have been true in all material respects or, if one or more
representations or warranties shall then be untrue, the cumulative effect
of all untrue representations and warranties shall not then be materially
adverse relative to the business, income, or financial condition or
prospects of the company and its subsidiaries on a consolidated basis;
o there must not be any action, suit, proceeding, claim, arbitration or
investigation pending or threatened: (i) against or relating to either
Grand or Macatawa or their subsidiaries or any of their respective
properties or businesses which may result in any liability to either of
them or its subsidiaries which could have a Material Adverse Effect (as
defined below) on the financial condition, net income, business,
properties, operations or prospects of either of them and its subsidiaries
on a consolidated basis, or (ii) which challenges the Merger or the Merger
Agreement;
o each company must have performed in all material respects all of the
agreements, conditions, and covenants to be completed at or before the
closing made by that company in the Merger Agreement;
o Macatawa and Grand must not be subject to any order, decree, or injunction
by any court or governmental authority that enjoins or prohibits the
completion of the Merger;
31
o the registration statement of which this prospectus and joint proxy
statement is a part must have been declared effective by the Securities and
Exchange Commission and must not be subject to a stop order or threatened
stop order;
o each company's legal counsel must have provided an opinion to the other
company with respect to certain legal matters; and
o each governmental agency having jurisdiction over the Merger must have
approved or consented to the Merger.
The term "Material Adverse Effect" is defined to mean any change or effect
that, individually or when taken together with all other such changes or effects
that have occurred before the date of determination of the occurrence of the
Material Adverse Effect, has had or could have a material negative impact on the
business, assets, financial condition, results of operations, or value of
Macatawa and its subsidiaries, taken as a whole, or, as the case may be, Grand
and its subsidiaries, taken as a whole; or the ability of Macatawa or Grand, as
the case may be, to satisfy the applicable closing conditions or consummate the
Merger. The following will not be included in any determination of a Material
Adverse Effect: (1) changes in generally accepted accounting principles that are
generally applicable to financial institutions and their holding companies; (2)
actions and omissions of a party (or any of its subsidiaries) taken with the
prior written consent of the other party; (3) changes in economic conditions
(including a change in the level of interest rates) generally affecting
financial institutions; and (4) fees and expenses reasonably related to the
Merger (such as any additional insurance coverages, employment and consulting
services, legal, accounting, and investment banking fees and expenses, and
severance and retention provisions) incurred or paid without violating the
representations, warranties or covenants contained in the Merger Agreement.
Macatawa's Conditions to Close
In addition, Macatawa's obligation to complete the Merger is subject to the
fulfillment of additional conditions, including the following:
o Grand must have obtained the consent or waiver of any material rights of
the other party or the loss of any material rights under material
agreements containing a provision triggered by a change of control of
Grand;
o Macatawa must have received a tax opinion from Varnum, Riddering, Schmidt &
Howlett LLP to the effect that, among other matters, Macatawa will not
recognize gain or loss on its receipt of the assets of Grand in exchange
for the shares of Macatawa common stock to be issued in the Merger (see "-
Material Federal Income Tax Consequences" below);
o Macatawa must have received one or more certificates dated as of the
closing and signed by the Secretary of Grand certifying the total number of
shares of capital stock of Grand issued and outstanding on the business day
immediately preceding the closing;
o Macatawa's financial advisor, Donnelly, Penman, French, Haggarty & Co.,
must have delivered an opinion reasonably acceptable to Macatawa, dated as
of the date of the Merger Agreement and renewed as of a date approximately
the date of this prospectus and joint proxy statement, to the effect that
the terms of the Merger are fair to Macatawa's shareholders from a
financial point of view and that opinion must not have been subsequently
withdrawn;
o The amended and restated employment agreements described in Grand's
disclosure statement shall have been executed and shall not have been
terminated, cancelled, or amended; and
o Grand shall not have issued any stock options after the date of the Merger
Agreement.
Grand's Conditions to Close
In addition, Grand's obligation to complete the Merger is subject to the
fulfillment of additional conditions, including the following:
32
o Grand must have received a tax opinion from Varnum, Riddering, Schmidt &
Howlett LLP to the effect that, among other matters, no gain or loss will
be recognized by the shareholders of Grand upon the receipt of Macatawa
common stock in exchange for their shares of Grand common stock (except to
the extent of any cash received in lieu of fractional shares) and the
shareholders of Grand will have the same tax basis and holding period in
the Macatawa common stock they receive in the Merger as they had in the
shares of Grand common stock surrendered in exchange for such stock (see "-
Material Federal Income Tax Consequences" below);
o Grand must have received one or more certificates dated as of the closing
and signed by the Secretary of Macatawa and the transfer agent for Macatawa
common stock certifying the total number of shares of capital stock of
Macatawa issued and outstanding on the business day immediately preceding
the closing;
o Grand's financial advisor, Austin Associates, must have delivered an
opinion reasonably acceptable to Grand, dated as of the date of the Merger
Agreement and renewed as of a date approximately the date of this
prospectus and joint proxy statement, to the effect that the terms of the
Merger Agreement are fair to Grand's shareholders from a financial point of
view and that opinion must not have been subsequently withdrawn; and
o the Macatawa common stock to be issued in the Merger must have been
authorized for listing on The Nasdaq Stock Market.
Termination
Prior to the Merger, the Merger Agreement may be terminated by Macatawa or
Grand by mutual consent or may be terminated by either of them if the Merger has
not been completed on or before June 30, 2002.
Macatawa's Right to Terminate
In addition, Macatawa may terminate the Merger Agreement and abandon the
Merger on its own action upon the occurrence of additional events specified in
the Merger Agreement including, among others, the following:
o any of the conditions precedent to Macatawa's obligation to complete the
Merger have not been met or waived by Macatawa at such time as such
condition can no longer be satisfied, notwithstanding Grand's reasonable
efforts to comply with the covenants and satisfy the conditions of Grand in
the Merger Agreement;
o certain environmental risks exist for which the parties are unable to agree
on a course of action for further investigation and it can not be
determined to a reasonable degree of certainty that the risk and expense to
which Macatawa and its subsidiaries (after the Merger) would be subject as
owner or operator of the property involved can be quantified and limited to
an amount which would have a Material Adverse Effect on the business or
financial condition of Grand and its subsidiaries on a consolidated basis;
o an event that caused or is reasonably likely to cause a Material Adverse
Effect on Grand has occurred;
o a Fiduciary Event has occurred;
o either Macatawa or Grand shareholders fail to approve the Merger Agreement
by the requisite vote of approval at the applicable special meeting; or
o Grand, prior to the closing, receives from the Federal Reserve Board a
rating lower than "Satisfactory" under an examination for compliance with
the Community Reinvestment Act, or if the report of examination is still
pending on the scheduled closing date and Macatawa is unable to satisfy
itself that Grand will receive at least a "Satisfactory" rating.
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Grand's Right to Terminate
In addition, Grand may terminate the Merger Agreement and abandon the
Merger on its own action upon the occurrence of additional events specified in
the Merger Agreement including, among others, the following:
o any of the conditions precedent to Grand's obligation to complete the
Merger have not been met or waived by Grand at such time as such condition
can no longer be satisfied, notwithstanding Macatawa's reasonable efforts
to comply with the covenants given by Macatawa in the Merger Agreement;
o either Macatawa or Grand shareholders fail to approve the Merger Agreement
by the requisite vote of approval at the applicable special meeting;
o an event that caused or is reasonably likely to cause a Material Adverse
Effect on Macatawa has occurred; or
o any of Macatawa's banking subsidiaries, prior to the scheduled closing
date, received from the Federal Reserve Board a rating lower than "
Satisfactory" under an examination for compliance with the Community
Reinvestment Act, or if the report of the examination is still pending on
the scheduled closing date and Grand is unable to satisfy itself that such
bank or banks will receive at least a "Satisfactory" rating.
Effect of Termination
If either Macatawa or Grand terminates the Merger Agreement in accordance
with its terms, neither Macatawa, Grand, nor any of their respective
subsidiaries, officers, directors, or employees will be liable to the other
party, except as provided in the Merger Agreement. Certain provisions of the
Merger Agreement including provisions regarding confidentiality, expenses, and
payments after certain events will survive termination of the Merger Agreement.
In addition, neither company will be released from liability to the other for
any liabilities or damages arising out of its knowing or intentional breach of
any provision of the Merger Agreement.
Description of Macatawa Common Stock
Macatawa's authorized capital stock consists of 9.5 million shares of
common stock, no par value per share. As of November 20, 2001, Macatawa had
5,307,201 shares of Macatawa common stock outstanding. Macatawa expects to issue
not more than 2,459,905 shares of Macatawa common stock in the Merger.
Holders of Macatawa common stock are entitled to dividends out of funds
legally available for that purpose when, as, and if declared by Macatawa's Board
of Directors. Each holder of Macatawa common stock is entitled to one vote for
each share held on each matter submitted for shareholder action. Macatawa common
stock has no preemptive rights, cumulative voting rights, conversion rights or
redemption provisions.
In the case of any liquidation, dissolution or winding up of the affairs of
Macatawa, holders of Macatawa common stock would be entitled to receive, pro
rata, any assets distributable to common shareholders in proportion to the
number of shares held by them.
All outstanding shares of Macatawa common stock are, and shares to be
issued pursuant to the Merger will be, when issued, fully paid and
non-assessable.
Comparison of Rights of Macatawa and Grand Shareholders
If the Merger is completed, holders of Grand common stock will become
holders of Macatawa common stock. Holders of Macatawa common stock will continue
to be holders of Macatawa common stock after the Merger.
Because both Grand and Macatawa are incorporated under Michigan law, their
respective shareholders' rights are governed by the Michigan Business
Corporation Act. As a Grand shareholder, your rights are currently governed by
Grand's Articles of Incorporation, as amended, and Bylaws and the Michigan
Business Corporation Act. However, after the Merger your rights will be governed
by Macatawa's Restated Articles of Incorporation and Bylaws and the Michigan
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Business Corporation Act. The following discussion compares Grand's Articles of
Incorporation, as amended, and Bylaws to Macatawa's Restated Articles of
Incorporation and Bylaws.
The following comparison of Macatawa's Restated Articles of Incorporation
and Bylaws and Grand's Articles of Incorporation, as amended, and Bylaws is not
intended to be complete and is qualified in its entirety by reference to
Macatawa's Articles of Incorporation, as amended, and Bylaws and Grand's
Restated Articles of Incorporation and Bylaws. Copies of these documents are
available upon request. See "Where You Can Find More Information" below.
Anti-Takeover Provisions - In General
Grand's Articles of Incorporation, as amended, contain provisions that
could prevent or delay the acquisition of Grand by means of a tender offer,
proxy contest, or otherwise. These provisions could also limit shareholders'
participation in certain types of business combinations or other transactions
that might be proposed in the future, regardless of whether those transactions
were favored by a majority of shareholders, and could enhance the ability of
officers and directors to retain their positions.
Macatawa's Restated Articles of Incorporation contain similar types of
provisions. Material differences in the companies' organizational documents with
respect to such anti-takeover provisions are discussed below under separate
sections, such as "- Size and Classification of the Board of Directors," "-
Removal of Directors," and "- Evaluation of Proposed Offers."
Authorized Capital
The total authorized shares of capital stock of Macatawa consists of 9.5
million shares of common stock and 0.5 million shares of preferred stock. As of
November 20, 2001, there were 5,307,201 shares of Macatawa common stock and no
shares of Macatawa preferred stock outstanding. Macatawa's Restated Articles of
Incorporation authorize Macatawa's Board of Directors to issue preferred stock
from time to time and to fix the rights, preferences and limitations of each
series of preferred stock. This includes the designation of the series and the
number of shares in it, the dividend rate, whether and when shares will be
redeemable, the prices at which shares will be redeemable, rights upon
liquidation, any sinking fund provisions, any conversion or exchange privileges,
voting rights, any restrictions on the payment of dividends or other
distributions on other classes of stock and any other rights, preferences or
limitations.
The issuance of shares of Macatawa preferred stock could adversely affect
the rights of the holders of Macatawa common stock and adversely affect the
availability of earnings for distribution to the holders of Macatawa common
stock.
The total authorized capital stock of Grand consists of 250,000 shares of
common stock, no par value. No share of Grand common stock is entitled to any
preferences and all shares are equal. Grand's Articles of Incorporation, as
amended, do not authorize any other shares or classes of capital stock.
Size and Classification of the Board of Directors
Under Macatawa's Restated Articles of Incorporation, Macatawa's Board of
Directors is divided into three classes, as nearly equal in number as possible.
The term of office of one class of directors expires each year. The number of
directors shall be determined from time to time by resolution adopted by the
affirmative vote of at least 80% of the directors of Macatawa and a majority of
the Continuing Directors as defined in Macatawa's Restated Articles of
Incorporation. Currently, Macatawa's Board of Directors is composed of five
members. Because of the classification of Macatawa's Board of Directors, it
would normally take at least two annual meetings of shareholders to change a
majority of the members of Macatawa's Board of Directors.
Grand's Articles of Incorporation, as amended, contain similar provisions
to Macatawa's Restated Articles of Incorporation. Pursuant to Grand's Articles
of Incorporation, as amended, Grand's Board of Directors is divided into three
classes, as nearly equal in number as possible. The term of office of one class
of directors expires each year. The number of directors may not be less than
three with the exact number to be fixed by resolution adopted by the affirmative
vote of at least 2/3 of the directors of Grand. Currently, Grand's Board of
Directors is composed of fifteen members. Because of the classification of
Grand's Board of Directors, it would normally take at least two annual meetings
of shareholders to change a majority of the members of Grand's Board of
Directors.
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Limitation of Personal Liability of Directors
Both Macatawa's Restated Articles of Incorporation and Grand's Articles of
Incorporation, as amended, as modified by the Michigan Business Corporation Act,
provide that a director will not be personally liable to the corporation for
money damages for breach of the director's fiduciary duty. However, a director's
liability cannot be limited for: (1) the amount of any financial benefit
received by a director to which he or she is not entitled; (2) intentional
infliction of harm on the corporation or its shareholders; (3) an illegal
dividend, distribution or loan to an officer, director or employee of the
corporation that is contrary to the Michigan Business Corporation Act; or (4) an
intentional criminal act.
Removal of Directors
Under Macatawa's Bylaws, any one or more directors may be removed from
office at any time, with or without cause, but only by either (1) the
affirmative vote of a majority of the continuing directors and at least 80% of
the Board of Directors or (2) the affirmative vote, at a meeting of the
shareholders called for that purpose, of the holders of at least 80% of the
voting power of the then outstanding shares of capital stock entitled to vote
generally in the election of directors voting together as a single class.
Under Grand's Articles of Incorporation, as amended, a director may be
removed from office at any time, but only for cause. Except as may be provided
otherwise by law, "cause" for removal of a director exists if: (1) the director
has been convicted of a felony by a court and the conviction is no longer
subject to direct appeal; (2) a court has found the director to be liable for
negligence or misconduct in the performance of his or her duty to Grand in a
matter of substantial importance to Grand and that determination is no longer
subject to a direct appeal; (3) the director has become mentally incompetent,
whether or not so determined by a court, and the mental incompetency directly
affects his or her ability as a director of Grand; (4) the director's actions or
failure to act are considered by Grand's Board of Directors to be in derogation
of the director's duties; or (5) the director's removal is required or
recommended by the Federal Reserve Board. Removal for cause must be approved by
at least two-thirds of the total number of directors (excluding the director who
is being removed). Whether cause for removal exists shall be determined by the
affirmative vote of 2/3 of the total number of directors, except such
director(s) subject to such removal determination. Any action to remove a
director under (1) or (2) above must be taken within one year of the conviction
or court judgment
Shareholder Nominations of Directors
Under Macatawa's Restated Articles of Incorporation, nominations for the
election of directors may be made by the Board of Directors or by a shareholder
entitled to vote in the election of directors. A shareholder entitled to vote in
the election of directors, however, may make such a nomination only if written
notice of such shareholder's intent to do so has been given, either by personal
delivery or by United States mail, postage prepaid, and received by Macatawa (a)
with respect to an election to be held at an annual meeting of shareholders, not
later than 60 nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting (or, if the date of the annual meeting is
changed by more than 20 days from such anniversary date, within 10 days after
the date Macatawa mails or otherwise gives notice of the date of such meeting),
and (b) with respect to an election to be held at a special meeting of
shareholders called for that purpose, not later than the close of business on
the 10th day following the date on which notice of the special meeting was first
mailed to the shareholders by Macatawa.
A Macatawa shareholder's notice of intent to make a nomination shall set
forth: (1) the name(s) and address(es) of the shareholder who intends to make
the nomination and of the person or persons to be nominated; (2) a
representation that the shareholder (a) is a holder of record of stock of
Macatawa entitled to vote at such meeting, (b) will continue to hold such stock
through the date on which the meeting is held, and (c) intends to appear in
person or by proxy at the meeting to nominate the person or persons specified in
the notice; (3) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination is to be made by the shareholder;
(4) such other information regarding each nominee proposed by such shareholder
as would be required to be included in a proxy statement filed pursuant to
Regulation 14A promulgated under Section 14 of the Securities Exchange Act of
1934, as amended; and (5) the consent of each nominee to serve as a director of
Macatawa if so elected.
Under Grand's Articles of Incorporation, as amended, nominations of
candidates for election for directors of the corporation at any annual meeting
of shareholders or at any special meeting of shareholders called for election of
directors (referred to as an "election meeting") may be made by Grand's Board of
Directors, or by a shareholder who is entitled to vote at an election meeting
under the limited circumstances described in the next paragraph. Nominations
made by Grand's
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Board of Directors are made at a meeting of the board, or by written consent of
directors in lieu of a meeting, at least 20 days before the date of an election
meeting.
A Grand shareholder may make a nomination at an election meeting if, and
only if, the shareholder has delivered a notice to the Secretary of Grand
setting forth with respect to each proposed nominee: (1) the nominee's name,
age, business address, and residence address; (2) the nominee's principal
occupation or employment; (3) the number of shares of Grand capital stock that
are beneficially owned by the nominee; (4) a statement that the nominee is
willing to be nominated; and (5) such other information concerning the nominee
as would be required under the rules of the Securities and Exchange Commission
to be included in a proxy statement soliciting proxies for the election of the
nominee. The notice must be delivered not less than 120 days before the date of
the election meeting in the case of an annual meeting and not more than seven
days following the date of notice of the election meeting in the case of a
special meeting.
Shareholder Proposals
Under Macatawa's Bylaws, a shareholder who wishes to present a proposal for
action at a shareholders' meeting must follow certain procedures. In order to
present the proposal, the shareholder must give timely notice of the matter in
writing to Macatawa. For annual meetings, to be timely the notice must be
delivered to or mailed to and received by Macatawa not less than 60 no more than
90 days prior to the first anniversary of the preceding year's annual meeting.
However, if the date of the upcoming annual meeting changes by more than 20 days
from such anniversary date, then the notice must be received within ten days
after the date Macatawa mails or otherwise gives notice of the date of such
meeting. For special meetings of shareholders, the shareholder's notice must be
received not more than ten days after the date on which notice of the meeting
was first mailed to shareholders by Macatawa.
The notice by the Macatawa shareholder must include the following
information: (1) the shareholder's name and record address; (2) a representation
that the shareholder (a) is a holder of record of Macatawa stock entitled to
vote at such meeting, (b) will continue to hold such stock until the date of
such meeting, and (c) intends to appear in person or by proxy at the meeting to
submit the proposal to shareholder vote; (3) a brief description of the matter
to be acted on; and (4) any financial or other interest that the shareholder has
in the proposal.
Furthermore, if the shareholder wants Macatawa to include the proposal in
Macatawa's proxy materials, the proposal must comply with applicable Securities
and Exchange Commission rules, including Rule 14a-8 under the Securities
Exchange Act of 1934.
Neither Grand's Articles of Incorporation, as amended, nor its Bylaws
contain provisions specifically dealing with shareholder proposals.
State Anti-Takeover Laws
Fair Price Act. Certain provisions of the Michigan Business Corporation Act
establish a statutory scheme similar to the supermajority and fair price
provisions found in many corporate charters (referred to as the "Fair Price
Act"). The Fair Price Act applies to both Macatawa and Grand. The Fair Price Act
provides that a supermajority vote of 90% 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 include
nearly any merger, consolidation, share exchange, sale of assets, stock
issuance, liquidation, or reclassification of securities involving an
"interested shareholder" or certain "affiliates" of an interested shareholder.
An "interested shareholder" is generally any person who owns 10% 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: (1) the purchase price to be paid for the shares of common stock
in the business combination must be at least equal to the highest of either (a)
the market value of the shares on the date that the business combination was
announced or on the date that the interested shareholder first became an
interested shareholder, whichever is higher, or (b) the highest per share price
paid by an interested shareholder within the two-year period preceding the
announcement of the business combination or in the transaction in which the
shareholder first became an interested shareholder, whichever is higher; (2)
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 that resulted in the interested shareholder becoming an
interested shareholder or by virtue of proportionate stock splits or stock
dividends; and (3) at least five years have passed between the date the
interested shareholder first became an interested shareholder and the date the
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business combination is completed. 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 before the time that the interested shareholder first became an
interested shareholder.
Control Share Act. Certain portions of the Michigan Business Corporation
Act also regulate the acquisition of "control shares" of widely held Michigan
corporations (referred to as the "Control Share Act"). The Control Share Act
applies to Macatawa and Grand and their 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 in the election of directors of the corporation at or
above any of the following thresholds: 20%, 33%, and 50%. Under the Control
Share Act, an acquiror may not vote "control shares" that were acquired in a
control share acquisition 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 before the
control share acquisition. The Control Share Act entitles corporations to redeem
control shares from the acquiring person under certain circumstances. In other
cases, the Control Share Act confers dissenters' rights upon all of a
corporation's shareholders except the acquiring person.
Evaluation of Proposed Offers
Each of Macatawa's Restated Articles of Incorporation and Grand's Articles
of Incorporation, as amended, provide that the Board of Directors cannot
initiate, approve, adopt, or recommend any proposal of any party other than the
corporation to make a tender or exchange offer for any equity security of the
corporation, or engage in any merger or consolidation with or into another
entity, any sale, exchange, lease, mortgage, pledge, transfer, or other
disposition of all or substantially all assets, any liquidation or dissolution,
or any reorganization or recapitalization that would result in a change of
control, unless it has first evaluated the proposal and determined, in its
judgment, that the proposal would be in compliance with all applicable laws. If
either Macatawa's or Grand's Board of Directors makes that determination, such
Board of Directors must then evaluate the proposal and determine whether the
proposal is in the best interests of the corporation and its shareholders. In
evaluating a proposed offer to determine whether it would be in the best
interests of the corporation and its shareholders, each respective Board of
Directors must consider all factors that it considers relevant including,
without limitation: (1) the fairness of the consideration to be received by the
corporation's shareholders under the proposed offer; (2) the possible economic
and social impact of the proposed offer and its completion on the corporation
and its employees, customers, and suppliers; (3) the possible economic and
social impact of the proposed offer and its completion on the communities in
which the corporation and its subsidiaries operate or are located; (4) the
business and financial condition and earning prospects of the offering party;
(5) the competence, experience, and integrity of the offering party and its
management; and (6) the intentions of the offering party regarding the use of
the assets of the corporation to finance the transaction.
Shareholder Approval of Certain Proposed Offers
Grand's Articles of Incorporation, as amended, provide that the affirmative
vote of the holders of not less than 2/3 of the outstanding shares of capital
stock shall be required for the approval of: (1) any merger or consolidation of
Grand with or into another person or entity; (2) the sale, exchange, lease,
mortgage, pledge, transfer or other disposition (in a single transaction or a
series of related transaction) of all or substantially all of the assets of
Grand; (3) adoption of any plan or proposal for the liquidation or dissolution
of Grand; or (4) any transaction, series of related transactions, agreement,
contract or other arrangement having directly or indirectly, the same effect as
or providing for any of the foregoing. The super-majority vote described above
shall not apply to any transaction which shall have been approved by a majority
of the Board of Directors of Grand and one or more directors for each class of
directors.
Macatawa's Restated Articles of Incorporation do not contain any similar
provisions.
Amendments to Articles of Incorporation and Bylaws
Under the Michigan Business Corporation Act, a corporation's articles of
incorporation may be amended by the affirmative vote of the majority of the
outstanding shares entitled to vote. In addition, an amendment to a
corporation's articles of incorporation may require the approval of the majority
of the outstanding shares of a class or series of stock if the amendment would
(1) increase or decrease the authorized number of shares of that class or series
or (2) alter or change the powers, preferences or special rights of that class
or series so as to affect them directly. However, a corporation's articles of
38
incorporation may specify that an amendment to one or more provisions of the
articles must be approved by higher percentages.
Macatawa's Restated Articles of Incorporation provide that no amendment may
be made to Article VIII (which deals with the Board of Directors), Article IX
(which deals with submitting proposals for shareholder vote) Article X (which
deals with shareholder actions) or Article XI (which deals with amendments to
Macatawa's Restated Articles of Incorporation) unless the amendment is approved
by at least 80% of the outstanding shares entitled to voting as a single class.
However, this "supermajority" vote requirement does not apply to amendments that
have first been approved by at least 80% of Macatawa's Board of Directors then
holding office and by a majority of the continuing directors.
Grand's Articles of Incorporation, as amended, provide that no amendment
may be made to Article VII (which deals with the Board of Directors), Article
VIII (which deals with limitations on directors' personal liability), Article IX
(which deals with indemnification), Article X (which deals with certain business
combinations), Article XI (which deals with the evaluation of exchange offers
and business combinations) or Article XII (which deals with amendments to
Grand's Articles of Incorporation) or Grand's Bylaws, unless the amendment is
approved by at least 80% of the outstanding shares entitled to vote. However,
this "supermajority" vote requirement does not apply to amendments that have
first been approved by at least two-thirds (2/3) Grand's Board of Directors,
including at least one member of each of the three classes of the Board of
Directors.
Under the Michigan Business Corporation Act, a corporation's bylaws may be
amended by either the board of directors or the shareholders, unless the
corporation's articles of incorporation or bylaws provide that only the
shareholders may amend the bylaws or any particular bylaw. Both Macatawa's
Bylaws and Grand's Bylaws provide that they may be amended either by the
shareholders or the Board of Directors, provided that Grand's Articles of
Incorporation, as amended, mandates a "supermajority" vote for the shareholders
to amend the Bylaws of Grand.
Indemnification Provisions
Under the Michigan Business Corporation Act, a corporation is permitted to,
and in some circumstances must, indemnify its officers, directors, employees and
agents, as well as persons who were serving in similar positions with another
entity at the corporation's request, in a variety of situations.
The indemnification provisions in both Macatawa's and Grand's charter
documents are somewhat more limited. Generally, Macatawa's Restated Articles of
Incorporation and Grand's Articles of Incorporation, as amended, provide that
directors of the corporation will be indemnified to the fullest extent permitted
by the Michigan Business Corporation Act. In addition, Macatawa's Restated
Articles of Incorporation, provide that its executive officers will be
indemnified to the fullest extent permitted by the Michigan Business Corporation
Act. Persons who are not directors of Grand, or directors or executive officers
in the case of Macatawa, may be similarly indemnified, but only if the
indemnification is approved by the Board of Directors or required by the
Michigan Business Corporation Act.
Shareholder Action by Written Consent
Under the Michigan Business Corporation Act, the shareholders of a
corporation may take an action either at a meeting or without a meeting if all
of the shareholders sign a written consent authorizing the action. However,
unanimous approval by written consent is not required if the corporation's
articles of incorporation allow the shareholders holding a majority of the
voting power (or such higher level as may be required) to take action by written
consent. In that case, certain other conditions must be met, such as providing
notice of the action to all shareholders who did not sign the consent.
Neither Macatawa's Restated Articles of Incorporation nor Grand's Articles
of Incorporation, as amended, allow shareholders to take action without a
meeting.
Public Markets for Macatawa's and Grand's Shares
Macatawa's common stock is listed on The Nasdaq Stock Market. There is no
established public trading market for Grand's common stock.
Restrictions on Grand Affiliates
All shares of Macatawa common stock received by Grand shareholders in the
Merger will be freely transferable, except that shares of Macatawa common stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act of 1933) of Grand before the Merger may only be resold
in transactions permitted by the
39
resale provisions of Rule 145 under the Securities Act or as otherwise permitted
under the Securities Act. Persons who may be deemed to be affiliates of Grand
generally include individuals or entities that control, are controlled by, or
are under common control with, Grand and may include certain officers,
directors, and principal shareholders of Grand.
This prospectus and joint proxy statement covers Macatawa common stock to
be issued in connection with the Merger. It does not cover any resales of
Macatawa common stock to be received by affiliates upon completion of the
Merger, and no person is authorized to make any use of this prospectus and joint
proxy statement in connection with any such resale.
Pursuant to the Merger Agreement, each person identified by Grand as an
affiliate has executed a written agreement to the effect that such persons will
not offer or sell or otherwise dispose of any of the shares of Macatawa common
stock issued to such persons in the Merger in violation of the Securities Act.
Macatawa may place a legend reflecting the transfer restrictions on the
certificates representing the shares of Macatawa common stock.
Each affiliate has also agreed not to invite, initiate, solicit, or
encourage or negotiate any proposals from any other party concerning a tender
offer, exchange offer, merger, consolidation, sale of shares, sale of assets or
assumption of liabilities not in the ordinary course, or other business
combination involving Grand or Grand's subsidiaries Grand's affiliates have
agreed not to purchase or sell or otherwise dispose of any shares of Grand
common stock or any shares of Macatawa common stock without Grand's consent
until the Effective Time of the Merger.
Material Federal Income Tax Consequences
The following general discussion summarizes the material federal income tax
consequences of the Merger and is based on the Internal Revenue Code, the
regulations issued under the Internal Revenue Code, existing administrative
interpretations, and court decisions. Future legislation, regulations,
administrative interpretations, or court decisions could significantly change
such authorities either prospectively or retroactively. This summary does not
address all aspects of federal income taxation that may be important to you in
light of your particular circumstances or if you are subject to special rules,
such as rules regarding shareholders who are not citizens or residents of the
United States, or who are institutions, or tax-exempt organizations. This
discussion also assumes that Grand shareholders hold their shares of Grand
capital stock as capital assets within the meaning of Section 1221 of the
Internal Revenue Code.
It is a condition to the obligations of Grand and Macatawa to complete the
Merger that they receive from Varnum, Riddering, Schmidt & Howlett LLP an
opinion regarding material federal income tax consequences of the Merger.
Macatawa and Grand believe, based on this opinion, that the Merger will have the
following federal income tax consequences:
o Grand shareholders will not recognize any gain or loss for federal income
tax purposes if they exchange their Grand common stock for Macatawa common
stock pursuant to the Merger, except to the extent that cash is received in
lieu of fractional shares;
o Grand shareholders' tax basis in the Macatawa common stock received as a
result of the Merger will be the same as their tax basis in their Grand
common stock surrendered in the exchange; and
o the holding period of the Macatawa common stock held by a Grand shareholder
as a result of the exchange will include the period during which he or she
held the Grand common stock.
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In addition: (1) the Merger will constitute a "reorganization" within the
meaning of Section 368(a)(1) of the Internal Revenue Code and Macatawa and Grand
will each be a "party to a reorganization" within the meaning of Section 368(b);
(2) the basis of the Grand's assets in the hands of Macatawa will be the same as
the basis of those assets in the hands of Grand immediately before the
reorganization; (3) no gain or loss will be recognized by Macatawa on the
receipt by Macatawa of the assets of Grand in exchange for Macatawa common stock
and the assumption by Macatawa of the liabilities of Grand; and (4) the holding
period of the assets of Grand in the hands of Macatawa will include the holding
period during which such assets were held by Grand.
The tax opinion assumes the absence of changes in existing facts and relies
on assumptions, representations, and covenants, including those contained in
certificates of officers of Macatawa and Grand. The tax opinion neither binds
nor precludes the Internal Revenue Service from adopting a contrary position. An
opinion of counsel sets forth such counsel's legal judgment and has no binding
effect or official status of any kind and no assurance can be given that
contrary positions will not be successfully asserted by the Internal Revenue
Service or adopted by a court if the issues are litigated. Accordingly, you are
strongly urged to consult with your tax advisor to determine the particular
United States federal, state, local, or foreign income or other tax consequences
of the Merger to you.
No Dissenters' Rights
Macatawa Shareholders. You are not entitled to exercise dissenters' rights
as a result of approval of the Merger or the issuance of shares, and you are not
entitled to demand payment for your shares under the Michigan Business
Corporation Act.
Grand Shareholders. You are not entitled to exercise dissenters' rights as
a result of approval of the Merger, and you are not entitled to demand payment
for your shares under the Michigan Business Corporation Act.
41
Unaudited Pro Forma Condensed Combined Financial Statements
The following unaudited pro forma condensed combined balance sheet as of
and for the nine-month period ended September 30, 2001, and the unaudited pro
forma condensed combined statements of income for the nine-month period ended
September 30, 2001 as well as for the year ended December 31, 2000, give effect
to the Merger. This pro forma financial information is based on the historical
consolidated financial statements of Macatawa and Grand and their subsidiaries
under the assumptions and adjustments set forth in the accompanying notes to the
unaudited pro forma condensed combined financial statements. The unaudited pro
forma condensed combined balance sheets assume the Merger was consummated on
September 30, 2001. The unaudited pro forma condensed combined statements of
income give effect to the Merger as if the Merger occurred at the beginning of
each period covered by such statements of income. Pro forma per share amounts
are based on the Exchange Ratio of 17.5979 shares of Macatawa common stock for
each share of Grand common stock.
The unaudited pro forma condensed combined financial statements do not
reflect restructuring and other Merger related expenses expected to be incurred
by Macatawa and Grand, or the anticipated cost savings. As a result, the pro
forma combined financial condition and results of operations of Macatawa as of
and after the Effective Time of the Merger may not be indicative of the results
that actually would have occurred if the Merger had been in effect during the
periods presented or of the results that may be attained in the future.
This pro forma financial information should be read in conjunction with the
historical consolidated financial statements of Macatawa and Grand, including
the respective notes to those financial statements, that are included or
incorporated by reference in this prospectus and joint proxy statement, and in
conjunction with the pro forma financial data, appearing elsewhere in this
prospectus and joint proxy statement. See "Where You Can Find More Information."
42
Unaudited Pro Forma Condensed Combined Balance Sheet
September 30, 2001
(Dollars in Thousands)
Macatawa Grand Pro Forma Pro Forma
Historical Historical Adjustments Combined
----------------- ------------------ -------------- ---------------
Assets
Cash and due from banks $30,996 $9,775 $ - $40,771
Federal funds sold 7,500 2,300 - 9,800
Short-term investments 8,000 5,000 - 13,000
--------------- ---------------- ------------ ------------
46,496 17,075 - 63,571
Securities available for sale 64,921 6,083 - 71,004
Securities held to maturity - 5,721 - 5,721
Federal Home Loan Bank stock 3,129 794 - 3,923
Loans held for sale - 2,590 - 2,590
Loans 506,669 217,909 - 724,578
Allowance for loan losses (7,177) (2,913) - (10,090)
Premises and equipment - net 14,232 757 - 14,989
Accrued interest receivable 3,567 886 - 4,453
Goodwill - - 22,180 22,180
Core deposit intangibles - - 3,660 3,660
Other assets 1,962 3,002 - 4,964
--------------- ---------------- ------------ ------------
Total Assets $633,799 $251,904 $25,840 $911,543
=============== ================ ============ ============
Liabilities and shareholders' equity
Deposits
Noninterest-bearing $58,951 $ 21,022 $ - $ 79,973
Interest-bearing 443,538 191,663 - 635,201
--------------- ---------------- ------------ ------------
502,489 212,685 - 715,174
Federal Home Loan Bank advances 62,588 15,293 - 77,881
Note payable - 4,000 - 4,000
Accrued expenses and other liabilities 2,894 3,356 1,614 7,864
--------------- ---------------- ------------ ------------
Total liabilities 567,971 235,334 1,614 804,919
Shareholders' equity
Common stock 62,334 5,773 35,023 103,130
Retained earnings 2,133 10,740 (10,740) 2,133
Accumulated other comprehensive income 1,361 57 (57) 1,361
--------------- ---------------- ------------ ------------
Total shareholders' equity 65,828 16,570 24,226 106,624
--------------- ---------------- ------------ ------------
Total liabilities and shareholders' equity $633,799 $251,904 $25,840 $911,543
=============== ================ ============ ============
See notes to unaudited pro forma condensed combined financial statements.
43
Unaudited Pro Forma Condensed Combined Statements of Income
Nine Months Ended September 30, 2001
(Dollars in Thousands, Except Per Share Amounts)
Macatawa Grand Pro Forma Pro Forma
Historical Historical Adjustments Combined
----------------- ------------------ ------------------- -----------------
Interest income
Loans, including fees $29,215 $11,824 $ - $41,039
Securities 2,813 1,094 - 3,907
--------------- ---------------- ---------------- --------------
Total interest income 32,028 12,918 - 44,946
Interest expense
Deposits 13,396 6,110 - 19,506
Other 2,930 656 - 3,586
--------------- ---------------- ---------------- --------------
Total interest expense 16,326 6,766 - 23,092
--------------- ---------------- ---------------- --------------
Net interest income 15,702 6,152 21,854
Provision for loan losses 1,589 528 - 2,117
--------------- ---------------- ---------------- --------------
Net interest income after provision for
loan losses 14,113 5,624 - 19,737
Noninterest income
Service charges on deposit accounts 1,149 226 - 1,375
Gain on sale of loans 709 - - 709
Mortgage origination fees - 787 - 787
Trust fees 507 1,165 - 1,672
Other 224 183 - 407
--------------- ---------------- ---------------- --------------
Total noninterest income 2,689 2,361 - 4,950
Noninterest expense
Salaries and benefits 6,138 3,270 - 9,408
Occupancy 1,995 379 - 2,374
Legal and professional fees 236 461 - 697
Advertising 344 100 - 444
Data processing 309 117 - 426
Other expense 2,256 772 329 3,357
--------------- ---------------- ---------------- --------------
Total noninterest expenses 11,278 5,099 329 16,706
--------------- ---------------- ---------------- --------------
Income before federal income tax 5,424 2,886 (329) 7,981
Federal income tax 1,780 1,015 (112) 2,683
--------------- ---------------- ---------------- --------------
Net income $ 3,644 $ 1,871 $ (217) $5,298
=============== ================ ================ ==============
Basic income per share $ .84 $ 13.86 $ 0.79
=============== ================ ==============
Diluted income per share $ .84 $ 13.57 $ 0.78
=============== ================ ==============
See notes to unaudited pro forma condensed combined financial statements.
44
Unaudited Pro Forma Condensed Combined Statements of Income
Year Ended December 31, 2000
(Dollars in Thousands, Except Per Share Amounts)
Macatawa Grand Pro Forma Pro Forma
Historical Historical Adjustments Combined
----------------- ------------------ ------------------- -----------------
Interest income
Loans, including fees $31,787 $15,242 $ - $47,029
Securities 2,551 1,751 - 4,302
----------------- ------------------ ------------------- -----------------
Total interest income 34,338 16,993 51,331
Interest expense
Deposits 15,213 8,375 - 23,588
Other 2,526 782 - 3,308
----------------- ------------------ ------------------- -----------------
Total interest expense 17,739 9,157 - 26,896
----------------- ------------------ ------------------- -----------------
Net interest income 16,599 7,836 - 24,435
Provision for loan losses 1,931 490 - 2,421
----------------- ------------------ ------------------- -----------------
Net interest income after provision for
loan losses 14,668 7,346 - 22,014
Noninterest income
Service charges on deposit accounts 1,144 255 - 1,399
Gain on sales of loans 361 - - 361
Mortgage origination fees - 515 - 515
Trust fees 531 1,589 - 2,120
Other 16 123 - 139
----------------- ------------------ ------------------- -----------------
Total noninterest income 2,052 2,482 - 4,534
Noninterest Expense
Salaries and benefits 6,865 3,811 - 10,676
Occupancy 2,338 498 - 2,836
Legal and professional fees 248 677 - 925
Advertising 366 128 - 494
Data processing fees 561 169 - 730
Other expense 2,294 1,077 439 3,810
----------------- ------------------ ------------------- -----------------
Total noninterest expenses 12,672 6,360 439 19,471
----------------- ------------------ ------------------- -----------------
Income before federal income tax 4,048 3,468 (439) 7,077
Federal income tax 699 1,217 (149) 1,767
----------------- ------------------ ------------------- -----------------
Net income $3,349 $ 2,251 $ (290) $ 5,310
================= ================== =================== =================
Basic earnings (loss) per share $ .91 $ 16.68 $ 0.87
================= ================== =================
Diluted earnings (loss) per share $ .90 $ 16.35 $ 0.87
================= ================== =================
See notes to unaudited pro forma condensed combined financial statements.
45
Notes to Unaudited Pro Forma Condensed Combined Balance
Sheets and Statements of Income
- --------------------------------------------------------------------------------
NOTE 1
A comparison of the purchase price to the historical net assets acquired is
summarized below:
Shares of Grand as of September 30, 2001 134,959
Exchange ratio of Macatawa shares for Grand shares 17.5979
-----------
Shares to be issued 2,374,995
===========
Shares issued at market value of $16.75 per share $39,781,000
Fair market value of Macatawa stock options issued to replace Grand stock options 1,015,000
Historical net assets acquired (16,570,000)
-----------
Excess of purchase price over historical net assets acquired $24,226,000
===========
Each share of Grand common stock that is issued and outstanding immediately
prior to the Effective Time of the Merger will be canceled and converted, by
virtue of the Merger and without any further action, into the right to receive
17.5979 shares of Macatawa common stock, except that rather than issue
fractional shares, Macatawa will pay cash or cash equivalent for such fractional
shares. The value of the converted options is dependent upon the price per share
of Macatawa common stock, the weighted average converted exercise price of the
options, interest rates and the amount of variability in the price per share of
Macatawa common stock.
NOTE 2
Since the final determination of adjustments to assets and liabilities will be
made based on the fair values as of the Effective Time of the Merger and after
evaluations of the values are complete, the final amounts may differ from the
estimates provided herein.
NOTE 3
The calculation of good will is as follows:
Shares to be issued 2,374,995
Market price $ 16.75
---------------
39,781,000
Value of converted Grand stock options 1,015,000
---------------
Proceeds 40,796,000
Add:
Settlement of Grand phantom stock plan (net of tax) 370,000
Less:
Core deposit intangible, net of tax (2,416,000)
Book value of Grand (16,570,000)
---------------
Goodwill $22,180,000
=================
A pro forma adjustment for $370,000 has been recorded to goodwill to reflect the
increased value of benefits under the Grand phantom stock plan as a result of
the increased value of Grand's common shares due to the Merger. A corresponding
liability has also been recorded.
NOTE 4
The pro forma adjustment for core deposit intangibles is $3,660,000. This
estimate was determined based on the estimated lives of Grand's core deposits
and the underlying interest rates and prevailing market rates. A related
deferred tax liability
46
has been established in the amount of $1,244,000. The amortization period
assumed for the core deposit intangibles is ten years with $439,000 in year one
(tax effect of $112,000).
NOTE 5
The pro forma adjustments impacting shareholders' equity are as follows:
Elimination of Grand equity $(16,570,000)
Issuance of 2,374,995 Macatawa common shares at a market value of $16.75 39,781,000
Fair market value of Macatawa stock options issued to replace Grand stock options 1,015,000
-----------------
$24,226,000
=================
NOTE 6
A reconciliation of the numerators and denominators of pro forma basic and
diluted earnings per share for the nine months ended September 30, 2001 and the
year ended December 31, 2000 are as follows:
2001 2000
---- ----
Pro forma basic earnings per share
Pro forma net income $5,298,000 $5,310,000
--------------- -----------------
Pro forma weighted average common shares outstanding 6,702,703 6,071,342
--------------- -----------------
Pro forma basic earnings per share $ .79 $ .87
=============== =================
Pro forma diluted earnings per share
Pro forma net income $5,298,000 $5,310,000
--------------- -----------------
Pro forma weighted average common shares outstanding 6,702,703 6,071,342
Add: Dilutive effects of assumed exercises of stock options 61,084 54,344
--------------- -----------------
Pro forma weighted average common and dilutive potential
common shares outstanding 6,763,787 6,125,686
--------------- -----------------
Pro forma diluted earnings per share $ .78 $ .87
=============== =================
NOTE 7
Income tax expense on pro forma adjustments is reflected using a 34% tax rate.
NOTE 8
Share and per share amounts for the year ended December 31, 2000 have been
adjusted to reflect Macatawa's 3% stock dividend paid on May 4, 2001.
47
Grand Bank Financial Corporation
Description of Business
Grand Bank Financial Corporation ("Grand") is a bank holding company
headquartered in Grand Rapids, Michigan and owns Grand Bank. Grand Bank operates
its banking business in Grand Rapids, Michigan and the surrounding area. Grand
offers commercial and personal banking services, including checking and savings
accounts, certificates of deposit, safe deposit boxes, travelers' checks, money
orders, trust services and commercial, mortgage and consumer loans. As of
September 30, 2001, Grand had, on a consolidated basis, total assets of $251.9
million, total deposits of $212.7 million, total portfolio loans of $217.9
million and shareholders' equity of $16.6 million.
Grand Common Stock
As of December ___, 2001, Grand had 134,959 shares of its common stock
outstanding, held by approximately 122 shareholders of record. There is no
established public trading market for Grand common stock. It is Grand's
established practice to pay regular quarterly cash dividends. The following
table shows the cash dividends declared per share in each quarter of 1999, 2000
and 2001 to date.
Quarter Ended 1999 2000 2001
---------------------- --------------------- ---------------------
March 31 $.44 $.50 $.50
June 30 .48 .50 .50
September 30 .48 .50 .50
December 31 .48 .50 .50
48
Selected Financial Data
GRAND BANK FINANCIAL CORPORATION
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
As of and for the years ended December 31, 1996 through 2000 (In thousands,
except for per share information)
(unaudited)
Income Statement Information 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Net interest income $ 7,836 $ 6,470 $ 6,022 $ 4,664 $ 3,947
Provision for loan losses 490 304 543 204 135
Other income 2,482 2,457 2,327 1,062 889
Other expenses 6,360 5,865 5,431 3,773 3,159
Net income 2,251 1,777 1,564 1,145 1,008
Dividends declared 270 254 231 203 172
- --------------------------------------------------------------------------------------------------------------------
Per share information 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Net income - basic $ 16.68 $ 13.16 $ 11.94 $ 9.03 $ 7.97
Net income - diluted 16.35 12.95 11.86 8.83 7.84
Dividends declared 2.00 1.88 1.76 1.60 1.36
Book value 110.14 94.30 83.88 75.20 68.16
- --------------------------------------------------------------------------------------------------------------------
Balance Sheet Information 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Investment securities $ 14,433 $ 11,834 $ 14,938 $ 17,232 $ 18,408
Gross portfolio loans 180,850 149,503 123,347 94,560 81,341
Deposits 193,587 152,066 124,419 117,744 100,317
Stockholders' equity 14,865 12,727 11,313 9,785 8,625
Total assets 223,930 178,665 149,022 131,752 112,932
- --------------------------------------------------------------------------------------------------------------------
Ratios 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Return on average assets 1.12% 1.06% 1.11% 1.00% 1.00%
Return on average equity 15.50 14.76 14.93 12.50 12.40
Allowance for loan losses as a
percentage of total portfolio loans 1.30 1.31 1.34 1.17 1.14
Net interest income as a percentage of
average earning assets 4.02 4.01 4.44 4.21 4.18
Dividends declared as a percentage of
earnings 11.99 14.28 14.79 17.72 17.07
Stockholders' equity as a percentage of
total assets 6.64 7.12 7.59 7.43 7.64
- --------------------------------------------------------------------------------------------------------------------
49
Grand's Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Periods Ended September 30, 2001 and 2000.
The following discussion and analysis is intended to cover the significant
factors affecting Grand's balance sheets and income statements. It provides
shareholders with a more comprehensive review of the operating results and
financial position than could be obtained from an examination of the unaudited
financial statements alone.
Results of Operations. For the nine months ended September 30, 2001, net
income was $1,871,000 as compared to $1,633,000 for the same period in 2000, an
increase of $238,000, or 14.6%. Diluted earnings per share for the nine months
ended September 30, 2001 was $13.57 compared to $12.09 for the comparable
nine-month period in 2000.
An analysis of the components affecting net income for the nine months
ended September 30, 2001 and 2000 is facilitated by segregating amounts into
categories of interest income, interest expense, provision for loan losses,
other income, other expenses and federal income tax expense. To improve the
comparability of the interest income component, interest income, shown in the
following table, is expressed on a fully taxable equivalent (FTE) basis. For
this purpose, tax-exempt interest earned has been adjusted as if it had been
subject to federal income taxes at a rate of 34%.
Nine months ended
September 30,
2001 2000
---- ----
(dollars in thousands)
Interest income $ 12,918 $ 12,316
Plus taxable equivalent adjustment 43 38
Interest income (FTE basis) 12,961 12,354
Less interest expense 6,766 6,539
Net interest income (FTE basis) $ 6,195 $ 5,815
As shown above, net interest income, on a FTE basis, increased by $380,000,
or 6.5%, for the nine months ended September 30, 2001 over the same period in
2000. The $380,000 increase resulted from an increase in net interest income of
$1,535,000 attributable to increased earning assets and interest-bearing
liabilities being partially offset by the $1,155,000 effect of decreased
interest rates during 2001. Both interest income and interest expense grew at a
slower pace during the nine months ended September 30, 2001 when compared to
recent years due to the decrease in interest rates during 2001. The prime
lending rate averaged 7.52% and 9.15% for the nine months ended September 30,
2001 and 2000, respectively, a decrease of 163 basis points. Interest rate
decreases had a more profound affect during the three months ended September 30,
2001, when interest income, on a FTE basis, decreased by $127,000 and interest
expense decreased by $208,000. During these three-month periods in 2001 and
2000, the prime lending rate averaged 6.17% and 9.50%, respectively, a decrease
of 333 basis points. Net interest income, on a FTE basis, increased by $81,000
during the 2001 three-month period compared to the comparable period in 2000.
Grand's net interest margin (net interest income divided by total earning
assets), on a FTE basis, was 3.67% and 4.08% for the 2001 and 2000 nine-month
periods, while net interest spread (average yield earned minus average rate
paid), on a FTE basis, was 3.05% and 3.35% for the 2001 and 2000 nine-month
periods. The reduced net interest margin and spread were due to the fact that
the average rate earned on interest-earning assets decreased more (98 basis
points) than the decrease in the average rate paid on interest-bearing
liabilities (68 basis points). This was primarily due to the higher balance and
cost of brokered time deposits and market competition for deposits during the
nine months ended September 30, 2001, as discussed in the "Financial Condition"
section below. The average rate paid on total time deposits decreased by only 21
basis points in 2001, while the average rate paid on other interest-bearing
liabilities (excluding time deposits) decreased by 91 basis points.
The provision for loan losses amounted to $528,000 and $401,000 for the
nine months ended September 30, 2001 and 2000, respectively. Net charge-offs
(recoveries) were not significant, amounting to ($32,000) and $58,000 for the
nine months ended September 30, 2001 and 2000, respectively. For the three-month
periods ended September 30, 2001 and 2000, the provision for loan losses
amounted to $250,000 and $164,000, respectively. For both three-month and
nine-month periods in 2001 and 2000, Grand provided, through a charge to
expense, an amount considered necessary to maintain the allowance for loan
losses at a level considered adequate to absorb estimated losses in the loan
portfolio at the
50
balance sheet date. The provision resulted largely from Grand's loan growth and
concern for general economic conditions and the potential affect on borrowers.
Other income amounted to $2,361,000 and $1,821,000 during the nine months
ended September 30, 2001 and 2000, respectively. The $540,000, or 29.7%,
increase was primarily attributable to a $411,000 increase in mortgage loan
origination fees. The increased fees were due to higher volumes of residential
mortgage financing activity as a result of the lower interest rate market during
2001 as compared to 2000. During the three months ended September 30, 2001,
other income increased by $160,000 from $612,000 in the comparable period in
2000 to $772,000 in 2001. The increase was primarily due to a $135,000 increase
in mortgage loan origination fees resulting from the 2001 interest rate
environment.
Other expenses amounted to $5,097,000 and $4,696,000, respectively, during
the nine months ended September 30, 2001 and 2000, and $1,664,000 and
$1,569,000, respectively, during the three-month periods then ended. These
totals, the largest component being salaries, commissions and benefits, are
reflective of the overall increase in Grand's operations during the recent
nine-month and three-month periods, as well as increases in incentive based
compensation.
The effective federal income tax rates for the nine-month and three-month
periods ending September 30, 2001 and 2000 were comparable to the 34% statutory
federal income tax rate.
Financial Condition. Total assets were $251.9 million at September 30,
2001, compared to $223.9 million at December 31, 2000. Changes in the major
asset and liability categories during the nine months were driven primarily by
loan demand as Grand continues to attract new customers despite the strong
competition from other local community banks and larger regional banks.
Portfolio loans increased by $37.1 million, or 20.5%, during the 2001 nine-month
period. Funding for these loans came from several sources including increased
time deposits and other borrowings as well as reductions in cash and cash
equivalents and investment securities. The ratio of portfolio loans to total
deposits increased to 102.5% at September 30, 2001, from 93.4% at December 31,
2000.
The primary source of new funds was increased time deposits of $21.5
million. During the 2001 nine-month period, Grand became more reliant on time
deposits of $100,000 or more, particularly brokered time deposits, as a source
of funds. Time deposits of $100,000 or more at September 30, 2001 amounted to
$62.2 million (including $38.2 million of brokered time deposits), or 29.2% of
total deposits, compared to $41.3 million (including $10.0 million of brokered
time deposits), or 21.3% of total deposits, at December 31, 2000. As an
additional source of funds, FHLB advances increased by $5.3 million, notes
payable increased by $1.5 million, cash and cash equivalents decreased by $9.8
million and investment securities decreased by $1.8 million. A portion of these
funds was used to fund the increase in loans held for sale, which increased from
$148,000 at December 31, 2000, to $2.6 million at September 30, 2001. The
increase in loans held for sale is attributable to the increased residential
mortgage financing activity as previously discussed.
The allowance for loan losses at September 30, 2001 amounted to $2,914,000,
or 1.34% of total portfolio loans, comparable to the December 31, 2000 ratio of
1.30%.
Premises and equipment increased by $229,000 to $757,000 at September 30,
2001, from $528,000 at December 31, 2000, due to capital additions of $420,000,
partially offset by depreciation of $191,000. The primary capital additions
related to a new mainframe computer and leasehold improvements related to the
trust department expansion and the relocation of the operations department
within the current facilities.
Liquidity and Capital Resources. Cash and cash equivalents amounted to
$17.1 million at September 30, 2001, compared to $26.9 million at December 31,
2000, and securities available-for-sale decreased to $6.1 million from $7.4
million during the nine-month period. In addition to the decrease in liquidity
due to reduced liquid assets, Grand became more reliant on brokered deposits and
increased other borrowings, as discussed above, to fund the increase in
portfolio loans during this period. Management believes Grand's liquidity
position at September 30, 2001, along with other sources of liquidity, was
adequate to fund loan demand and depositor needs.
Shareholders' equity was $16.6 million, or 6.6% of total assets, at
September 30, 2001, and $14.9 million, or 6.6% of total assets, at December 31,
2000.
51
Grand's and Grand Bank's capital to assets ratios, as compared to the
regulatory minimums for capital adequacy purposes, are as follows as of
September 30, 2001:
Regulatory
Minimum Grand Grand Bank
Total capital (to risk-weighted assets) 8.0% 8.3% 10.1%
Tier 1 capital (to risk-weighted assets) 4.0% 7.1% 7.1%
Tier 1 capital (to average assets) 4.0% 6.8% 6.8%
At September 30, 2001, Grand Bank met the definition of a "well
capitalized" institution set forth by federal regulatory authorities.
52
Grand's Discussion and Analysis of Financial Condition and Results of Operations
as of December 31, 2000 and 1999 and for the Years Ended December 31, 2000, 1999
and 1998.
The following discussion and analysis is intended to cover the significant
factors affecting Grand's balance sheets and income statements. It provides
shareholders with a more comprehensive review of the operating results and
financial position than could be obtained from an examination of the financial
statements alone.
Results of Operations. Net income for 2000 was $2,251,000 compared to
$1,777,000 in 1999 and $1,564,000 in 1998. Diluted earnings per share for 2000
were $16.35 compared to $12.95 in 1999 and $11.86 in 1998. Net income for 2000
increased 26.7% over 1999 while 1999 net income reflected a 13.6% increase over
1998.
The strong increase in 2000 net income resulted primarily from a
$1,366,000, or 21.1%, increase in net interest income. Net interest income for
1999 increased by $448,000, or 7.4%, over 1998. As indicated below, the
provision for loan losses for 1999 decreased by $240,000 compared to 1998,
contributing to the higher percentage increase in 1999 net income over 1998 when
compared to the percentage increase in net interest income. See the "Analysis of
Net Interest Income" below for additional information regarding the changes in
net interest income over the three-year period.
The provision for loan losses amounted to $490,000, $304,000 and $543,000
for 2000, 1999 and 1998, respectively. As indicated later in this analysis, net
charge-offs (loans charged off less recoveries) were not significant during the
three-year period. Net charge-offs for 2000 were $92,000 compared to recoveries
(no charge-offs) of $3,000 in 1999 and net charge-offs of $4,000 in 1998. For
each of the three years, Grand provided, through a charge to expense, an amount
considered necessary to maintain the allowance for loan losses at a level
considered adequate to absorb estimated losses in the loan portfolio at the
balance sheet date. By maintaining a ratio of the allowance for loan losses to
total loans in the 1.30% range for each year, the provision resulted largely
from Grand's loan growth over the three-year period.
Other income, which is primarily derived from trust fees, service charges
on deposit accounts and mortgage origination fees, amounted to $2,482,000,
$2,457,000 and $2,327,000 for 2000, 1999 and 1998, respectively. While these
totals remained relatively constant during the three-year period, the components
varied. Trust fee income for 2000 increased by $197,000, or 14.2%, over 1999
while 1999 increased by $343,000, or 32.6%, over 1998. These increases reflect
increases in trust assets combined with a change in mix of account types (more
profitable accounts) over the three-year period. Service charge income increased
steadily over the three-year period, reflective of the increase in deposits. The
increases in trust fees and service charges during 2000 and 1999 were largely
offset by decreases in mortgage origination fees during these years. Mortgage
origination fees for 2000 decreased by $260,000, or 33.6%, compared to 1999
while 1999 fees decreased by $263,000, or 25.3%, compared to 1998. These
decreases reflect the 37% and 26% reduction in mortgages originated in 2000 and
1999, respectively, as a result of increased interest rates during the two year
period. At December 31, 2000, 1999 and 1998, the prime lending rate was 9.5%,
8.5% and 7.75%, respectively.
Other expenses, which include a variety of expense types, amounted to
$6,360,000, $5,865,000 and $5,431,000 for 2000, 1999 and 1998. These totals, the
largest component being salaries, commissions and benefits at approximately 60%
of the total for each year, are reflective of the overall increase in Grand's
operations over the three-year period.
The effective federal income tax rates were 35.1%, 35.6% and 34.1% for
2000, 1999 and 1998, comparable to the 34% statutory federal income tax rate.
Financial Condition. Total assets were $223.9 million at December 31, 2000
compared to $178.7 million at December 31, 1999, an increase of $45.3 million or
25.3%. Asset growth consisted primarily of growth in the loan portfolio as Grand
continues to attract new loan customers despite the strong competition from
other local community banks and larger regional banks. Portfolio loans increased
by $31.3 million, or 21.0%, in 2000 compared to 1999. The majority of this loan
growth came from commercial loans, which increased by $23.4 million, while real
estate loans increased by $9.7 million and consumer loans decreased by $1.8
million. The ratio of portfolio loans to total deposits decreased to 93.4% at
December 30, 2000, from 98.3% at December 31, 1999.
The allowance for loan losses at December 31, 2000 amounted to $2,353,000,
or 1.30% of total portfolio loans, comparable to the year-end 1999 ratio of
1.31%.
Reference is made to Tables 3-6 that follow this narrative for additional
information regarding Grand's loan portfolio, loan mix, nonperforming loans and
activity within the allowance for loan losses.
53
The increase in total assets was principally funded by strong deposit
growth. Of the $41.5 million, or 27.3%, growth in deposits, $8.8 million came
from non-interest bearing deposits, $26.5 million from savings and NOW accounts
and $6.2 million from time deposits. Beginning in November 1998, Grand
participated in a rate posting service. This has been a large source of new
funds for Grand over the past few years.
Liquidity and Capital Resources. In basic banking terms, liquidity relates
to the ability to convert assets into cash, to acquire deposits to meet
withdrawal needs of depositors or to provide funds for borrowers. In a more
complex business environment, it also represents the ability to fund expanding
operations, allow for contingencies and provide for investment opportunities.
Grand manages its liquidity to meet the cash flow needs of customers, such
as borrowing and deposit withdrawals, while at the same time striving to
maximize the yield on investments and loans. To meet these cash flow
requirements and also to be able to expand services in existing markets, there
must be sufficient sources of liquid funds and adequate capital.
The principal funding source for asset growth and loan origination
activities is deposits. Growth in deposits and loans was previously discussed in
this analysis. As stated previously, most of the deposit growth has been
deployed into commercial and real estate loans due to the demand experienced in
these areas.
Cash and cash equivalents amounted to $26.9 million at December 31, 2000,
compared to $15.2 million at December 31, 1999. As liquidity levels vary
continuously based on customer activities, amounts of cash and cash equivalents
can vary widely at any given point in time. Management believes Grand's
liquidity position at December 31, 2000 was adequate to fund loan demand and
meet depositor needs.
In addition to cash and cash equivalents, a source of long-term liquidity
is Grand's portfolio of marketable securities available for sale. Liquidity
requirements have not historically necessitated the sale of significant
investments in order to meet liquidity needs. Grand has not engaged in active
trading of its investments and has no intention of doing so in the foreseeable
future. At December 31, 2000 and 1999, Grand had $7.4 million and $5.6 million,
respectively, of investment securities classified as available for sale that can
be utilized to meet various liquidity needs as they arise. Grand has
historically utilized Federal Home Loan Bank advances as a further source of
funding, primarily for the origination of loans. Outstanding advances at
December 31, 2000 and 1999 amounted to $10.0 million and $10.3 million,
respectively. As an additional source of liquidity at December 31, 2000, Grand
had available borrowings of $2.5 million on its $5.0 million line of credit with
another bank. The primary purpose of the line of credit, however, is to provide
additional capital required to maintain Grand Bank at or above required
regulatory capital levels.
Capital provides a foundation for future growth and expansion.
Shareholders' equity was $14.9 million, or 6.6% of total assets, at December 31,
2000, and $12.7 million, or 7.1% of total assets, at December 31, 1999.
The adequacy of capital can be evaluated based on guidelines established by
bank regulatory agencies. The current method of analyzing capital adequacy
employs three principal ratio measurements: Tier 1 capital to average assets,
and two risk-based capital measures. The risk-based capital ratios are
calculated using risk-adjusted assets based on assigning standard risk weights
to on- and off-balance sheet items. The Tier 1 capital to average assets ratio
and Tier 1 risk-based capital ratio are based only on Grand's and Grand Bank's
shareholders' equity. The total risk-based capital ratio is based on Grand's and
Grand Bank's shareholders' equity plus the allowance for loan losses, as
adjusted according to regulatory requirements, and other qualifying Tier 2
capital (subordinated debentures for Grand Bank).
54
Grand's and Grand Bank's capital to assets ratios, as compared to the
regulatory minimums for capital adequacy purposes, are as follows:
December 31, 2000 December 31, 1999
----------------- -----------------
Regulatory Grand Grand
Minimum Grand Bank Grand Bank
Total capital (to risk-weighted assets) 8.0% 9.1% 10.4% 9.5% 10.4%
Tier 1 capital (to risk-weighted assets) 4.0% 7.8% 7.8% 8.2% 8.2%
Tier 1 capital (to average assets) 4.0% 6.8% 6.8% 7.3% 7.3%
At December 31, 2000 and 1999, Grand Bank met the definition of a "well
capitalized" institution set forth by federal regulatory authorities.
Analysis of Net Interest Income. Interest income is the total amount earned
on funds invested in loans, securities, federal funds sold and other money
market instruments. Interest expense is the amount of interest paid on
interest-bearing checking accounts, such as NOW accounts, savings, time deposits
and other borrowings. The amount of net interest income (or the difference
between interest income and interest expense) varies from year to year according
to the volume and mix of assets and liabilities and the level of interest rates.
The tax equivalent adjustment restates tax-exempt interest income (from
municipal bonds) on a basis as if it were taxable interest income. Net interest
income is referred to as being on a fully taxable equivalent (FTE) basis after
this adjustment is made. The net interest margin is net interest income (FTE
basis) as a percentage of average earning assets.
The single most important factor in analyzing the results of Grand's
operations is net interest income. Net interest income is influenced by changes
in (i) the volume of earning assets and interest-bearing liabilities; (ii) the
mix of earning assets and interest-bearing liabilities; (iii) the proportion of
earning assets that are funded by noninterest-bearing liabilities (demand
deposits) and equity capital; and (iv) market rates of interest. Some of these
factors are controlled to a certain extent by management's policies and actions.
However, conditions quite often beyond management's control have a significant
impact on changes in net interest income, as occurred throughout 2000, 1999 and
1998. The prime lending rate averaged 9.24%, 7.99% and 8.33% in 2000, 1999 and
1998, respectively. Other factors impacting net interest income include the
strength of credit demands by customers, increased competition from other
financial institutions, the growth of deposit accounts by non-bank financial
competitors and the continued growth in mutual fund investments. As shown in
Tables 1 and 2, net interest income, on a FTE basis, increased by $1,420,000 in
2000 over 1999 to $7,889,000 while 1999 net interest income increased over 1998
by $447,000 to $6,469,000. Table 1 presents average daily balances, interest
income on a FTE basis and interest expense, as well as average rates earned and
paid on Grand's assets and liabilities for 2000, 1999 and 1998.
Grand's net interest spread was 3.29% and 3.39% for 2000 and 1999,
respectively. While rates increased during 2000, as indicated above, Grand's
average rate on earning assets grew at a slower rate (76 basis points) than the
average rate on interest-bearing liabilities (86 basis points). During 1999, as
rates dropped compared to 1998, the interest rate spread decreased to 3.39% from
3.55%. Due to the mix of asset and liability types, and the timing of Grand's
rate changes relative to changes in the prime rate, the average rate on earning
assets dropped at a faster rate (31 basis points) when compared to the average
rate on interest-bearing liabilities (15 basis points). Grand's interest rate
margin held constant during 2000 and 1999 at 4.04% and 4.01%, respectively,
dropping from the 4.44% experienced during 1998. Management believes the
reduction in interest rate margin from the 1998 level is primarily due to
increased competition from other local community and regional banks.
55
TABLE 1
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(dollars in thousands)
Years Ended December 31
-----------------------------------------------------------------------------------------------------
2000 1999 1998
---------- ---------- ----------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
Interest-earning assets:
Federal funds sold $ 10,983 $ 707 6.44% $ 5,158 $ 261 5.06% $ 7,780 $ 404 5.19%
Money market fund 2,273 140 6.16% 1,608 80 4.98% 3,107 168 5.41%
Investment securities:
Taxable 13,334 802 6.01% 16,897 975 5.77% 15,516 969 6.25%
Tax-exempt (1) 1,675 155 9.23% - - -% - - -%
Loans (2) (3) 166,818 15,242 9.14% 137,578 11,553 8.40% 109,354 9,717 8.89%
--------------------------------- -------------------------------- ---------------------------------
Total interest-earning
assets 195,083 17,046 8.74% 161,241 12,869 7.98% 135,757 11,258 8.29%
Noninterest-earning assets:
Cash and due from banks 4,778 4,756 4,438
Premises and equipment 642 815 813
Other nonearning assets 3,481 2,593 1,792
Allowance for loan losses (2,166) (1,781) (1,336)
------------ ----------- -------------
Total assets $ 201,818 $ 167,624 $ 141,464
============ =========== =============
Interest-bearing liabilities:
NOW accounts $ 78,611 3,820 4.86% $ 64,164 2,476 3.86% $ 65,090 2,695 4.14%
Savings 11,484 569 4.95% 8,382 343 4.09% 3,559 139 3.91%
Time deposits 65,579 3,986 6.08% 55,535 2,925 5.27% 36,842 2,083 5.65%
FHLB advances payable 10,128 595 5.87% 9,760 552 5.66% 3,901 237 6.08%
Note payable 2,257 187 8.29% 1,500 104 6.93% 1,134 82 7.23%
--------------------------------- -------------------------------- ---------------------------------
Total interest-bearing
liabilities 168,059 9,157 5.45% 139,341 6,400 4.59% 110,526 5,236 4.74%
Noninterest-bearing liabilities:
Noninterest-bearing demand 17,153 14,761 19,319
Other liabilities 2,086 1,479 1,144
Stockholders' Equity 14,520 12,043 10,475
------------- ----------- -------------
Total liabilities and
stockholders' equity $ 201,818 $ 167,624 $ 141,464
============= =========== =============
Net interest earnings $7,889 $6,469 $6,022
========== ========== ==========
Interest spread (average yield
earned minus average rate paid) 3.29% 3.39% 3.55%
========== =========== ==========
Net interest margin (net interest
income/total earning assets) 4.04% 4.01% 4.44%
========== =========== ==========
(1) Interest income is adjusted to taxable equivalents for tax-exempt assets
based on a federal income tax rate of 34% for each year.
(2) Non-accruing loans are not significant during the 3-year period and, for
the purposes of the calculations above, are included in the average daily
loan balances.
(3) Interest includes loan fees.
56
TABLE 2
RATE/VOLUME ANALYSIS
(dollars in thousands)
Year Ended December 31,
2000 Compared to 1999 1999 Compared to 1998
Increase (Decrease) Increase (Decrease)
------------------------------------------- --------------------------------------------
Change Change Change Change
Total Due To Due To Total Due To Due To
Change Volume (3) Rate (3) Change Volume (3) Rate (3)
------ ---------- --------- ------ ---------- --------
Interest income:
Federal funds sold $ 446 $ 359 $ 87 $ (143) $ (133) $ (10)
Money market fund 60 38 22 (88) (75) (13)
Investment securities:
Taxable (173) (213) 40 6 83 (77)
Tax-exempt (1) 155 155 - - - -
Loans (1) (2) 3,689 2,608 1,081 1,836 2,394 (558)
------------------------------------------- --------------------------------------------
4,177 2,947 1,230 1,611 2,269 (658)
------------------------------------------- --------------------------------------------
Interest expense:
NOW accounts 1,344 625 719 (219) (38) (181)
Savings 226 144 82 204 197 7
Time deposits 1,061 573 488 842 993 (151)
FHLB advances
payable 43 21 22 315 332 (17)
Note payable 83 60 23 22 25 (3)
------------------------------------------- --------------------------------------------
2,757 1,423 1,334 1,164 1,509 (345)
------------------------------------------- --------------------------------------------
Net interest earnings $ 1,420 $ 1,524 $ (104) $ 447 $ 760 $ (313)
=========================================== ============================================
(1) Interest income is adjusted to taxable equivalents for tax-exempt assets
based on a federal income tax rate of 34% for each year.
(2) Non-accruing loans are not significant during the 3-year period and, for
the purposes of the calculations above, are included in the average daily
loan balances.
(3) Changes in rates and volumes are computed on a consistent basis using the
absolute values of changes in volume compared to the absolute values of the
changes in rates. Loan fees included in interest income are not material.
Table 2 identifies the dollar change in net interest income attributable to
interest rate movement versus the change in the volume of assets and
liabilities, including the change in the mix of Grand's assets and liabilities.
Table 2 shows that Grand's net interest income increased by $1,420,000 in 2000
and $447,000 in 1999. The majority of the increase in net interest income in
2000 is attributable to the overall increase in the volume of earning assets
being only partially offset by the increase in volume of interest-bearing
liabilities. The effect of rate increases on earning assets during 2000 was more
than offset by the effect of rate increases on interest-bearing liabilities.
Compared to 2000, the 1999 increase in net interest earnings due to the increase
in the volume of earning assets was offset to a larger degree by the effects of
the increase in volume of interest-bearing liabilities. The effect of rate
decreases during 1999 had a more significant impact on earning assets than it
did on interest-bearing liabilities.
57
Loans. Tables 3 through 5 provide detailed information about Grand's loan
portfolio, loan mix and nonperforming loans.
TABLE 3
LOAN PORTFOLIO
(dollars in thousands)
Portfolio loans were as follows:
December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Commercial $ 111,092 $ 87,695 $ 73,414 $ 58,941 $49,329
Real estate 53,588 43,848 33,866 26,185 23,714
Consumer 16,170 17,960 16,067 9,434 8,298
--------------- -------------- ------------ ------------- ---------------
Total loans $ 180,850 $ 149,503 $ 123,347 $ 94,560 $81,341
=============== ============== ============ ============= ===============
The following presents the balance of portfolio loans outstanding as of December
31, 2000 by maturities, based on the contractual repayments of principal:
One Over 1
Year Through Over
or Less 5 Years 5 Years Total
------- ------- ------- -----
Commercial $ 83,188 $ 26,596 $ 1,308 $ 111,092
Real estate 16,043 33,064 4,481 53,588
Consumer 953 13,141 2,076 16,170
--------------- -------------- ------------ -------------
Total loans $ 100,184 $ 72,801 $ 7,865 $ 180,850
=============== ============== ============ =============
Percentage of total 55.40% 40.25% 4.35% 100.00%
=============== ============== ============ =============
Table 3 presents a summary of commercial, real estate mortgage and consumer
loans, as well as the maturity distribution for such loans as of December 31,
2000. The percentage of these loans maturing within one year was 55.4% at
December 31, 2000.
Grand's loan portfolio at December 31, 2000 is diversified along industry
lines and is concentrated in the Western Michigan area. Commercial loans are
primarily secured by business assets and consumer loans are secured by various
items of personal property. Mortgage loans are secured principally by commercial
and residential real estate. The loan to value ratio does not normally exceed
80%. Grand has no loans to foreign countries or borrowers.
As of December 31, 2000, loans and maturities over one year consisted of
$42.0 million in fixed rate loans and $38.7 million in variable or adjustment
rate loans. The loan maturities noted above are based on the contractual
provisions of the individual loans. Grand has no general policy regarding
renewals and borrower requests for such are handled on a case-by-case basis.
58
TABLE 4
SUMMARY OF NON-PERFORMING LOANS
(dollars in thousands)
December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Nonaccrual loans (1) $ 20 $ 146 $ - $ - $ -
Past due loans 90 days or more - 5 - - -
Restructured loans - - - - -
(1) The accrual of interest is discontinued if the collectibility of principal
and interest is considered doubtful or whenever payment of principal or
interest is 90 days or more past due, unless the loan is both well secured
and in the process of collection. Additional interest that would have been
earned in 2000 had the loans classified as nonaccrual remained at original
terms, and the actual interest on loans classified as nonaccrual been
included in net income for 2000, are immaterial.
Provision for Loan Losses. Because some loans may not be repaid in full, an
allowance for loan losses is recorded. Increases to the allowance are recorded
by a provision for loan losses charged to expense. Estimating the risk of the
loss and the amount of loss on any loan is necessarily subjective. Accordingly,
the allowance is maintained by management at a level considered adequate to
cover losses that are currently anticipated, as of the balance sheet date, based
on past loss experience, general economic conditions, information about specific
borrower situations including their financial position and collateral values,
and other factors and estimates which are subject to change over time. While
management may periodically allocate portions of the allowance for specific
problem loan situations, the entire allowance is available for any loan
charge-offs that occur. A loan is charged against the allowance by management as
a loss when deemed uncollectible, although collection efforts may continue and
future recoveries may occur.
59
TABLE 5
SUMMARY OF LOAN LOSS EXPERIENCE
(dollars in thousands)
Loan loss experience is summarized as follows:
Year Ended December 31,
2000 1999 1998 1997 1996
-------------- ------------- --------------- ---------------- ------------------
Average loans outstanding $ 166,818 $ 137,578 $ 109,354 $ 86,354 $ 74,069
============== ============= =============== ================ ==================
Allowance at beginning of year $ 1,955 $ 1,648 $ 1,109 $ 925 $ 759
Loan losses:
Commercial 102 - - 60 -
Real estate - - - - -
Consumer 3 - 6 1 -
-------------- ------------- --------------- ---------------- ------------------
105 - 6 61 -
Recoveries:
Commercial 11 1 1 41 31
Real estate - - - - -
Consumer 2 2 1 - -
-------------- ------------- --------------- ---------------- ------------------
13 3 2 41 31
Net charge-offs (recoveries) 92 (3) 4 20 (31)
Provision for loan losses 490 304 543 204 135
-------------- ------------- --------------- ---------------- ------------------
Allowance at end of year $ 2,353 $ 1,955 $ 1,648 $ 1,109 $ 925
============== ============= =============== ================ ==================
Ratio of net charge-offs to
average loans 0.06% 0.00% 0.00% 0.02% (0.04%)
============== ============= =============== ================ ==================
Ratio of allowance for loan
losses to loans outstanding
at end of year 1.30 1.31 1.34 1.17 1.14
============== ============= =============== ================ ==================
As previously discussed, Grand provides, through a charge to expense, an
amount considered necessary to maintain the allowance for loan losses at a level
considered adequate to absorb estimated losses in the loan portfolio at the
balance sheet date. By maintaining a ratio of the allowance to total loans in
the 1.30 range for each year, the provision resulted largely from Grand's loan
growth over the three-year period.
60
TABLE 6
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSS
(dollars in thousands)
The allowance for loan losses, in management's judgment, would be allocated
as follows to cover potential loan losses.
December 31, 2000 December 31, 1999 December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- ----------------- ----------------- -----------------
Allow- % of Allow- % of Allow- % of Allow- % of Allow- % of
ance For Loans To ance For Loans To ance For Loans To ance For Loans To ance For Loans To
Loan Total Loan Total Loan Total Loan Total Loan Total
Losses Loans Losses Loans Losses Loans Losses Loans Losses Loans
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Balance at end of period
applicable to:
Commercial $ 904 61.43% $ 946 58.66% $ 711 59.52% $ 485 62.33% $ 336 60.64%
Real estate 1,298 29.63 662 29.33 532 27.46 429 27.69 416 29.15
Consumer 107 8.94 40 12.01 42 13.03 38 9.98 35 10.20
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Total allocated 2,309 100.00% 1,648 100.00% 1,285 100.00% 952 100.00% 787 100.00%
Unallocated 44 - 307 - 363 - 157 - 138 -
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Allowance at end
of year $ 2,353 100.00% $ 1,955 100.00% $ 1,648 100.00% $ 1,109 100.00% $ 925 100.00%
======= ======= ======= ======= ======= ======= ======= ======= ====== =======
The allocation of the allowance in Table 6 is based upon management
estimates and is not intended to imply limitations on the usage of the allowance
or exactness of the specific amounts. The entire allowance is available to
absorb any future losses without regard to the categories in which the
charged-off loans are classified. The allowance for loan losses is allocated to
the individual loan categories by a specific reserve for all classified loans,
plus a percentage of loans not classified, based on historical losses.
61
TABLE 7
INVESTMENT PORTFOLIO
(dollars in thousands)
The carrying amount of investment securities were as follows:
December 31,
2000 1999 1998
---- ---- ----
Debt securities:
U.S. Treasury and other U.S.
government agency securities $ 3,027 $ 1,981 $ 3,023
Obligations of states and political
subdivisions 1,936 - -
Mortgage-backed securities 8,868 9,251 11,313
--------------- ------------- -------------
Total debt securities 13,831 11,232 14,336
Other - Federal Home Loan Bank stock 602 602 602
--------------- ------------- -------------
Total $ 14,433 $ 11,834 $ 14,938
=============== ============= =============
The following schedule sets forth the schedule of maturities and weighted
average interest rates of debt securities as of as of December 31, 2000:
One After One After Five
Year Through Through Over
or Less Five Years Ten Years Ten Years Total
------- ------------ ----------- ----------- -----
U.S. Treasury and other
U.S. government agency securities (1) $ 2,015 $ 1,012 $ - $ - $ 3,027
Obligations of states and political
subdivisions (1) - - - 1,936 1,936
-------------- ------------- ------------- ------------ -------------
$ 2,015 $ 1,012 $ - $ 1,936 4,963
============== ============= ============= ============ =============
Mortgage-backed securities, not due at a
single maturity date (1) 8,868
-------------
Total $13,831
=============
Weighted average yield (2) 6.56% 6.25% - 5.48%
============== ============= ============= ============
Full taxable equivalent yield (3) 6.56% 6.25% - 8.31%
============== ============= ============= ============
The weighted average yields are calculated on the basis of the cost and
effective yields weighted for the scheduled maturity of each security. Full
taxable equivalent yields have been calculated using the statutory tax rate of
34%.
(1) The aggregate carrying amount of the securities of no single issuer, except
the U.S. government, exceeds 10% of Grand's shareholders' equity.
(2) The weighted average yields are calculated on the basis of carrying amount,
effective interest rates and the scheduled maturities of each issue.
(3) Yields are computed on a taxable equivalent basis using a 34% federal
income tax rate.
62
Table 8 presents the maturity distribution of time certificates of deposit
of $100,000 or more as of December 31, 2000. All time deposits of $100,000 or
more held by Grand are in the form of time certificates of deposit. At December
31, 2000, 38.4% of these deposits mature in less than three months and 88.5%
mature within one year. Time deposits of $100,000 or more increased slightly in
2000 to $41.3 million (including $10.0 million of brokered time deposits), or
21.3% of total deposits, at December 31, 2000, from $40.0 million (including
$4.0 million of brokered time deposits), or 26.3% of total deposits, at December
31, 1999. However, as indicated, the percentage of time deposits of $100,000 or
more to total deposits decreased during 2000. Grand has and expects to continue
to have more than sufficient funds to meet the liquidity requirements of its
deposits.
TABLE 8
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
(dollars in thousands)
The maturity distribution of time deposits of $100,000 or more at December
31, 2000 is as follows:
Maturing within 3 months $ 15,843
After 3 but within 6 months 12,223
After 6 but within 12 months 8,493
After 12 months 4,736
---------------
Total $ 41,295
===============
There were no time deposits of $100,000 or more issued by foreign offices
at December 31, 2000.
Table 1 shows the daily average amounts of deposits and rates paid on such
deposits for the periods indicated therein.
TABLE 9
FINANCIAL RATIOS
Year Ended
December 31,
2000 1999 1998
---- ---- ----
Return on average total assets 1.12 % 1.06 % 1.11 %
Return on average shareholder's equity 15.50 14.76 14.93
Average shareholder's equity to average total assets 7.19 7.18 7.40
Dividend payout ratio 11.99 14.28 14.79
63
Grand Bank Financial Corporation
Consolidated Balance Sheets
(Unaudited)
- --------------------------------------------------------------------------------
September 30, December 31,
2001 2000
----------------------------------------------
Assets
Cash and due from banks $ 9,775,082 $ 6,417,464
Federal funds sold 2,300,000 20,500,000
Money market fund 5,000,000 -
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 17,075,082 26,917,464
Securities available for sale 6,082,640 7,369,176
Securities held to maturity 5,720,928 6,461,915
Other securities 793,900 601,700
- -----------------------------------------------------------------------------------------------------------------------
Total investment securities 12,597,468 14,432,791
- -----------------------------------------------------------------------------------------------------------------------
Loans held for sale 2,590,600 148,000
Portfolio loans 217,908,685 180,849,803
Allowance for loan losses (2,913,530) (2,352,971)
- -----------------------------------------------------------------------------------------------------------------------
Net portfolio loans 214,995,155 178,496,832
Premises and equipment, net 756,757 527,624
Partnership interest from defaulted loan 377,167 377,167
Accrued interest receivable 886,206 855,744
Other assets 2,625,577 2,174,529
- -----------------------------------------------------------------------------------------------------------------------
$ 251,904,012 $ 223,930,151
- -----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest-bearing deposits $ 21,021,731 $ 24,184,015
Savings and NOW accounts 103,542,876 102,831,901
Time deposits 88,120,384 66,570,816
- -----------------------------------------------------------------------------------------------------------------------
Total deposits 212,684,991 193,586,732
FHLB advances payable 15,293,168 10,042,551
Notes payable 4,000,000 2,500,000
Accrued interest payable 1,010,660 723,200
Other liabilities 2,345,501 2,212,754
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities 235,334,320 209,065,237
- -----------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Common stock, no par value; 250,000 shares
authorized, 134,959 shares issued and outstanding 5,772,837 5,772,837
Retained earnings 10,739,555 9,071,003
Accumulated other comprehensive income -
unrealized gains on securities, net of tax 57,300 21,074
- -----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 16,569,692 14,864,914
- -----------------------------------------------------------------------------------------------------------------------
$ 251,904,012 $ 223,930,151
- -----------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
64
Grand Bank Financial Corporation
Consolidated Statements of Income
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
Three months ended, Nine months ended,
September 30, 2001 2000 2001 2000
- ---------------------------------------------------------------------------------- --------------------------------
Interest Income
Loans, including fees $ 3,956,582 $ 4,016,779 $11,823,658 $11,021,205
Investment securities
200,704 270,436 614,920 823,652
Federal funds sold
97,305 94,611 479,462 471,213
- ---------------------------------------------------------------------------------------------------------------------
Total interest income 4,254,591 4,381,826 12,918,040 12,316,070
- ---------------------------------------------------------------------------------------------------------------------
Interest Expense
Deposits 1,888,599 2,141,288 6,110,259 5,957,616
Other 247,148 202,783 655,903 581,037
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense 2,135,747 2,344,071 6,766,162 6,538,653
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 2,118,844 2,037,755 6,151,878 5,777,417
Provision for Loan Losses 250,017 164,199 528,409 401,155
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 1,868,827 1,873,556 5,623,469 5,376,262
- ---------------------------------------------------------------------------------------------------------------------
Other Income
Trust fees 403,589 404,783 1,164,537 1,154,197
Service charges 76,346 67,014 226,565 187,535
Mortgage origination fees 251,661 116,965 786,821 375,847
Net realized security gain (loss) - (4,238) 34,798 (4,254)
Other 40,667 28,016 148,011 107,255
- ---------------------------------------------------------------------------------------------------------------------
Total other income 772,263 612,540 2,360,732 1,820,580
- ---------------------------------------------------------------------------------------------------------------------
Other Expenses
Salaries, commissions and benefits 1,051,407 913,975 3,269,685 2,814,503
Premises and equipment 165,873 165,315 495,732 490,430
Professional fees and outside services 154,664 171,880 461,197 481,636
Charitable contributions 108,579 113,933 320,699 312,942
Other 183,354 204,335 550,598 595,991
- ---------------------------------------------------------------------------------------------------------------------
Total other expenses 1,663,877 1,569,438 5,097,911 4,695,502
- ---------------------------------------------------------------------------------------------------------------------
Income before federal income tax expense 977,213 916,658 2,886,290 2,501,340
Federal Income Taxes 330,400 314,300 1,015,300 867,900
- ---------------------------------------------------------------------------------------------------------------------
Net Income $ 646,813 $ 602,358 $ 1,870,990 $ 1,633,440
- ---------------------------------------------------------------------------------------------------------------------
Earnings Per Share
Basic $ 4.79 $ 4.46 $ 13.86 $ 12.33
Diluted 4.69 4.37 13.57 12.09
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
65
Grand Bank Financial Corporation
Consolidated Statements of Cash Flows
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
Nine months ended September 30, 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 1,870,990 $1,633,440
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 191,097 217,557
Provision for loan losses 528,409 401,155
Net amortization (accretion) on securities (10,730) (38,704)
Net realized security (gains) losses (34,798) 4,254
Proceeds from sales of mortgage loans 63,415,980 27,958,050
Mortgage loans originated for sale (65,858,580) (28,233,750)
Changes in operating assets and liabilities:
Accrued interest and other assets (500,172) (414,997)
Accrued interest and other liabilities 420,207 209,618
- ---------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 22,403 1,736,623
- ---------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchases of securities available for sale (2,108,960) (6,044,714)
Proceeds from sales of securities available for sale 1,424,847 2,958,047
Proceeds from calls, maturities and paydowns of
securities available for sale 2,039,907 2,211,547
Purchases of securities held to maturity - (1,934,446)
Proceeds from calls, maturities and paydowns of
securities held to maturity 772,145 1,056,897
Purchases of other securities (192,200) -
Net increase in portfolio loans (37,026,732) (26,176,989)
Capital expenditures (420,230) (69,222)
- ---------------------------------------------------------------------------------------------------------------------
Net cash for investing activities (35,511,223) (27,998,880)
- ---------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net increase in deposits 19,098,259 17,334,644
Proceeds from FHLB advances 10,500,000 1,300,000
Repayment of FHLB advances (5,249,383) (1,530,768)
Proceeds from note payable 1,500,000 1,000,000
Payment of dividends (202,438) (202,438)
- ---------------------------------------------------------------------------------------------------------------------
Net cash from financing activities 25,646,438 17,901,438
- ---------------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents (9,842,382) (8,360,819)
Cash and Cash Equivalents, beginning of year 26,917,464 15,152,833
- ---------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, end of year $ 17,075,082 $6,792,014
- ---------------------------------------------------------------------------------------------------------------------
Cash Paid During the Period
Interest $ 6,478,702 $6,342,126
Income Taxes 1,270,608 1,062,000
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
66
Grand Bank Financial Corporation
Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
In the opinion of the management of Grand Bank Financial Corporation ("Grand"),
the accompanying unaudited consolidated financial statements include all normal
recurring adjustments considered necessary to present fairly the financial
position as of September 30, 2001, and the results of operations for the three
months and nine months ended September 30, 2001 and 2000, and cash flows for the
nine months ended September 30, 2001 and 2000.
The results of operations for the nine months ended September 30, 2001 are not
necessarily indicative of the expected results for all of 2001.
The consolidated financial statements include the accounts of Grand and its
wholly-owned subsidiaries, Grand Bank and Grand Financial Associates, Inc. (an
inactive corporation), and Grand Bank's wholly-owned subsidiary, Grand Bank
Mortgage Company, after elimination of significant inter-company transactions
and accounts.
The accompanying consolidated financial statements are condensed and do not
contain all of the information and footnote disclosures required by generally
accepted accounting principles in a complete set of financial statements.
NOTE 2 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was as follows:
Nine months ended September 30, 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 2,352,971 $ 1,954,827
Provision charged to operations 528,409 401,155
Loans charged off - (68,065)
Recoveries 32,150 10,040
- ---------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 2,913,530 $ 2,297,957
- ---------------------------------------------------------------------------------------------------------------------
NOTE 3 - EARNINGS PER SHARE
A reconciliation of the numerators and denominators used in the "basic" and
"diluted" earnings per share (EPS) calculations follows:
Three months ended, Nine months ended,
---------------------- ------------------------
September 30, 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Numerator - net income for the period $ 646,813 $ 602,358 $1,870,990 $ 1,663,440
- ---------------------------------------------------------------------------------------------------------------------
Denominator:
Weighted average number of shares outstanding
(denominator for basic earnings per share) 134,959 134,959 134,959 134,959
Effect of dilutive stock options 2,988 2,734 2,924 2,675
- ---------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share 137,947 137,693 137,883 137,634
- ---------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 4.79 $ 4.46 $ 13.86 $ 12.33
- ---------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 4.69 $ 4.37 $ 13.57 $ 12.09
- ---------------------------------------------------------------------------------------------------------------------
67
Grand Bank Financial Corporation
Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - COMPREHENSIVE INCOME
Comprehensive income consists of the following:
Three months ended, Nine months ended,
September 30, 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 646,813 $ 602,358 $ 1,870,990 $ 1,663,440
Other comprehensive income, unrealized gains
on securities, net of tax 8,062 42,528 36,226 70,563
- ---------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 654,875 $ 644,886 $ 1,907,216 $ 1,734,003
- ---------------------------------------------------------------------------------------------------------------------
68
Independent Auditors' Report
Board of Directors and Stockholders
Grand Bank Financial Corporation
Grand Rapids, Michigan
We have audited the accompanying consolidated balance sheets of Grand Bank
Financial Corporation and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 2000.
These consolidated financial statements are the responsibility of Grand's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Grand Bank Financial
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
/s/ BDO Seidman, LLP
Grand Rapids, Michigan
January 17, 2001
69
GRAND BANK FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------
December 31, 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks $ 6,417,464 $ 7,352,833
Federal funds sold 20,500,000 6,800,000
Money market fund - 1,000,000
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 26,917,464 15,152,833
Securities available for sale (Note 2) 7,369,176 5,556,759
Securities held to maturity (estimated market value
of $6,564,439 and $5,497,960) (Note 2) 6,461,915 5,675,342
Other securities (Note 2) 601,700 601,700
- --------------------------------------------------------------------------------------------------------------------
Total securities 14,432,791 11,833,801
Loans held for sale 148,000 868,000
Portfolio loans (Note 3) 180,849,803 149,503,297
Allowance for loan losses (Note 4) (2,352,971) (1,954,827)
- --------------------------------------------------------------------------------------------------------------------
Net portfolio loans 178,496,832 147,548,470
Premises and equipment, net (Note 5) 527,624 740,131
Partnership interest from defaulted loan 377,167 377,167
Accrued interest receivable 855,744 638,654
Other assets (Note 9) 2,174,529 1,506,257
- --------------------------------------------------------------------------------------------------------------------
$ 223,930,151 $ 178,665,313
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Liabilities
Noninterest-bearing deposits $ 24,184,015 $ 15,369,583
Savings and NOW accounts 102,831,901 76,320,325
Time deposits (Note 6) 66,570,816 60,376,312
- --------------------------------------------------------------------------------------------------------------------
Total deposits 193,586,732 152,066,220
FHLB advances payable (Note 7) 10,042,551 10,298,014
Note payable (Note 8) 2,500,000 1,500,000
Accrued interest payable 723,200 456,816
Other liabilities (Note 10) 2,212,754 1,617,235
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities 209,065,237 165,938,285
- --------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 5 and 13)
Stockholders' Equity (Note 15)
Common stock, no par value; 250,000 shares authorized;
134,959 shares issued and outstanding 5,772,837 5,772,837
Retained earnings 9,071,003 7,089,546
Accumulated other comprehensive income - unrealized
gains (losses) on securities, net of tax 21,074 (135,355)
- --------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 14,864,914 12,727,028
- --------------------------------------------------------------------------------------------------------------------
$ 223,930,151 $ 178,665,313
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
70
GRAND BANK FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Interest Income
Loans, including fees $ 15,241,808 $ 11,553,070 $ 9,717,314
Investment securities 1,044,298 1,055,180 1,136,648
Federal funds sold 706,685 261,372 403,636
- --------------------------------------------------------------------------------------------------------------------
Total interest income 16,992,791 12,869,622 11,257,598
- --------------------------------------------------------------------------------------------------------------------
Interest Expense
Deposits 8,375,004 5,744,188 4,916,946
Other 781,854 655,543 318,663
- --------------------------------------------------------------------------------------------------------------------
Total interest expense 9,156,858 6,399,731 5,235,609
- --------------------------------------------------------------------------------------------------------------------
Net interest income 7,835,933 6,469,891 6,021,989
Provision for Loan Losses (Note 4) 489,927 303,574 543,155
- --------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 7,346,006 6,166,317 5,478,834
- --------------------------------------------------------------------------------------------------------------------
Other Income
Trust fees 1,589,133 1,391,980 1,049,425
Service charges 255,013 192,602 122,350
Mortgage origination fees 514,820 775,060 1,037,821
Gain on sale of mortgage loans - - 19,560
Net realized security gain (loss) (Note 2) (4,254) - 6,034
Other 127,733 97,264 91,919
- --------------------------------------------------------------------------------------------------------------------
Total other income 2,482,445 2,456,906 2,327,109
- --------------------------------------------------------------------------------------------------------------------
Other Expenses
Salaries, commissions and benefits (Note 10) 3,810,694 3,535,696 3,270,974
Premises and equipment (Note 5) 667,589 704,881 707,492
Professional fees and outside services 676,779 556,661 482,672
Charitable contributions 385,431 351,542 307,300
Other 819,083 715,807 662,318
- --------------------------------------------------------------------------------------------------------------------
Total other expenses 6,359,576 5,864,587 5,430,756
- --------------------------------------------------------------------------------------------------------------------
Income before federal income taxes 3,468,875 2,758,636 2,375,187
Federal Income Taxes (Note 9) 1,217,500 982,000 811,000
- --------------------------------------------------------------------------------------------------------------------
Net Income $ 2,251,375 $ 1,776,636 $ 1,564,187
- --------------------------------------------------------------------------------------------------------------------
Earnings Per Share (Note 12)
Basic $ 16.68 $ 13.16 $ 11.94
Diluted 16.35 12.95 11.86
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
71
GRAND BANK FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------
Accumulated
other
Common Retained comprehensive
stock earnings income Total
- ---------------------------------------------------------------------------------------------------------
Balance, January 1, 1998 $5,575,837 $ 4,233,823 $ (24,598) $ 9,785,062
Comprehensive income:
Net income - 1,564,187 - 1,564,187
Other comprehensive income - net
unrealized gains on securities:
Net unrealized holding gains arising
during the period ($13,711, net of
tax of $4,662) - - 9,049 9,049
Less: reclassification adjustment
for net gains included in net
income ($6,034, net of tax of
$2,052) - - (3,982) (3,982)
--------------
5,067
--------------
Total comprehensive income 1,569,254
Dividends ($1.76 per share) - (231,377) - (231,377)
Stock issued upon exercise of stock
options (Note 11) 189,600 - - 189,600
- ---------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 5,765,437 5,566,633 (19,531) 11,312,539
Comprehensive income:
Net income - 1,776,636 - 1,776,636
Other comprehensive income - net
unrealized holding losses arising
during the period ($175,491, net of
tax of $59,667) - - (115,824) (115,824)
--------------
Total comprehensive income 1,660,812
Dividends ($1.88 per share) - (253,723) - (253,723)
Stock issued upon exercise of stock options
(Note 11) 7,400 - - 7,400
- ---------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 5,772,837 7,089,546 (135,355) 12,727,028
Comprehensive income:
Net income - 2,251,375 - 2,251,375
Other comprehensive income - net
unrealized holding gains arising
during the period ($232,759, net of
tax of $79,138) - - 153,621 153,621
Plus reclassification adjustment for
net losses included in net income
($4,254, net of tax of $1,446) - - 2,808 2,808
--------------
Total comprehensive income 2,407,804
Dividends ($2.00 per share) - (269,918) - (269,918)
- ---------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $5,772,837 $ 9,071,003 $ 21,074 $ 14,864,914
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
72
GRAND BANK FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income $ 2,251,375 $ 1,776,636 $ 1,564,187
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 281,728 328,376 286,206
Provision for loan losses 489,927 303,574 543,155
Deferred federal income taxes (338,000) (222,000) (255,500)
Net amortization (accretion) on securities (40,975) 125,099 (81,183)
Net realized security gain (loss) 4,254 - (6,034)
Gain on sale of mortgage loans - - (19,560)
Proceeds from sales of mortgage loans 38,906,600 1,364,500 1,669,685
Mortgage loans originated for sale (38,186,600) (2,151,500) (774,000)
Loss on disposed assets - 5,983 44,567
Changes in operating assets and liabilities:
Accrued interest receivable and other assets (627,946) (224,208) (96,173)
Accrued interest payable and other 232,563
liabilities 861,903 459,230
- --------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 3,602,266 1,765,690 3,107,913
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchases of securities available for sale (7,058,933) (7,128,554) (5,081,360)
Proceeds from sales of securities available for sale 2,958,047 - 2,008,008
Proceeds from calls, maturities and paydowns of
securities available for sale 2,512,913 8,135,806 2,980,179
Purchases of securities held to maturity (1,934,446) - -
Proceeds from calls, maturities and paydowns of
securities held to maturity 1,197,163 1,796,010 2,482,705
Net increase in portfolio loans (31,438,289) (26,153,472) (28,790,260)
Proceeds from partial redemption of partnership
interest from defaulted loan - - 33,000
Capital expenditures (69,221) (177,285) (611,954)
- --------------------------------------------------------------------------------------------------------------------
Net cash for investing activities (33,832,766) (23,527,495) (26,979,682)
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Net increase in deposits 41,520,512 27,647,313 6,675,010
Net increase (decrease) in federal funds purchased - (1,700,000) 1,700,000
Proceeds from FHLB advances - 2,000,000 7,700,000
Repayment of FHLB advances (255,463) (178,178) (2,064,570)
Proceeds from note payable 1,000,000 - 1,500,000
Payment of dividends (269,918) (253,723) (231,377)
Proceeds from issuance of common stock - 7,400 189,600
- --------------------------------------------------------------------------------------------------------------------
Net cash from financing activities 41,995,131 27,522,812 15,468,663
- --------------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents 11,764,631 5,761,007 (8,403,106)
Cash and Cash Equivalents, beginning of year 15,152,833 9,391,826 17,794,932
- --------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, end of year $ 26,917,464 $ 15,152,833 $ 9,391,826
- --------------------------------------------------------------------------------------------------------------------
Cash Paid During the Year
Interest $ 8,886,482 $ 6,237,085 $ 5,364,826
Income taxes 1,472,000 1,140,000 1,047,014
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
73
Grand Bank Financial Corporation
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements include the
accounts of Grand Bank Financial Corporation (Grand), its wholly-owned
subsidiaries, Grand Bank (Bank) and Grand Financial Associates, Inc. (an
inactive corporation), and the Bank's wholly-owned subsidiary, Grand Bank
Mortgage Company, after elimination of significant intercompany transactions and
accounts.
The accounting and reporting policies and practices of Grand and its
wholly-owned subsidiaries conform with generally accepted accounting principles
and prevailing practices within the banking industry.
Nature of Operations: Grand provides a broad range of banking and trust
services. The Bank operates predominately in Western Michigan as a commercial
bank. The Bank's primary services include accepting deposits, making commercial,
mortgage and consumer loans, engaging in mortgage banking activities, and
providing trust services.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions based on available information. These estimates and assumptions
affect the amounts reported in the consolidated financial statements and the
disclosures provided. Actual results could differ from those estimates.
Cash and Cash Equivalents: Cash and cash equivalents consist of cash on hand,
amounts due from banks, federal funds sold and money market funds.
Investment Securities: Securities are classified as "held to maturity" and
carried at amortized cost when management has the positive intent and the
ability to hold them to maturity. Securities classified as "available for sale"
are reported at their fair value and the related unrealized gain or loss is
included in accumulated other comprehensive income, net of tax, until realized.
Such securities might be sold prior to maturity due to changes in interest
rates, prepayment risks, yield, availability of alternative investments,
liquidity needs or other factors. Other securities consist of Federal Home Loan
Bank stock.
Premiums and discounts on securities are recognized in interest income using the
level yield method over the period to maturity. Gains and losses on the sale of
securities available for sale are determined using the specific identification
method.
Loans and Interest and Fees on Loans: Portfolio loans are stated at their
principal amount outstanding, net of deferred loan fees and costs and an
allowance for loan losses. Interest on loans is accrued on the interest method
and includes the amortization of net deferred fees and costs over the term of
the loan. The accrual of interest is discontinued if the collectibility of
principal or interest is considered doubtful or whenever payment of principal or
interest is 90 days or more past due, unless the loan is both well secured and
in the process of collection. For impaired loans that are on nonaccrual status,
cash payments received are generally applied to reduce the outstanding principal
balance. However, all or a portion of a cash payment received on a nonaccrual
loan may be recognized as interest income to the extent allowed by the loan
contract, assuming management expects to fully collect the remaining principal
balance of the loan.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is recorded. Increases to the allowance are recorded
by a provision for loan losses charged to expense. Estimating the risk of the
loss and the amount of loss on any loan is necessarily subjective. Accordingly,
the allowance is maintained by management at a level considered adequate to
cover losses that are currently anticipated based on past loss experience,
general economic conditions, information about specific borrower situations
including their financial position and collateral values, and other factors and
estimates which are subject to change over time. While management may
periodically allocate portions of the allowance for specific problem loan
situations, the entire allowance is available for any loan charge-offs that
occur. A loan is charged against the allowance by management as a loss when
deemed uncollectible, although collection efforts may continue and future
recoveries may occur.
Loan impairment is reported when full payment under the loan terms is not
expected. Smaller-balance homogenous loans, including residential first mortgage
loans secured by one-to-four family residences, residential construction loans,
74
Grand Bank Financial Corporation
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
automobile, home equity and second mortgage loans are collectively evaluated for
impairment. Commercial loans and first mortgage loans secured by other
properties are evaluated individually for impairment. The allowance for loan
losses related to loans identified as impaired is principally based on the
excess of the loan's current outstanding principal balance over the estimated
fair market value of the related collateral. For impaired loans that are not
collateral dependent, the allowance for loan losses is recorded at the amount by
which the outstanding recorded principal balance exceeds the current best
estimate of the future cash flows on the loan, discontinued at the loan's
effective interest rate.
Sale of Mortgage Loans: Certain mortgage loans are originated for sale to the
secondary market. All such loans are sold with servicing released. Mortgage
loans held for sale are valued at the lower of cost or market, calculated on the
aggregate loan balance.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using both straight-line and
accelerated methods over the estimated useful lives of the respective assets.
Maintenance, repairs and minor alterations are charged to current operations as
expenditures occur and major improvements are capitalized.
Other Real Estate and Partnership Interest From Defaulted Loans: Other real
estate consists of properties acquired through loan foreclosure. Both other real
estate and the partnership interest from defaulted loans are carried at the
lower of cost or fair value less estimated costs of disposal. Any reduction to
cost at the time of acquisition from a related loan is accounted for as a charge
to the allowance for loan losses. Any subsequent reduction in cost or fair value
is charged to loss on other real estate or the partnership interest in the
period incurred, while improvements made to the asset during the holding period
are capitalized.
Mortgage Origination Fees: A fee is received for originating loans for other
financial institutions and is recognized in income when the services are
performed.
Stock-Based Compensation: Expense for employee compensation under stock option
plans is based on Accounting Principles Board Opinion 25, Accounting for Stock
Issued to Employees, and related interpretations, with expense reported only if
options are granted below market price at grant date. To date, none have been
issued below market price.
Advertising Costs: All advertising costs, amounting to $127,710, $71,825 and
$57,996 in 2000, 1999 and 1998, respectively, are expensed in the period in
which they are incurred.
Income Taxes: Income tax expense is the sum of the current year income tax due
and the change in the deferred income tax assets and liabilities. Deferred
income tax assets and liabilities are computed based on temporary differences
between the financial statement and tax bases of assets and liabilities,
computed using enacted rates. A valuation allowance is established, when
necessary, to reduce deferred income tax assets to the amount expected to be
realized.
Fair Values of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in Note 14. Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments and
other factors, especially in the absence of broad markets for particular items.
Changes in assumptions or in market conditions could significantly affect the
estimates.
Earnings Per Share: Basic earnings per share is based on the weighted average
number of shares of common stock outstanding during each period. Dilutive
earnings per share is based on the weighted average number of shares outstanding
plus the number of additional common shares that would have been outstanding if
the dilutive shares, under Grand's stock option program, had been issued.
Comprehensive Income: Total comprehensive income is reported in the consolidated
statements of changes in stockholders' equity and includes net income and
unrealized security holding gains and losses, net of income taxes.
75
Grand Bank Financial Corporation
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and estimated market value of securities available for sale
are as follows:
Gross Gross Estimated
Amortized unrealized unrealized market
December 31, 2000 cost gains losses value
- --------------------------------------------------------------------------------------------------------------------
U.S. treasury securities $ 3,015,463 $ 11,507 $ - $ 3,026,970
Mortgage-backed securities 4,321,783 20,423 - 4,342,206
- --------------------------------------------------------------------------------------------------------------------
$ 7,337,246 $ 31,930 $ - $ 7,369,176
- --------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
December 31, 1999 cost gains losses value
- --------------------------------------------------------------------------------------------------------------------
U.S. treasury securities $ 2,026,634 $ - $ 45,696 $ 1,980,938
Mortgage-backed securities 3,735,209 - 159,388 3,575,821
- --------------------------------------------------------------------------------------------------------------------
$ 5,761,843 $ - $ 205,084 $ 5,556,759
- --------------------------------------------------------------------------------------------------------------------
The amortized cost and estimated market value of securities held to maturity are
as follows:
December 31, 2000 Amortized Gross Gross Estimated
unrealized unrealized market
cost gains losses value
-------------------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions $ 1,936,492 $ 118,622 $ - $ 2,055,114
Mortgage-backed securities 4,525,423 - 16,098 4,509,325
-------------------------------------------------------------------------------------------------------------------
$ 6,461,915 $ 118,622 $ 16,098 $ 6,564,439
-------------------------------------------------------------------------------------------------------------------
Securities held to maturity at December 31, 1999 were comprised entirely of
mortgage-backed securities. These securities had an amortized cost of $5,675,342
and an estimated market value of $5,497,960 (gross unrealized gains of
$177,382).
Contractual maturities of debt securities at December 31, 2000 are presented
below. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
76
Grand Bank Financial Corporation
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
Available for Sale Held to Maturity
Amortized Estimated Amortized Estimated
December 31, 2000 cost market value cost market value
- --------------------------------------------------------------------------------------------------------------------------
Due within one year $ 2,017,010 $ 2,015,084 $ - $ -
Due after one year through five years 998,453 1,011,886 - -
Due after ten years - - 1,936,492 2,055,114
Mortgage-backed securities 4,321,783 4,342,206 4,525,423 4,509,325
- --------------------------------------------------------------------------------------------------------------------------
$ 7,337,246 $ 7,369,176 $ 6,461,915 $ 6,564,439
- --------------------------------------------------------------------------------------------------------------------------
Securities not due at a single maturity date (i.e., mortgage-backed securities),
are shown separately.
Other securities consist of Federal Home Loan Bank stock of $601,700 at December
31, 2000 and 1999.
Proceeds from sales of securities available for sale during 2000 and 1998 were
$2,958,047 and $2,008,008, respectively. Gross losses of $4,254 were realized on
these sales in 2000 and gross gains of $6,034 were realized in 1998. There were
no securities sales during 1999.
Securities with a book value of $4,672,378 and $3,889,483 at December 31, 2000
and 1999, respectively, were pledged for various purposes as required or
permitted by law.
NOTE 3 - PORTFOLIO LOANS
Portfolio loans were as follows:
Year ended December 31, 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Commercial $ 111,091,523 $ 87,695,500
Real estate 53,587,984 43,847,768
Consumer 16,170,296 17,960,029
- --------------------------------------------------------------------------------------------------------------------
$ 180,849,803 $ 149,503,297
- --------------------------------------------------------------------------------------------------------------------
Related parties include certain principal stockholders, directors and executive
officers, and their related affiliates. Loans to such related parties were
$4,380,950 and $2,485,764 at December 31, 2000 and 1999, respectively.
NOTE 4 - PROVISION FOR LOAN LOSSES
Activity in the allowance for loan losses was as follows:
December 31, 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Balance, beginning of year $ 1,954,827 $ 1,648,201 $ 1,108,992
Provision charged to operations 489,927 303,574 543,155
Loans charged off (104,618) - (6,014)
Recoveries 12,835 3,052 2,068
- --------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 2,352,971 $ 1,954,827 $ 1,648,201
- --------------------------------------------------------------------------------------------------------------------
Impaired loans, as defined by SFAS No. 114, were insignificant during the years
ended December 31, 2000, 1999 and 1998.
77
Grand Bank Financial Corporation
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment were as follows:
December 31, 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Furniture and equipment $ 1,539,471 $ 1,524,477
Leasehold improvements 475,569 429,392
- --------------------------------------------------------------------------------------------------------------------
2,015,040 1,953,869
Less accumulated depreciation 1,487,416 1,213,738
- --------------------------------------------------------------------------------------------------------------------
$ 527,624 $ 740,131
- --------------------------------------------------------------------------------------------------------------------
Grand has entered into three operating leases for property to be used as a main
office. Two leases have an initial term of ten years from January 1, 1994, with
two five-year renewal options. The annual lease payments are subject to an
annual adjustment equal to 60% of any increase in the consumer price index
(CPI). Grand has no obligation for any operating expenses, taxes or insurance.
The lessor of the building is a corporation owned by a stockholder of Grand. The
third lease commenced February 1, 1998, with an initial term of five years with
one five-year renewal option. The payments for this lease are to be adjusted
annually to the CPI in an amount not to exceed 6%. Grand has an obligation for
operating expenses, taxes and insurance under this lease. On July 1, 2000, the
third lease was amended to include additional space at the same premise. Other
than an increased lease payment, the terms of the original lease apply to the
amendment.
The future minimum rental commitments for these noncancellable leases as of
December 31, 2000 are as follows:
Year ending December 31,
- --------------------------------------------------------------------------------------------------------------------
2001 $ 259,089
2002 259,089
2003 158,854
- --------------------------------------------------------------------------------------------------------------------
$ 677,032
- --------------------------------------------------------------------------------------------------------------------
Total lease expense was $271,044 ($149,740 related party), $243,265 ($147,373
related party) and $239,115 ($145,320 related party) for 2000, 1999 and 1998,
respectively.
NOTE 6 - DEPOSITS
Time deposits issued in denominations of $100,000 or more were $41,295,305 and
$39,963,039 at December 31, 2000 and 1999, respectively.
At December 31, 2000, the scheduled maturities of time deposits were as follows:
Year ending December 31,
- --------------------------------------------------------------------------------------------------------------------
2001 $ 60,930,010
2002 1,523,693
2003 3,989,120
2004 20,949
2005 and thereafter 107,044
- --------------------------------------------------------------------------------------------------------------------
$ 66,570,816
- --------------------------------------------------------------------------------------------------------------------
Related party deposits totaled $13,051,393 and $4,195,064 at December 31, 2000
and 1999, respectively.
78
Grand Bank Financial Corporation
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank (FHLB) advances were as follows:
December 31, 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Fixed rate advances:
5.24%, due May 2001 $ 2,500,000 $ 2,500,000
5.75%, due August 2001 500,000 500,000
5.39%, due November 2002 2,000,000 2,000,000
6.95%, due July 2003 629,096 705,811
5.98%, due February 2008 1,023,992 1,115,176
5.50%, due October 2008 552,332 577,027
5.60%, due January 2009 837,131 900,000
Single-maturity adjustable rate advance (reprice quarterly):
6.79%, due May 2001 2,000,000 2,000,000
- --------------------------------------------------------------------------------------------------------------------
$ 10,042,551 $ 10,298,014
- --------------------------------------------------------------------------------------------------------------------
At December 31, 2000, scheduled principal reductions on FHLB advances were as
follows:
Year ending December 31,
- --------------------------------------------------------------------------------------------------------------------
2001 $ 5,275,931
2002 2,298,049
2003 676,936
2004 239,497
2005 257,669
Thereafter 1,294,469
- --------------------------------------------------------------------------------------------------------------------
$ 10,042,551
- --------------------------------------------------------------------------------------------------------------------
The advances are collateralized by mortgage loans and certain securities with
outstanding balances not less than 145% of advances outstanding, and
specifically pledged securities with a market value between 105% and 110% of
advances outstanding.
The advances are subject to a prepayment penalty based on the greater of .25% of
the principal amount prepaid or the present value of the lost cash flow to the
FHLB.
NOTE 8 - NOTE PAYABLE
Grand has entered into a revolving credit agreement with a bank which provides
for unsecured borrowings of up to $5,000,000 through March 31, 2001. The
outstanding balance on March 30, 2001 can, at Grand's option, be paid or
converted to a term loan payable in 11 quarterly installments (based on a
10-year payment amortization) through March 31, 2004, at which time the
remaining balance is due. Interest is based on three different pricing options:
a negotiated rate, a eurodollar rate (LIBOR plus a factor) and a floating rate
(greater of the prime rate or the federal funds rate plus .5%. As of December
31, 2000, available borrowings amounted to $2,500,000. The weighted average
interest rate on outstanding borrowings of $2,500,000 was 8.11%. Restrictive
covenants apply to, among other things, tangible net worth, return on average
assets, indebtedness to tangible net worth and the percentage of nonperforming
loans to average assets.
79
Grand Bank Financial Corporation
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 9 - FEDERAL INCOME TAXES
Federal income tax expense consists of:
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Current $ 1,555,500 $ 1,204,000 $ 1,066,500
Deferred (338,000) (222,000) (255,500)
- --------------------------------------------------------------------------------------------------------------------
$ 1,217,500 $ 982,000 $ 811,000
- --------------------------------------------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to the net deferred
income tax asset, included in other assets, are as follows:
December 31, 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Deferred income tax assets:
Allowance for loan losses $ 701,192 $ 522,617
Deferred compensation 412,680 262,798
Deferred loan fees 15,556 13,179
Securities valuation - 69,729
Other 16,765 15,364
- --------------------------------------------------------------------------------------------------------------------
Total deferred income tax assets 1,146,193 883,687
Deferred income tax liabilities:
Accumulated depreciation (12,193) (17,958)
Securities valuation (10,856) -
- --------------------------------------------------------------------------------------------------------------------
Total deferred income tax liabilities (23,049) (17,958)
- --------------------------------------------------------------------------------------------------------------------
Net Deferred Income Tax Asset $ 1,123,144 $ 865,729
- --------------------------------------------------------------------------------------------------------------------
Federal income tax expense differed from expense at statutory rates primarily
due to miscellaneous nondeductible expenses having a tax effect of $67,300,
$44,000 and $3,400 in 2000, 1999 and 1998, respectively, and tax-exempt interest
income having a tax effect of $29,200 in 2000.
80
Grand Bank Financial Corporation
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 10 - EMPLOYEE BENEFIT PLANS
Defined Benefit Plan
Grand has a defined benefit pension plan covering substantially all of its
employees under which Grand will pay the entire cost of providing eligible
employees with a monthly retirement benefit. Grand's policy is to annually fund
the amount recommended by the plan's actuary.
Financial information regarding the plan is as follows:
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Benefit obligation at year-end $ (1,098,168) $ (1,081,847) $ (695,620)
Fair value of plan assets at year-end 1,095,509 967,947 786,041
- --------------------------------------------------------------------------------------------------------------------
Funded status $ (2,659) $ (113,900) $ 90,421
- --------------------------------------------------------------------------------------------------------------------
Accrued pension cost recognized in the consolidated
balance sheet $ (83,955) $ (74,846) $ (28,126)
- --------------------------------------------------------------------------------------------------------------------
Benefit cost $ 116,321 $ 136,711 $ 80,826
Employer contributions 107,212 89,991 77,065
Benefits paid 7,745 2,115 12,863
- --------------------------------------------------------------------------------------------------------------------
Weighted average actuarial assumptions as of year-end:
Discount rate 7.5% 7.0% 7.5%
Expected return on plan assets 8.0% 8.0% 8.0%
Rate of compensation increase 4.0% 4.0% 4.0%
- --------------------------------------------------------------------------------------------------------------------
Defined Contribution Plan
Grand also sponsors a defined contribution 401(k) plan for the benefit of
substantially all employees. Under the plan, employees may make voluntary
contributions based on a percentage of their compensation, limited to 15%.
Matching contributions are made in an amount equal to 25% of the first 8% of the
employee's contributed compensation. Matching contributions totaled $43,160,
$43,703 and $39,533 during 2000, 1999 and 1998, respectively.
Phantom Stock Plan
The purpose of the Grand Bank Phantom Stock Plan is to provide key employees
with the opportunity to receive deferred bonuses based upon the growth and
success of the Bank. Eligible participants are determined by the Board of
Directors, based on the recommendation of the Bank's Human Resources Committee.
Under the plan, Phantom Stock Units may be awarded to participants, at the
discretion of the Board of Directors, as of January 1 of any year. Phantom Stock
Units do not grant participants any voting rights or other rights as a
stockholder of the Bank or Grand.
Participants are eligible for benefits, payable in a lump sum amount, upon the
occurrence of a "Distributable Event." A Distributable Event occurs if the
participant (a) is employed on the third anniversary of the award date, (b) dies
or is disabled while employed by the Bank, (c) terminates employment after
reaching normal or early retirement age under the Bank's defined benefit pension
plan or (d) is employed by the Bank at the time of the sale of Grand. The value
of the Phantom Stock Units is equal to the excess of the fair market value of
Grand's common stock, as of the most recent valuation before the Distributable
Event, over the fair market value of the common stock as of the award date.
81
Grand Bank Financial Corporation
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
There were 5,000 Phantom Stock Units awarded effective January 1, 2000. Expense
of $150,000 was recorded during 2000 based on the increase in the fair market
value of Grand's common stock and the issuance of an additional 2,500 of Phantom
Stock Units. There were 2,500 Phantom Stock Units awarded effective January 1,
1999. Expense of $50,000 was recorded during 1999 based on the increase in the
fair market value of Grand's common stock. No Phantom Stock Units were awarded
in 1998.
NOTE 11 - STOCK OPTION PLAN
Grand's 1997 and 1988 stock option plans grant corporate officers and other key
employees options to purchase shares of common stock. The plans provide for
stock options to be granted at exercise prices that approximate the fair value
of the stock at the respective dates of grant. Some options become vested and
may be exercised 20% per year from the date of grant and begin to expire ten
years subsequent to the date of grant. Certain other options are immediately
exercisable.
A summary of stock option plan activity is as follows:
2000 1999 1998
----------------------- --------------------- ----------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Year ended December 31, Shares price Shares price Shares price
- --------------------------------------------------------------------------------------------------------------------
Options outstanding at beginning of year 4,831 $ 79.20 3,951 $ 61.11 8,759 $ 49.77
Granted - - 1,000 150.00 - -
Exercised - - (100) (74.00) (4,740) (40.00)
Terminated - - (20) (72.00) (68) (72.00)
- -------------------------------------------------------------------------------------------------------------------
Options outstanding at end of year 4,831 $ 79.20 4,831 $ 79.20 3,951 $ 61.11
- -------------------------------------------------------------------------------------------------------------------
Options exercisable at end of year 4,459 $ 79.80 4,273 $ 80.14 3,190 $ 58.52
- -------------------------------------------------------------------------------------------------------------------
Options available for grant at end of year 12,069 - 12,069 - 13,049 -
- -------------------------------------------------------------------------------------------------------------------
Price per share of options outstanding $49.50 - $150.00 $49.50 - $150.00 $49.50 - $74.00
- --------------------------------------------------------------------------------------------------------------------
Net income and earnings per share would not be materially different if Grand
accounted for its employee stock options under the fair value method as provided
for under SFAS No. 123, Accounting for Stock-Based Compensation.
82
Grand Bank Financial Corporation
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 12 - EARNINGS PER SHARE
The computations of basic and diluted earnings per share were as follows:
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Numerator - net income for the year $ 2,251,375 $ 1,776,636 $ 1,564,187
- --------------------------------------------------------------------------------------------------------------------
Denominator:
Weighted average number of shares outstanding
(denominator for basic earnings per share) 134,959 134,952 130,970
Effect of dilutive stock options 2,705 2,280 968
- --------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share 137,664 137,232 131,938
- --------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 16.68 $ 13.16 $ 11.94
- --------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 16.35 $ 12.95 $ 11.86
- --------------------------------------------------------------------------------------------------------------------
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Some financial instruments with off-balance sheet risk are used in the normal
course of business to meet the financing needs of customers. These financial
instruments consist of commitments to make loans and fund lines and letters of
credit. The exposure to credit loss in the event of nonperformance by the other
party to these financial instruments is represented by the contractual amount of
these instruments. The same credit policies are used to make such commitments as
are used for loans. Collateral (e.g., cash deposits, securities, receivables,
inventory, equipment) is obtained based on management's credit assessment of the
customer.
Financial instruments with off-balance sheet risk are as follows:
December 31, 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Commitments to make loans $ 14,536,147 $ 15,314,100
Unused lines of credit 90,870,699 66,989,767
Standby letters of credit 1,271,752 3,714,060
- --------------------------------------------------------------------------------------------------------------------
Since certain commitments to make loans and fund lines and letters of credit
expire without being used, the amount does not necessarily represent future cash
commitments. Commitment periods are generally for 90 days.
Certain legal actions arise in the ordinary course of business. In the opinion
of management, after consultation of legal counsel, the ultimate disposition of
these matters is not expected to have a material adverse effect on Grand's
consolidated financial condition or results of operations.
83
Grand Bank Financial Corporation
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate fair values of
financial instruments for which it is practicable to estimate fair value. The
carrying amount is considered to approximate fair value for cash and cash
equivalents and accrued interest receivable and payable. Fair values for
securities are based on quoted market prices or dealer quotes. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar instruments. The fair value of fixed and variable rate loans
and deposits is principally estimated by discounting future cash flows using the
current rates at which similar instruments would be made with similar
maturities. The fair value of FHLB advances and notes payable is determined by
discounting cash flows using rates currently offered for advances of similar
remaining maturities. The fair values of commitments to extend credit and
standby letters of credit were immaterial for this presentation.
The estimated fair values of financial instruments were as follows:
2000 1999
----------------------------------- -------------------------------------
Carrying Fair Carrying Fair
December 31, value value value value
- --------------------------------------------------------------------------------------------------------------------
Financial assets:
Cash and cash equivalents $ 26,917,464 $ 26,917,464 $ 15,152,833 $ 15,152,833
Securities available for sale 7,369,176 7,369,176 5,556,759 5,556,759
Securities held to maturity 6,461,915 6,564,439 5,675,342 5,497,960
Other securities 601,700 601,700 601,700 601,700
Loans held for sale 148,000 148,000 868,000 868,000
Portfolio loans, net 178,496,832 179,310,000 147,548,470 148,700,000
Accrued interest receivable 855,744 855,744 638,654 638,654
Financial liabilities:
Deposits 193,586,732 187,292,000 152,066,220 151,982,390
FHLB advances payable 10,042,551 9,958,000 10,298,014 10,322,000
Notes payable 2,500,000 2,500,000 1,500,000 1,500,000
Accrued interest payable 723,200 723,200 456,816 456,816
- --------------------------------------------------------------------------------------------------------------------
NOTE 15 - REGULATORY MATTERS
Grand and the Bank individually are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the financial statements of Grand as a whole. Under
the capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of its assets, liabilities and certain off-balance sheet
items as calculated under regulatory accounting practices. The Bank's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier 1 capital (as defined) to average assets (as
defined). Management believes, as of December 31, 2000, that the Bank meets all
capital adequacy requirements to which it is subject.
As of December 31, 2000 and 1999, the most recent notifications from the Federal
Deposit Insurance Corporation categorized the Bank as "well capitalized" under
the regulatory framework for prompt corrective action. To be categorized
84
Grand Bank Financial Corporation
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
as well capitalized, the Bank must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leverage ratios as set forth in the table. As of December
31, 2000, there are no conditions or events since the most recent notification
that management believes have changed the category under which the Bank would be
classified.
Grand's and Bank's capital amounts and ratios are presented in the tables below.
Actual Minimum for capital To be well capitalized
adequacy purposes under prompt corrective
action provisions
---------------------- ----------------------- -------------------------
December 31, 2000 Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------------------
Total Capital (to Risk Weighted Assets)
Grand Bank Financial Corporation $ 17,196,812 9.1% $ 15,197,012 8.0% $ N/A N/A
Grand Bank 19,677,512 10.4% 15,196,739 8.0% 18,995,924 10.0%
- ---------------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Risk Weighted Assets)
Grand Bank Financial Corporation $ 14,843,841 7.8% $ 7,598,506 4.0% $ N/A N/A
Grand Bank 14,824,541 7.8% 7,598,370 4.0% 11,397,554 6.0%
- ---------------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Average Assets)
Grand Bank Financial Corporation $ 14,843,841 6.8% $ 8,741,400 4.0% $ N/A N/A
Grand Bank 14,824,541 6.8% 8,741,400 4.0% 10,926,750 5.0%
- ---------------------------------------------------------------------------------------------------------------------
Actual Minimum for capital To be well
adequacy purposes capitalized under
prompt corrective
action provisions
--------------------- --------------------- -------------------------
December 31, 1999 Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------
Total Capital (to Risk Weighted Assets)
Grand Bank Financial Corporation $ 14,817,210 9.5% $ 12,530,510 8.0% $ N/A N/A
Grand Bank 16,295,994 10.4% 12,530,238 8.0% 15,662,797 10.0%
- ---------------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Risk Weighted Assets)
Grand Bank Financial Corporation $ 12,862,383 8.2% $ 6,265,255 4.0% $ N/A N/A
Grand Bank 12,841,167 8.2% 6,265,119 4.0% 9,397,678 6.0%
- ---------------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Average Assets)
Grand Bank Financial Corporation $ 12,862,383 7.3% $ 7,070,520 4.0% $ N/A N/A
Grand Bank 12,841,167 7.3% 7,070,520 4.0% 8,838,150 5.0%
- ---------------------------------------------------------------------------------------------------------------------
NOTE 16 - REGULATORY RESTRICTIONS
State banking laws and regulations place certain restrictions on loans and
advances and dividends from the Bank to Grand. In 2001, subject to meeting its
minimum regulatory capital requirements as discussed in Note 15, the Bank may
contribute to Grand (in addition to 2001 net income) approximately $420,000 in
dividends without approval from regulatory agencies.
85
Voting and Management Information
Voting Securities and Principal Shareholders of Grand
Shareholders of record of Grand common stock as of the close of business on
_____________, 2002, are entitled to one vote for each share then held. As of
that date, Grand had 134,959 shares of its common stock outstanding.
Major Shareholders
The following table sets forth information for each person who was the
beneficial owner of more than 5% of Grand's outstanding shares of common stock
as of September 30, 2001.
Amount and Nature of
Beneficial Ownership of
Grand Common Stock(1)(2)
-----------------------------------------------
Sole Voting Shared Macatawa Common
and Voting or Total Percent Stock to be
Name and Address of Dispositive Dispositive Beneficial of Received in
Beneficial Owner Power Power(3) Ownership Class Merger(4)
- ---------------------------------------------------------------------------------------------------------------------------
Peter C. Cook 11,728 916 12,644 9.37% 222,507
Owen Pyle Jr. - 9,900 9,900 7.34% 174,219
Charles C. and Janet Stoddard 176 12,900 13,076 9.68% 230,110
Richard L. Trumley, Trustee of the
Richard L. Trumley Trust, u/a/d 10-21-85 - 6,767 6,767 5.01% 119,084
(1) The information shown in this table is based upon information furnished to
Macatawa by the individuals named in the table.
(2) The numbers of shares stated are based on information furnished by each
person listed and include shares personally owned of record by that person
and shares that under applicable regulations are considered to be otherwise
beneficially owned by that person. Under these regulations, a beneficial
owner of a security includes any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship or
otherwise, has or shares voting power or dispositive power with respect to
the security. Voting power includes the power to vote or direct the voting
of the security. Dispositive power includes the power to dispose or direct
the disposition of the security. A person is also considered the beneficial
owner of a security if the person has a right to acquire beneficial
ownership of the security within 60 days. Shares held in fiduciary
capacities by Grand are not included unless otherwise indicated. Grand and
the directors and officers of Grand and Grand Bank disclaim beneficial
ownership of shares held by Grand or Grand Bank in fiduciary capacities.
(3) These numbers include shares as to which the listed person is legally
entitled to share voting or dispositive power by reason of joint ownership,
trust or other contract or property right, and shares held by spouses and
minor children over whom the listed person may have influence by reason of
relationship. Shares held in fiduciary capacities by Grand are not included
unless otherwise indicated. The directors and officers of Grand and Grand
Bank, by reason of their positions, may be in a position to influence the
voting or disposition of shares held in trust by Grand to some degree, but
disclaim beneficial ownership of these shares.
(4) This column reflects the number of shares of Macatawa common stock to be
issued to the specified person in exchange for the number of shares of
Grand common stock as of November 20, 2001 held by such person as shown
above.
(5) These numbers consist of shares held in various fiduciary capacities
through the trust department of Grand Bank. Grand and the directors and
officers of Grand and Grand Bank disclaim beneficial ownership of these
shares.
(6) These numbers include shares of restricted Grand common stock and shares of
Grand common stock that may be acquired through the exercise of stock
options within 60 days.
86
Directors and Executive Officers
The following table sets forth certain information concerning the number of
shares of Grand common stock held as of November 17, 2001, by each of Grand's
directors, each of the named executive officers of Grand, and all of Grand's
directors and executive officers as a group. Information with respect to shares
held in certain Grand benefit plans incorporated in the following table is based
on the most recent information available for those plans, as indicated in the
footnotes to the table.
Amount and Nature of
Beneficial Ownership of Grand Common Stock(1)(2)
Shared
Name of Sole Voting Voting or Total Percent Macatawa Common
Beneficial Owner and Dispositive Dispositive Beneficial of Stock to be Received
Power Power(3) Ownership Class in Merger(4)
- ------------------------------------------------------------------------------------------------------------------------------
Henry Bouma 4,351 640 4,991 3.70% 87,831
Robert W. DeJonge 75 1,136 1,211 0.90% 21,311
Brian L. Downs 2,173 - 2,173 1.59% 38,240
William H. Fickes - 1,078 1,078 0.80% 18,970
Bill Hardiman - - - 0.00% -
J.C. Huizenga 1,090 720 1,810 1.34% 31,852
Birgit Klohs 20 - 20 0.01% 351
Harvey Koning 1,250 - 1,250 0.93% 21,997
R. Lawrence Leigh 1,635 1,125 2,760 2.05% 48,570
Arend Lubbers - 140 140 0.10% 2,463
Douglas Meijer 1,500 - 1,500 1.11% 26,396
Owen Pyle Jr. - 9,900 9,900 7.34% 174,219
Richard Ross - 1,905 1,905 1.41% 33,523
Dana Sommers 134 1,134 1,268 0.94% 22,314
Gordon Stauffer - 2,060 2,060 1.53% 36,251
Charles C. Stoddard 176 12,900 13,076 9.68% 230,110
Gary Vos - 3,664 3,664 2.71% 64,478
Thomas J. Wesholski 2,000 - 2,000 1.46% 35,195
- ------------------------------------------------------------------------------------------------------------------------------
All directors and
executive officers
as a group (18 persons) 17,348 29,794 47,142 33.85% 894,071
- ------------------------------------------------------------------------------------------------------------------------------
(1) The information shown in this table is based upon information furnished to
Macatawa by the individuals named in the table.
(2) The numbers of shares stated are based on information furnished by each
person listed and include shares personally owned of record by that person
and shares that under applicable regulations are considered to be otherwise
beneficially owned by that person. Under these regulations, a beneficial
owner of a security includes any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship or
otherwise, has or shares voting power or dispositive power with respect to
the security. Voting power includes the power to vote or direct the voting
of the security. Dispositive power includes the power to dispose or direct
the disposition of the security. A person is also considered the beneficial
owner of a security if the person has a right to acquire beneficial
ownership of the security within 60 days. Shares held in fiduciary
capacities by Grand are not included unless otherwise indicated. Grand and
the directors and officers of Grand and Grand disclaim beneficial ownership
of shares held by Grand in fiduciary capacities.
(3) These numbers include shares as to which the listed person is legally
entitled to share voting or dispositive power by reason of joint ownership,
trust or other contract or property right, and shares held by spouses and
minor children over whom the listed person may have influence by reason of
relationship. Shares held in fiduciary capacities by Grand are not included
unless otherwise indicated. The directors and officers of Grand and Grand
Bank, by reason of their
87
positions, may be in a position to influence the voting or disposition of
shares held in trust by Grand Bank to some degree, but disclaim beneficial
ownership of these shares.
(4) This column reflects the number of shares of Macatawa common stock to be
issued to the specified person in exchange for the number of shares of
Grand common stock as of November 20, 2001 held by such person as shown
above.
(5) These numbers consist of shares held in various fiduciary capacities
through the trust department of Grand. Grand and the directors and officers
of Grand and Grand disclaim beneficial ownership of these shares.
(6) These numbers include shares of restricted Grand common stock and shares of
Grand common stock that may be acquired through the exercise of stock
options within 60 days.
Interests of Certain Persons in the Merger
Certain members of management and Board of Directors of Grand and its
subsidiaries may be deemed to have interests in the Merger in addition to their
interests as shareholders of Grand generally. The Grand Board of Directors was
aware of these interests and considered them, among other matters, in approving
the Merger Agreement.
Employment and Noncompetition Agreements
Three of Grand Bank's executive officers, Messrs. Downs, Fickes, and
Wesholski, have entered into amended and restated employment agreements with
Grand Bank, which have been approved and guaranteed by Macatawa. These
agreements contain severance provisions entitling the officers, in certain
circumstances, to compensation and benefits upon their termination or
resignation. They would amend and replace pre-existing employment agreements as
of the Effective Time of the Merger. Under these amended employment agreements,
if the executive resigns from Grand Bank other than for a good reason, he will
receive severance payments of monthly salary at a rate which approximates the
rate expected to be in effect prior to the Effective Time of the Merger, and
medical benefits for the shorter of the year following his resignation or the
remainder of the two-year period following the Effective Time of the Merger.
However, these payments and benefits are terminated if he competes with Grand or
Macatawa in Kent or Ottawa counties. If any of these executives is terminated
for cause or resigns for a good reason, he will receive a lump sum payment equal
to an amount similar to his monthly salary multiplied by the number of months
remaining in the two-year period following the Effective Time of the Merger and
medical benefits for the number of months remaining in the two-year period. In
addition, Messrs. Downs, Fickes, and Wesholski will each receive a bonus payment
($50,000 for Messrs. Downs and Fickes and $70,000 for Mr. Wesholski), if he
remains employed by Grand Bank for two years following the Effective Time of the
Merger.
Mr. DeJonge has a pre-existing employment agreement with Grand Bank. Under
that agreement, if his employment with Grand Bank is terminated due to change of
control of Grand Bank, he will be entitled to outplacement services and two
year's salary, payable monthly, provided he does not solicit Grand customers.
It is not expected that Mr. Stoddard will continue to serve as a director
or officer of Macatawa or Grand Bank after the Merger. Grand Bank and Mr.
Stoddard have entered into a noncompetition agreement that will become effective
if the Merger takes place. Under this agreement, Mr. Stoddard will resign as an
employee and director of Grand and Grand Bank as of the Effective Time of the
Merger, and he will receive payments in twenty-four monthly installments of an
amount equal to the average of his annual salaries for 2002, 2001 and 2000 plus
the average of his annual bonuses for 2001 and 2000 divided by 12. He will also
receive certain medical and similar benefits for up to 24 months. However, these
payments and benefits will be terminated if he competes with Grand or Macatawa
in Kent or Ottawa counties. These payments are similar to amounts he would have
been entitled to under his pre-existing employment agreement with Grand Bank,
which will be superceded by the separation agreement as of the Effective Time of
the Merger.
Macatawa's Board of Directors
After the Merger is completed, the number of members of Macatawa's Board of
Directors will be increased by one member. The new member will be a current
member of Grand's Board of Directors to be selected by Grand and subject to
approval by Macatawa's Board of Directors. That director has not yet been
identified.
Conversion of Stock Options and Phantom Stock
Grand's stock option plans and phantom stock plan have been amended to
include terms that would cause the stock options and phantom stock held by
Grand's management who participate in these plans to be converted if the Merger
between Macatawa and Grand is consummated. Under Grand's amended stock option
plan and the Merger Agreement,
88
each existing Grand stock option would be converted into an option to purchase a
number of shares of Macatawa common stock equal to the original number of shares
of Grand common stock subject to the option multiplied by the Exchange Ratio.
The option price for each such option will be adjusted by dividing the original
option price by the Exchange Ratio.
Certain previously awarded but unvested stock options will vest upon the
completion of the Merger. The following numbers of stock options would vest for
the following executive officers: 19 for Mr. DeJonge, 18 for Mr. Downs, 20 for
Mr. Fickes and 44 for Mr. Stoddard.
Immediately before the Effective Time of the Merger, Grand's phantom stock
plan will be terminated and each unit of phantom stock will be converted into a
right to receive in cash the difference between the appraised value of Grand
common stock on the date of issue of the phantom stock units and the average per
share trading price of Macatawa common stock on the five trading days prior to
the Effective Time of the Merger multiplied by the Exchange Ratio. Certain
previously awarded but unvested phantom stock units will vest upon the
termination of the phantom stock plan. The following numbers of phantom stock
units would vest for the following executive officers: 1,344 for Mr. DeJonge,
1,410 for Mr. Downs, 1,461 for Mr. Fickes, 1,695 for Mr. Stoddard and 1,590 for
Mr. Wesholski. If the average per share trading price of Macatawa common stock
as computed under the plan was $_____ (the closing price on _________________)
the executive officers would receive cash payments under the phantom stock plan
as follows: Mr. DeJonge $_______; Mr. Downs $_______; Mr. Fickes $_______; Mr.
Stoddard $_______ and Mr. Wesholski $_______.
Macatawa Stock
Directors and executive officers of Grand collectively were the beneficial
owners of a total of 47,142 shares of Macatawa common stock as of the record
date.
Indemnification; Directors' and Officers' Liability Insurance
Macatawa has also agreed to honor the rights to indemnification and
advancement of expenses now existing in favor of the directors and officers of
Grand and its subsidiaries under their articles of incorporation or bylaws.
These provisions are contractual rights enforceable by Grand directors and
officers which will remain in effect following the Merger and will continue with
respect to acts or omissions occurring before the Effective Time of the Merger.
Macatawa has agreed to use all reasonable efforts to cause the officers and
directors of Grand immediately prior to the Merger to be covered for a period of
at least the six years after the Effective Time of the Merger by the directors'
and officers' liability insurance policy maintained by Grand with respect to
acts or omissions occurring before the Merger. Macatawa may substitute new
coverage for Grand's current coverage under policies offering at least the same
coverage and amounts. For a description of the specific terms of the Merger
Agreement concerning indemnification and insurance, see "The Merger and Merger
Agreement - Insurance and Indemnification" above.
89
General Information
Experts
The consolidated financial statements of Macatawa at December 31, 2000 and
1999, and for each of the three years in the period ended December 31, 2000,
incorporated by reference in this prospectus and joint proxy statement and
elsewhere in the Registration Statement of which this prospectus and joint proxy
statement is a part, have been audited by Crowe, Chizek and Company LLP,
independent auditors, as set forth in their report and are incorporated by
reference in this document in reliance upon such report given on the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of Grand at December 31, 2000 and
1999, and for each of the three years in the period ended December 31, 2000,
included in this prospectus and joint proxy statement have been audited by BDO
Seidman, LLP, independent auditors, as set forth in their report and are
included in this document in reliance upon such report given on the authority of
that firm as experts in accounting and auditing.
Legal Opinions
Certain legal matters in connection with the proposed Merger will be passed
upon for Macatawa by its general counsel, Varnum, Riddering, Schmidt & Howlett
LLP of Grand Rapids, Michigan, and for Grand by its general counsel, Warner
Norcross & Judd LLP of Grand Rapids, Michigan.
As of ___________, 2002, partners in and attorneys employed by or
associated with Varnum, Riddering, Schmidt & Howlett LLP and their associates
were beneficial owners of a total of approximately __________ shares of Macatawa
common stock having an approximate aggregate market value of $__________ as of
such date and no shares of Grand common stock. Shares reported as beneficially
owned include all shares as to which such persons have direct or indirect, sole
or shared, power to direct voting of disposition, including personal shares as
well as shares held in fiduciary capacities.
Sources of Information
Macatawa has supplied all information contained or incorporated by
reference in this prospectus and joint proxy statement relating to Macatawa and
Donnelly, Penman, French, Haggarty & Co. Grand has supplied all such information
relating to itself and Austin Associates.
90
Where You Can Find More Information
Macatawa has filed a registration statement on Form S-4 to register with
the Securities and Exchange Commission the offering of Macatawa common stock to
be issued by Macatawa in the Merger. This prospectus and joint proxy statement
is a part of that registration statement. As allowed by Securities and Exchange
Commission rules, this prospectus and joint proxy statement does not contain all
of the information contained in the registration statement or the exhibits to
the registration statement. This means that this prospectus and joint proxy
statement incorporates important business and financial information about
Macatawa that is not included in or delivered with this document.
Macatawa is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. Accordingly, Macatawa files annual, quarterly
and current reports, proxy statements, and other information with the Securities
and Exchange Commission. You may read and copy any reports, statements, or other
information that we file at the Securities and Exchange Commission's Public
Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. You may call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the operation of the Public Reference Room. Macatawa's Securities and
Exchange Commission filings are also available to the public from commercial
document retrieval services and at the web site maintained by the Securities and
Exchange Commission at "http://www.sec.gov." That web site contains reports,
proxy and information statements, and other information regarding companies that
file electronically with the Securities and Exchange Commission.
The Securities and Exchange Commission allows Macatawa to incorporate by
reference information into this prospectus and joint proxy statement. This means
that Macatawa can disclose important information by referring to another
document filed separately with the Securities and Exchange Commission. The
information incorporated by reference is considered to be part of this
prospectus and joint proxy statement, except for any information superseded by
information in this prospectus and joint proxy statement. This prospectus and
joint proxy statement incorporates by reference the documents set forth below
that Macatawa has previously filed with the Securities and Exchange Commission.
These documents contain important information about Macatawa and its finances.
Macatawa Commission Filings (File No. 333-45755) Period
- ------------------------------------------------ ------
Annual Report on Form 10-K Year ended December 31, 2000
Quarterly Reports on Form 10-Q Quarters ended March 31, 2001, June 30, 2001, and
September 30, 2001
Registration Statement on Form 8-A Filed April 30, 1999
All documents subsequently filed by Macatawa with the Securities and
Exchange Commission pursuant to Sections 13(a), 13(c), 14, and 15 of the
Securities Exchange Act of 1934, as amended, between the date of this prospectus
and joint proxy statement and the date of the later of the special meeting of
shareholders of Macatawa or the special meeting of the shareholders of Grand are
also incorporated by reference into this prospectus and joint proxy statement.
Documents incorporated by reference are available from Macatawa and Grand
without charge to Macatawa shareholders. You may obtain documents incorporated
by reference in this prospectus and joint proxy statement by requesting them in
writing or by telephone from Macatawa at the following addresses:
Macatawa Bank Corporation
Attn: Secretary
348 South Waverly Road
Holland, Michigan 49423
Tel: (616) 820-1444
To obtain timely delivery of this information, you must request the information
no later than _____, 2002, which is five business days before the date of the
special meeting at which you are requested to vote.
You should rely only on the information contained or incorporated by
reference in this prospectus and joint proxy statement to vote on the Merger and
the related issuance of Macatawa common stock. Neither Macatawa nor Grand has
authorized anyone to provide you with information that is different from what is
contained in this prospectus and joint proxy statement.
91
This prospectus and joint proxy statement is dated as of the date set forth
on the cover page. You should not assume that the information contained in this
prospectus and joint proxy statement is accurate as of any date other than that
date, and neither the mailing of this prospectus and joint proxy statement to
you nor the issuance of Macatawa common stock in the Merger shall create any
implication to the contrary.
Forward-Looking Statements
This prospectus and joint proxy statement and the documents incorporated in
this prospectus and joint proxy statement by reference contain forward-looking
statements that are based on management's beliefs, assumptions, current
expectations, estimates, and projections about the financial services industry,
the economy, and about Macatawa and Grand themselves. Words such as
"anticipates," "believes," "estimates," "expects," "forecasts," "intends," "is
likely," "plans," "projects," variations of such words and similar expressions
are intended to identify such forward-looking statements. These statements are
not guarantees of future performance and involve certain risks, uncertainties
and assumptions that are difficult to predict with regard to timing, extent,
likelihood, and degree of occurrence. Therefore, actual results and outcomes may
materially differ from what may be expressed, implied, or forecasted in such
forward-looking statements.
Future factors that could cause a difference between an ultimate actual
outcome and a preceding forward-looking statement include changes in interest
rates and interest rate relationships; demand for products and services; the
degree of competition by traditional and non-traditional competitors; changes in
banking regulations; changes in tax laws; changes in prices, levies, and
assessments; the impact of technological advances; governmental and regulatory
policy changes; the outcomes of pending and future litigation and contingencies;
trends in customer behaviors as well as their ability to repay loans; changes in
the national economy; and the possibility that expected efficiencies and cost
savings from the Merger of Grand with Macatawa and other mergers and
acquisitions in which Macatawa may be involved might not be fully realized
within the expected time frame. Neither Macatawa nor Grand undertakes any
obligation to update, amend or clarify forward-looking statements, whether as a
result of new information, future events, or otherwise.
92
Appendix A
Agreement and Plan of Merger
AGREEMENT AND PLAN OF MERGER
Between
GRAND BANK FINANCIAL CORPORATION
and
MACATAWA BANK CORPORATION
Dated as of November 20, 2001
A-1
TABLE OF CONTENTS
Page
ARTICLE I THE TRANSACTION.............................................A - 6
1.1 Approval of Plan of Merger.............................A - 6
1.2 The Closing............................................A - 6
1.3 Effective Time of the Merger...........................A - 6
1.4 Merger of Grand with and into Macatawa.................A - 6
1.5 Effect of the Merger...................................A - 6
1.6 Additional Actions.....................................A - 6
1.7 Surviving Corporation..................................A - 6
ARTICLE II MERGER CONSIDERATION; EXCHANGE PROCEDURE....................A - 7
2.1 Conversion of Outstanding Grand Common Stock...........A - 7
2.2 Conversion of Grand Stock Options......................A - 7
2.3 No Fractional Securities...............................A - 7
2.4 Exchange Procedures....................................A - 8
2.5 Macatawa Common Stock..................................A - 8
2.6 Anti-Dilution Adjustments..............................A - 8
2.7 Grand Common Stock No Longer Outstanding...............A - 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF MACATAWA..................A - 9
3.1 Authorization, No Conflicts, Etc.......................A - 9
3.2 Organization and Good Standing........................A - 10
3.3 Subsidiaries..........................................A - 10
3.4 Capital Stock.........................................A - 10
3.5 Registration Statement, Etc...........................A - 10
3.6 Financial Statements..................................A - 11
3.7 Absence of Undisclosed Liabilities....................A - 11
3.8 Absence of Material Adverse Change....................A - 11
3.9 Absence of Litigation.................................A - 11
3.10 Conduct of Business...................................A - 11
3.11 Absence of Defaults Under Contracts...................A - 12
3.12 Regulatory Filings....................................A - 12
3.13 Licenses, Permits, Etc................................A - 12
3.14 Environmental Matters.................................A - 12
3.15 Allowance for Loan Losses.............................A - 12
3.16 Agreements With Bank Regulators.......................A - 12
3.17 True and Complete Information.........................A - 12
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF GRAND....................A - 12
4.1 Authorization, No Conflicts, Etc......................A - 13
4.2 Organization and Good Standing........................A - 13
4.3 Subsidiaries..........................................A - 13
4.4 Capital Stock and Stock Options.......................A - 14
4.5 Financial Statements..................................A - 14
4.6 Absence of Undisclosed Liabilities....................A - 15
4.7 Absence of Material Adverse Change....................A - 15
4.8 Absence of Litigation.................................A - 15
4.9 Conduct of Business...................................A - 15
4.10 Absence of Defaults Under Contracts...................A - 15
4.11 Regulatory Filings....................................A - 15
4.12 Registration Statement, Etc...........................A - 16
4.13 Tax Matters...........................................A - 16
A-2
4.14 Title to Properties...................................A - 16
4.15 Condition of Property.................................A - 17
4.16 Leases................................................A - 17
4.17 Ownership of Real Property............................A - 17
4.18 Licenses, Permits, Etc................................A - 17
4.19 Certain Employment Matters............................A - 17
4.20 Employee Benefit Plans................................A - 18
4.21 Environmental Matters.................................A - 19
4.22 Duties as Fiduciary...................................A - 20
4.23 Investment Bankers and Brokers........................A - 21
4.24 Change in Business Relationships......................A - 21
4.25 Related Persons.......................................A - 21
4.26 Insurance.............................................A - 21
4.27 Books and Records.....................................A - 21
4.28 Loan Guarantees.......................................A - 21
4.29 Events Since December 31, 2000........................A - 21
4.30 Allowance for Loan Losses.............................A - 22
4.31 Agreements With Bank Regulators.......................A - 22
4.32 True and Complete Information.........................A - 22
ARTICLE V CERTAIN COVENANTS..........................................A - 22
5.1 Disclosure Statement..................................A - 22
5.2 Changes Affecting Representations.....................A - 22
5.3 Conduct of Business Pending the Effective Time
of the Merger......................................A - 22
5.4 Accrual of Transaction Expenses.......................A - 24
5.5 Termination of Phantom Stock Plan.....................A - 24
5.6 Regular Dividends.....................................A - 24
5.7 Affiliates............................................A - 25
5.8 Approval of Plan of Merger by Macatawa Shareholders...A - 25
5.9 Approval of Plan of Merger by Grand Shareholders......A - 25
5.10 Competing Proposals...................................A - 26
5.11 Indemnification.......................................A - 26
5.12 Insurance.............................................A - 26
5.13 Name..................................................A - 27
5.14 Charitable Giving.....................................A - 27
ARTICLE VI ADDITIONAL AGREEMENTS......................................A - 27
6.1 Registration Statement................................A - 27
6.2 Other Filings.........................................A - 27
6.3 Press Releases........................................A - 27
6.4 Miscellaneous Agreements and Consents.................A - 27
6.5 Grand Financial Information...........................A - 27
6.6 Investigation.........................................A - 28
6.7 Environmental Investigation...........................A - 29
6.8 Employee Benefit Plans................................A - 29
ARTICLE VII CONDITIONS PRECEDENT TO MACATAWA'S OBLIGATIONS.............A - 29
7.1 Renewal of Representations and Warranties, Etc........A - 30
7.2 Opinion of Legal Counsel..............................A - 30
7.3 Required Approvals....................................A - 30
7.4 Order, Decree, Etc....................................A - 30
7.5 Proceedings...........................................A - 30
7.6 Tax Matters...........................................A - 30
7.7 Registration Statement................................A - 31
7.8 Certificate as to Outstanding Shares..................A - 31
A-3
7.9 Change of Control Waivers.............................A - 31
7.10 Employment Agreements.................................A - 31
7.11 Grand Stock Options...................................A - 31
7.12 Amendment of Grand Stock Options......................A - 31
7.13 Fairness Opinion......................................A - 31
ARTICLE VIII CONDITIONS PRECEDENT TO GRAND'S OBLIGATIONS................A - 31
8.1 Renewal of Representations and Warranties, Etc........A - 31
8.2 Opinions of Legal Counsel.............................A - 32
8.3 Required Approvals....................................A - 32
8.4 Order, Decree, Etc....................................A - 32
8.5 Proceedings...........................................A - 32
8.6 Tax Matters...........................................A - 32
8.7 Registration Statement................................A - 32
8.8 Listing of Shares.....................................A - 32
8.9 Certificate as to Outstanding Shares..................A - 32
8.10 Fairness Opinion......................................A - 32
ARTICLE IX ABANDONMENT OF MERGER......................................A - 33
9.1 Mutual Abandonment....................................A - 33
9.2 Upset Date............................................A - 33
9.3 Macatawa's Rights to Terminate........................A - 33
9.4 Grand's Rights to Terminate...........................A - 33
9.5 Effect of Termination.................................A - 33
ARTICLE X MISCELLANEOUS..............................................A - 34
10.1 "Material Adverse Effect" Defined.....................A - 34
10.2 "Knowledge" Defined...................................A - 34
10.3 Nonsurvival of Representations, Warranties,
and Agreements.....................................A - 34
10.4 Amendment.............................................A - 34
10.5 Expenses..............................................A - 34
10.6 Specific Enforcement..................................A - 34
10.7 Jurisdiction; Jury....................................A - 34
10.8 Waiver................................................A - 34
10.9 Notices...............................................A - 35
10.10 Governing Law.........................................A - 35
10.11 Entire Agreement......................................A - 35
10.12 Third Party Beneficiaries.............................A - 35
10.13 Counterparts..........................................A - 35
10.14 Further Assurances; Privileges........................A - 35
10.15 Headings, Etc.........................................A - 36
10.16 Calculation of Dates and Deadlines....................A - 36
10.17 Severability..........................................A - 36
A-4
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Plan of Merger") is made as of
November 20, 2001, between GRAND BANK FINANCIAL CORPORATION, a Michigan
corporation ("Grand"), and MACATAWA BANK CORPORATION, a Michigan corporation
("Macatawa").
Macatawa and Grand (sometimes individually referred to as a "Corporation"
or collectively as the "Corporations") have agreed to merge Grand with and into
Macatawa in accordance with this Plan of Merger and in accordance with the
Business Corporation Act of the State of Michigan, as amended (the "Michigan
Act"). The transactions contemplated by and described in this Plan of Merger are
referred to as the "Merger."
Macatawa is a bank holding company registered as such with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") under the
Bank Holding Company Act of 1956, as amended (the "Federal Bank Holding Company
Act"). Macatawa has authorized capital stock consisting of 9,500,000 shares of
common stock, no par value ("Macatawa Common Stock"). Each share of Macatawa
Common Stock is entitled to one vote on all matters submitted for a vote of the
shareholders. As of the date of this Plan of Merger, there were 5,307,201 shares
of Macatawa Common Stock issued and outstanding.
Grand is a bank holding company registered as such with the Federal Reserve
Board under the Federal Bank Holding Company Act. Grand has authorized capital
stock consisting of 250,000 shares of common stock, no par value ("Grand Common
Stock"). Each share of Grand Common Stock is entitled to one vote on all matters
submitted for a vote of the shareholders. As of the date of this Plan of Merger,
there were 134,959 shares of Grand Common Stock issued and outstanding, and
Grand had options outstanding to purchase an additional 4,825 shares of Grand
Common Stock ("Grand Stock Options"). Grand owns all of the issued and
outstanding shares of capital stock of Grand, a Michigan banking corporation
(the "Bank").
The boards of directors of Grand and Macatawa each deems the Merger
advisable and in the best interests of their respective Corporations and
shareholders. Grand and Macatawa have each adopted this Plan of Merger by
resolutions duly adopted by their respective boards of directors. The boards of
directors of Grand and Macatawa have directed that this Plan of Merger be
submitted to the respective shareholders of each Corporation for approval.
In consideration of the promises and the representations, warranties, and
covenants contained in this Plan of Merger, the parties agree:
A-5
ARTICLE I
THE TRANSACTION
Subject to the terms and conditions of this Plan of Merger, the Merger of
Grand with and into Macatawa shall be carried out in the following manner:
1.1 Approval of Plan of Merger. As soon as practicable after this Plan of
Merger has been executed and delivered and the Registration Statement (as
described in Section 3.5.1 (Document)) has become effective, Grand shall submit
this Plan of Merger and Macatawa shall submit this Plan of Merger and the
issuance of shares of Macatawa Common Stock pursuant to the Merger, to their
respective shareholders for approval at a meeting properly called, noticed, and
held for that purpose.
1.2 The Closing. The Merger shall be consummated as promptly as possible
after a closing (the "Closing"). The Closing shall be held at the offices of
Varnum, Riddering, Schmidt & Howlett LLP, Bridgewater Place, 333 Bridge Street,
N.W., Grand Rapids, Michigan 49504 on such date and at such time as may be
mutually agreed by the parties, or in the absence of such agreement, on a date
specified by either party upon 5 business days' written notice after the last to
occur of the following events: (i) the receipt of all consents and approvals of
government regulatory authorities as legally required to consummate the Merger
and the expiration of all statutory waiting periods; and (ii) the requisite
approval of this Plan of Merger by the shareholders of Grand and Macatawa.
Scheduling or commencing the Closing shall not, however, constitute a waiver of
the conditions precedent as set forth in this Plan of Merger. Upon completion of
the Closing, Grand and Macatawa shall each promptly execute and file an
appropriate certificate of merger in the form and as required by the Michigan
Act to effect the Merger (the "Certificate of Merger.")
1.3 Effective Time of the Merger. Subject to the terms and conditions of
this Plan of Merger, the Merger shall be consummated as promptly as possible
following the Closing by filing the Certificate of Merger in the manner required
by law. The "Effective Time of the Merger" shall be a date and time to be
specified in the Certificate of Merger, which shall be as soon as practicable,
but not later than 3 business days, after the Closing.
1.4 Merger of Grand with and into Macatawa. Grand shall be merged with and
into Macatawa (each sometimes being referred to as a "Constituent Corporation"
prior to the Merger) by the filing of the Certificate of Merger with the
Michigan Department of Consumer and Industry Services, Bureau of Commercial
Services Corporations Division as provided by the Michigan Act. At the Effective
Time of the Merger, the Constituent Corporations shall become a single
corporation, which shall be Macatawa (the "Surviving Corporation").
1.5 Effect of the Merger. From and after the Effective Time of the Merger,
the effect of the Merger upon each of the Constituent Corporations and the
Surviving Corporation shall be as provided in Chapter Seven of the Michigan Act
with respect to the merger of domestic corporations.
1.6 Additional Actions. If, at any time after the Effective Time of the
Merger, the Surviving Corporation shall determine that any further assignments
or assurances or any other acts are necessary or desirable to vest, perfect, or
confirm, of record or otherwise, in the Surviving Corporation its right, title,
or interest in, to, or under any of the rights, properties, or assets of Grand
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger, or to otherwise carry out the purposes of this Plan
of Merger, then Grand and its directors and officers shall be deemed to have
granted to the Surviving Corporation an irrevocable power of attorney to execute
and deliver all such proper deeds, assignments, and assurances in law and to do
all acts necessary or proper to vest, perfect, or confirm title to and
possession of such rights, properties, or assets in the Surviving Corporation
and to otherwise carry out the purposes of this Plan of Merger. After the
Effective Time of the Merger, the directors and officers of the Surviving
Corporation are fully authorized in the name of Grand to take any and all such
action as may be contemplated by this Article I (The Transaction).
1.7 Surviving Corporation. As of and immediately after the Effective Time
of the Merger, the Surviving Corporation shall have the following attributes
until they are subsequently changed in the manner provided by law:
1.7.1 Name. The name of the Surviving Corporation shall be "Macatawa
Bank Corporation."
1.7.2 Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation shall be the Articles of Incorporation of Macatawa as
in effect immediately prior to the Effective Time of the Merger.
1.7.3 Bylaws. The Bylaws of the Surviving Corporation shall be the
Bylaws of Macatawa as in effect immediately prior to the Effective Time of
the Merger.
A-6
1.7.4 Directors. From and after the Effective Time of the Merger,
until duly changed in compliance with applicable law and the Articles of
Incorporation of the Surviving Corporation, the Board of Directors of the
Surviving Corporation shall consist of the persons who are serving as
directors of Macatawa immediately prior to the Effective Time of the Merger
plus one additional person who is a member of the Grand Board of Directors
immediately prior to the Effective Time of the Merger and who is selected
by Grand, with such selection to be subject to the approval by the Board of
Directors of Macatawa.
1.7.5 Officers. The officers of the Surviving Corporation shall be the
persons who were officers of Macatawa immediately prior to the Effective
Time of the Merger.
ARTICLE II
MERGER CONSIDERATION; EXCHANGE PROCEDURE
2.1 Conversion of Outstanding Grand Common Stock. Subject to the provisions
of this Plan of Merger, each share of Grand Common Stock outstanding immediately
prior to the Effective Time of the Merger shall become and be converted into the
right to receive that number of shares of Macatawa Common Stock equal to the
Stock Exchange Ratio (as defined below) (the "Per Share Stock Consideration"),
provided that no fractional shares of Macatawa Common Stock will be issued. Each
share of Grand Common Stock (i) held by Macatawa or any of its subsidiaries for
its own account and not in a fiduciary or representative capacity for a person
other than Macatawa or any of its subsidiaries or (ii) held by Grand as an
authorized but unissued share, if any, shall be cancelled and no consideration
shall be issuable and payable with respect to any such share. For purposes of
this Plan of Merger, the "Stock Exchange Ratio" will be 17.5979.
2.2 Conversion of Grand Stock Options. Subject to the provisions of this
Plan of Merger:
2.2.1 Definition of Grand Stock Options. For purposes of this Plan of
Merger, "Grand Stock Options" shall mean all outstanding options to
purchase shares of Grand Common Stock which were granted pursuant to the
Grand Bank Financial Corporation 1988 Stock Option Plan or the Grand Bank
Financial Corporation Stock Option Plan of 1997.
2.2.2 Conversion of Outstanding Grand Stock Options. Subject to the
provisions of this Plan of Merger, each Grand Stock Option which is
outstanding immediately prior to the Effective Time of the Merger shall at
the Effective Time of the Merger become and be converted into an option to
purchase shares of Macatawa Common Stock ("Converted Macatawa Stock
Options") in an amount equal to the product (rounded to the fourth decimal
place) of (a) the number of shares of Grand Common Stock then subject to
the Grand Stock Option, multiplied by (b) the Stock Exchange Ratio,
provided that any fractional shares of Macatawa Common Stock resulting from
such multiplication shall be rounded to the nearest whole share. The
exercise price per share of Macatawa Common Stock under the Converted
Macatawa Stock Option shall be equal to the then applicable exercise price
per share of Grand Common Stock under the Grand Stock Option divided by the
Stock Exchange Ratio, provided that such exercise price shall be rounded to
the nearest whole cent.
2.2.3 Registration of Underlying Shares of Macatawa Common Stock.
Macatawa shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Macatawa Common Stock for delivery upon
the exercise of all Converted Macatawa Stock Options. As soon as
practicable after the Effective Time of the Merger, Macatawa shall file a
registration statement on form S-8 (or any successor or other appropriate
form), with respect to the Macatawa Common Stock subject to such options
and shall use its reasonable best efforts to maintain the effectiveness of
such registration statement or statements (and maintain the current status
of the prospectus or prospectuses contained therein) for so long as all the
Converted Macatawa Stock Options remain outstanding.
2.3 No Fractional Securities. Notwithstanding any other provision hereof,
no fractional shares of Macatawa Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, Macatawa shall pay to each holder of Grand Common Stock (after taking
into account all Old Certificates (as defined in Section 2.4.1 (New Certificates
and Exchange Fund) delivered by such holder) an amount in cash (without
interest) determined by multiplying such fraction by the Market Price. For
purposes of this Plan of Merger, the "Market Price" shall be the average of the
last-reported sale price per share of Macatawa Common Stock for the five (5)
consecutive trading days ending on the business day prior to Closing, as
reported on The NASDAQ Stock Market.
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2.4 Exchange Procedures.
2.4.1 New Certificates and Exchange Fund. At or prior to the Effective
Time of the Merger, Macatawa shall deliver, or shall cause to be delivered,
to Registrar and Transfer Company or such other bank or trust company as
Macatawa may designate (the "Exchange Agent"), for the benefit of the
holders of certificates formerly representing shares of Grand Common Stock
("Old Certificates") for exchange in accordance with this Article II
(Merger Consideration; Exchange Procedure), certificates representing the
shares of Macatawa Common Stock ("New Certificates") and an estimated
amount of cash (such cash and New Certificates, together with any dividends
or distributions with respect thereto (without any interest thereon), being
hereinafter referred to as the "Exchange Fund" to be issued and paid
pursuant to this Article II in exchange for outstanding shares of Grand
Common Stock.
2.4.2 Transmittal Materials. As promptly as practicable after the
Effective Time of the Merger, Macatawa shall send or cause to be sent to
each former holder of record of shares of Grand Common Stock immediately
prior to the Effective Time of the Merger, transmittal materials for use in
exchanging such holder's Old Certificates for the consideration set forth
in this Article II (Merger Consideration; Exchange Procedure). Macatawa
shall cause the New Certificates into which shares of a shareholder's Grand
Common Stock are converted on the Effective Time of the Merger and/or any
check in respect of any fractional share interests or dividends or
distributions which such person shall be entitled to receive to be
delivered to such holder upon delivery to the Exchange Agent of Old
Certificates representing such shares of Grand Common Stock (or indemnity
reasonably satisfactory to Macatawa and the Exchange Agent, if any of such
certificates are lost, stolen or destroyed) owned by such holder. No
interest will be paid on any such cash to be paid pursuant to this Article
II upon such delivery.
2.4.3 Delivery to Public Officials. Notwithstanding the foregoing,
neither the Exchange Agent nor any party hereto shall be liable to any
former holder of Grand Common Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or
similar laws.
2.4.4 Dividends and Distributions. No dividends or other distributions
with respect to Macatawa Common Stock with a record date occurring after
the Effective Time of the Merger shall be paid to the holder of any
unsurrendered Old Certificate representing shares of Grand Common Stock
converted in the Merger into shares of such Macatawa Common Stock until the
holder thereof shall surrender such Old Certificate in accordance with this
Article II (Merger Consideration; Exchange Procedure). After the surrender
of an Old Certificate in accordance with this Article II, the record holder
thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of Macatawa Common Stock represented by such
Old Certificate.
2.4.5 Unclaimed Funds. Any portion of the Exchange Fund that remains
unclaimed by the shareholders of Grand for twelve months after the
Effective Time of the Merger shall be paid to Macatawa. Any shareholders of
Grand who have not theretofore complied with this Article II (Merger
Consideration; Exchange Procedure) shall thereafter look only to Macatawa
for payment of the shares of Macatawa Common Stock, cash in lieu of any
fractional shares and unpaid dividends and distributions on the shares of
Macatawa Common Stock deliverable in respect of each share of Grand Common
Stock such shareholder holds as determined pursuant to this Plan of Merger,
in each case, without any interest thereon.
2.4.6 Grand Stock Options. In addition to the foregoing, Macatawa may
require any procedures reasonably deemed necessary to effectuate the
conversion of Grand Stock Options as contemplated by Section 2.2
(Conversion of Grand Stock Options).
2.5 Macatawa Common Stock. Each share of Macatawa Common Stock outstanding
immediately prior to the Effective Time of the Merger shall continue to be
outstanding without any change. Each shareholder of Macatawa whose shares were
outstanding immediately before the Effective Time of the Merger will hold the
same number of shares, with identical designations, preferences, limitations and
relative rights, immediately after the Effective Time of the Merger.
2.6 Anti-Dilution Adjustments. This Plan of Merger shall not limit or
restrict in any manner Macatawa's right to effect a consolidation or merger of
Macatawa with or into another corporation or to effect a stock split, stock
dividend or similar transaction with respect to the outstanding Macatawa Common
Stock. In the event that Macatawa changes (or establishes a record date for
changing) the number of shares of Macatawa Common Stock issued and outstanding
prior to the Effective Time of the Merger as a result of a stock split, stock
dividend or similar transaction with respect to the outstanding Macatawa Common
Stock and the record date therefore shall be prior to the Effective Time of the
Merger, the Stock Exchange Ratio shall be adjusted by multiplying it by that
ratio (i) the numerator of which shall be the total number of shares of
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Macatawa Common Stock that are outstanding as of the record date for such
adjustment plus the additional number of shares (including the aggregate of all
possible fractional shares) to be issued in such adjustment computed as of that
record date; and (ii) the denominator of which shall be the total number of
shares of Macatawa Common Stock outstanding as of the record date for such
adjustment. In the event of a recapitalization or reclassification of
outstanding shares of Macatawa Common Stock or a consolidation or merger of
Macatawa with or into another corporation, other than a merger in which Macatawa
is the surviving corporation and which does not result in any reclassification
of Macatawa Common Stock, holders of Grand Common Stock would receive, in lieu
of each share of Macatawa Common Stock to be issued in exchange for Grand Common
Stock, the kind and amount of shares of Macatawa stock, other securities, money,
and property receivable upon such reclassification, consolidation, or merger by
holders of Macatawa Common Stock with respect to shares of Macatawa Common Stock
outstanding immediately prior to such reclassification, consolidation or merger.
2.7 Grand Common Stock No Longer Outstanding. Each share of Grand Common
Stock outstanding immediately prior to the Effective Time of the Merger shall be
considered to be no longer outstanding and to represent solely the right to
receive shares of Macatawa Common Stock as provided in Section 2.1 (Conversion
of Outstanding Grand Common Stock), together with any other distributions
payable as provided in Section 2.6 (Anti-Dilution Adjustments), but subject to
the payment of cash in lieu of fractional shares as provided in Section 2.3 (No
Fractional Securities).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MACATAWA
Except as otherwise set forth in the Macatawa disclosure statement
("Macatawa Disclosure Statement") previously delivered to Grand, Macatawa
represents and warrants to Grand that:
3.1 Authorization, No Conflicts, Etc.
3.1.1 Authorization of Agreement. The execution, delivery, and
performance of this Plan of Merger by Macatawa have been duly authorized
and approved by all necessary corporate action, except that this Plan of
Merger and the issuance of shares of Macatawa Common Stock pursuant to the
Merger, is subject to the approval of Macatawa's shareholders as described
in Section 1.1 (Approval of Plan of Merger) and, except for such
shareholder approval, when executed and delivered, this Plan of Merger will
be legally binding on and enforceable against Macatawa in accordance with
its terms.
3.1.2 No Conflict, Breach, Violation, Etc. The execution, delivery,
and performance of this Plan of Merger by Macatawa, and the consummation of
the Merger, do not and will not violate, conflict with, or result in a
breach of:
(a) Articles or Bylaws. Any provision of Macatawa's Articles of
Incorporation or Bylaws; or
(b) Statutes, Judgments, Etc. Any statute, code, ordinance, rule,
regulation, judgment, order, writ, arbitration award, decree, or
injunction applicable to Macatawa or its subsidiaries, assuming the
timely receipt of each of the approvals referred to in Section 3.1.4
(Required Approvals).
3.1.3 No Contractual Breach, Default, Liability, Etc. The execution,
delivery, and performance of this Plan of Merger by Macatawa, and the
consummation of the Merger, do not and will not:
(a) Agreements, Etc. Violate, conflict with, result in a breach
of, constitute a default under, require any consent, approval, waiver,
extension, amendment, authorization, notice or filing under, or
extinguish any material contract right of Macatawa or any of its
subsidiaries under any agreement, mortgage, lease, commitment,
indenture, other instrument, or obligation to which Macatawa or any of
its subsidiaries is a party or by which they are bound or affected:
(1) which is material to the business, income, or financial condition
of Macatawa on a consolidated basis; or (2) the violation or breach of
which could prevent Macatawa from consummating the Merger;
(b) Regulatory Restrictions. Violate, conflict with, result in a
breach of, constitute a default under, require any consent, approval,
waiver, extension, amendment, authorization, notice, or filing under
any memorandum of understanding or similar regulatory consent
agreement to which Macatawa or any of its subsidiaries is a party or
subject, or by which it is bound or affected; or
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(c) Tortious Interference. Subject Grand, its subsidiaries,
or their respective directors or officers to liability for
tortious interference with contractual rights.
3.1.4 Required Approvals. No notice to, filing with, authorization of,
exemption by, or consent or approval of, any public body or authority is
necessary for the consummation of the Merger by Macatawa other than filing
the Certificate of Merger in compliance with the provisions of the Michigan
Act, compliance with federal and state securities laws, and the consents,
authorizations, approvals, or exemptions required under the Federal Bank
Holding Company Act. As of the date of this Plan of Merger, Macatawa knows
of no reason why the regulatory approvals referred to in this Section 3.1.4
(Required Approvals) cannot be obtained or why this process could be
materially impeded.
3.2 Organization and Good Standing. Macatawa and its subsidiaries are
corporations duly organized, validly existing, and in good standing under the
laws of the State of Michigan. Macatawa and its subsidiaries possess all
requisite corporate power and authority to own, operate, and lease its
properties and to carry on its business substantially as it is now being
conducted in all material respects. Macatawa is a bank holding company duly
registered and in good standing with the Federal Reserve Board under the Federal
Bank Holding Company Act. Macatawa and its subsidiaries are not required to be
qualified or admitted to conduct business as a foreign corporation in any other
state.
3.3 Subsidiaries. Macatawa owns all of the issued and outstanding shares of
capital stock of Macatawa Bank, which owns all of the issued and outstanding
shares of capital stock of Macatawa Bank Mortgage Company, in each case free and
clear of all claims, security interests, pledges, or liens of any kind. Each of
Macatawa's subsidiaries has full corporate power and authority to carry on its
business substantially as and where now being conducted.
3.4 Capital Stock.
3.4.1 Classes and Shares. The authorized capital stock of Macatawa
consists of 500,000 shares of preferred stock, no par value, none of which
have been issued, and 9,500,000 shares of common stock, no par value, of
which, as of the date and time of the execution of this Plan of Merger,
5,307,201 shares were issued and outstanding.
3.4.2 No Other Capital Stock. There is no security or class of
securities authorized or issued which represents or is convertible into
capital stock of Macatawa except as described in this Section 3.4 (Capital
Stock). As of the date of the execution of this Plan of Merger, there are
no outstanding subscriptions, options, warrants, or rights to acquire any
capital stock of Macatawa, or agreements to which Macatawa is a party or by
which it is bound to issue capital stock, except for the stock options
disclosed in Macatawa's Annual Report to shareholders for the year ended
December 31, 2000 (the "Macatawa Annual Report") and its Quarterly Report
on Form 10-Q for the quarter ended September 30, 2001.
3.4.3 Voting Rights. Other than the shares of Macatawa's common stock
described in this Section 3.4 (Capital Stock), neither Macatawa nor any of
its subsidiaries have outstanding any security:
(a) The holder or holders of which have the right to vote on the
approval of the Merger or this Plan of Merger; or
(b) Which entitles the holder or holders to consent to, or
withhold consent on, the Merger or this Plan of Merger.
3.4.4 Macatawa Common Stock. The shares of Macatawa Common Stock to be
issued in the Merger, when issued in accordance with this Plan of Merger,
will be duly authorized and, when issued as contemplated by this Plan of
Merger, will be validly issued, fully paid, and nonassessable shares.
3.5 Registration Statement, Etc.
3.5.1 Document. The term "Document," when capitalized in this Plan of
Merger, shall collectively mean: (i) the registration statement to be filed
by Macatawa with the Securities and Exchange Commission (the "SEC") in
connection with the Macatawa Common Stock to be issued in the Merger (the
"Registration Statement"); (ii) the prospectus and proxy statement (the
"Prospectus and Proxy Statement") to be mailed to the shareholders of the
Corporations in connection with their respective shareholders' meetings
regarding this Plan of Merger; and (iii) any
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other documents to be filed with the SEC, the Federal Reserve Board, the
State of Michigan, or any other regulatory agency in connection with the
transactions contemplated by this Plan of Merger.
3.5.2 Accurate Information. None of the information to be supplied by
Macatawa for inclusion, or included, in any Document will:
(a) Be false or misleading with respect to any material fact, or
omit to state any material fact necessary to make the statements
therein not misleading (i) at the respective times such Documents are
filed; (ii) with respect to the Registration Statement, when it
becomes effective; and (iii) with respect to the Prospectus and Proxy
Statement, when it is mailed.
(b) With respect to the Registration Statement and the Prospectus
and Proxy Statement, as either may be amended or supplemented, at the
time of either Corporation's shareholders meeting with respect to this
Plan of Merger, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the
solicitation of any proxy for either Corporation's shareholders
meeting.
3.5.3 Compliance of Filings. All Documents that Macatawa is
responsible for filing with any regulatory agency in connection with the
Merger will comply in all material respects with the provisions of
applicable law.
3.6 Financial Statements. The consolidated financial statements of Macatawa
and its subsidiaries as of and for each of the three years ended December 31,
2000, 1999 and 1998, as reported on by Macatawa's independent accountants, and
the unaudited consolidated financial statements of Macatawa and its subsidiaries
as of and for the quarter ended March 31, 2001, June 30, 2001, and September 30,
2001, including all schedules and notes relating to such statements
(collectively, "Macatawa's Financial Statements"), fairly present, and the
unaudited consolidated financial statements of Macatawa and its subsidiaries as
of and for each quarter and year ending after the date of this Plan of Merger
until the Effective Time of the Merger, including all schedules and notes
relating to such statements, will fairly present, the financial condition and
the results of operations, changes in shareholders' equity, and cash flows of
Macatawa as of the respective dates of and for the periods referred to in such
financial statements, all in accordance with generally accepted United States
accounting principles ("GAAP") consistently applied, subject, in the case of
unaudited interim financial statements, to normal, recurring year-end
adjustments (the effect of which would not, individually or in the aggregate,
have a Material Adverse Effect on Macatawa) and the absence of notes (that, if
presented, would not differ materially from those included in Macatawa's
Financial Statements).
3.7 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the consolidated balance sheet of Macatawa and
its subsidiaries as of September 30, 2001, and the notes thereto, neither
Macatawa nor any subsidiary had, as of such date, liabilities or obligations,
secured or unsecured (whether accrued, absolute, or contingent) which are, or as
to which there is a reasonable probability that they could be, materially
adverse to the income or financial condition of Macatawa and its subsidiaries on
a consolidated basis.
3.8 Absence of Material Adverse Change. Since September 30, 2001, there has
been no material adverse change in the business, income, or financial condition
of Macatawa and its subsidiaries on a consolidated basis. No facts or
circumstances have been discovered from which it reasonably appears that there
is a significant risk and reasonable probability that there will occur a
material adverse change in the business, income, or financial condition of
Macatawa and its subsidiaries on a consolidated basis.
3.9 Absence of Litigation. There is no action, suit, proceeding, claim,
arbitration, or investigation pending or threatened by any person, including
without limitation any governmental or regulatory agency, against Macatawa, any
of its subsidiaries, or the assets or business of Macatawa or any of its
subsidiaries, any of which has or may have a Material Adverse Effect on the
business, income, or financial condition of Macatawa and its subsidiaries on a
consolidated basis. There is no factual basis known to Macatawa or its
subsidiaries which presents a reasonable potential for any such action, suit,
proceeding, claim, arbitration, or investigation.
3.10 Conduct of Business. Macatawa and its subsidiaries have conducted
their respective businesses and used their respective properties substantially
in compliance with all federal, state, and local laws, civil or common,
ordinances and regulations, including without limitation applicable federal and
state laws and regulations concerning banking, securities, truth-in-lending,
truth-in-savings, mortgage origination and servicing, usury, fair credit
reporting, consumer protection, occupational safety, civil rights, employee
protection, fair employment practices, fair labor standards, and insurance; and
Environmental Laws (as defined in Section 4.21.3(b) (Environmental Laws)),
except for violations which would not have a Material Adverse Effect on the
business, income or financial condition of Macatawa and its subsidiaries on a
consolidated basis.
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3.11 Absence of Defaults Under Contracts. There is no existing default by
Macatawa or any of its subsidiaries, or any other party, under any contract,
mortgage, lease, indenture or agreement to which Macatawa or a subsidiary of
Macatawa is a party, or by which any of them is bound, which could subject
Macatawa or a subsidiary of Macatawa to a risk that would have a Material
Adverse Effect on Macatawa and its subsidiaries on a consolidated basis.
3.12 Regulatory Filings. In the last five years:
3.12.1 Filings. Macatawa and its subsidiaries have filed in a timely
manner all material filings with regulatory bodies for which filings are
required;
3.12.2 Complete and Accurate. All such filings, as amended, were
complete and accurate in all material respects as of the dates of such
filings, and there were no misstatements or omissions therein which, as of
the making of this representation and warranty, would be material to the
business, income, or financial condition of Macatawa and its subsidiaries
on a consolidated basis; and
3.12.3 Compliance with Regulations. All such filings complied in all
material respects with all regulations, forms, and guidelines applicable to
such filings.
3.13 Licenses, Permits, Etc. Macatawa and its subsidiaries hold all
licenses, certificates, permits, franchises, and rights from all appropriate
federal, state, and other public authorities necessary for the conduct of their
businesses as presently conducted, the lack of which would have a Material
Adverse Effect on the business, income, or financial condition of Macatawa and
its subsidiaries on a consolidated basis.
3.14 Environmental Matters. There are no actions, suits, investigations,
liabilities, inquiries or other proceedings, rules, orders or citations
involving Macatawa or its subsidiaries pending, or to the knowledge of Macatawa,
threatened as a result of any failure of Macatawa or any of its subsidiaries, to
comply with any requirement of Environmental Laws (as defined in Section
4.21.3(b) (Environmental Laws)) that is material to the operations or assets of
Macatawa and its subsidiaries on a consolidated basis. To the knowledge of
Macatawa, there is no factual basis for any of the foregoing.
3.15 Allowance for Loan Losses. The allowance for loan losses reflected in
Macatawa's audited consolidated financial statements and Call Reports for the
fiscal year ended December 31, 2000, and for the fiscal quarter ended September
30, 2001, and the audited consolidated financial statements and unaudited Call
Reports for any subsequent quarter or year, was or will be (as applicable) in
the reasonable opinion of management of Macatawa (a) adequate to meet all
reasonably anticipated loan losses, net of recoveries related to loans
previously charged off as of those dates, and (b) consistent with GAAP
consistently applied and safe and sound banking practices.
3.16 Agreements With Bank Regulators. Neither Macatawa nor any of
Macatawa's subsidiaries is a party to any agreement or memorandum of
understanding with, or a party to any commitment letter, board resolution or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, any governmental
authority that restricts materially the conduct of its business, or in any
manner relates to its capital adequacy, its credit or reserve policies or its
management, nor has Macatawa been advised by any governmental authority that it
is contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter or similar
submission. As of the date of this Plan of Merger, Macatawa knows of no reason
why the regulatory approvals referred to in Section 3.1.4 (Required Approvals)
cannot be obtained or why this process would be materially impeded.
3.17 True and Complete Information. No schedule, statement, list,
certificate, or other information furnished or to be furnished by Macatawa in
connection with this Plan of Merger, including the Macatawa Disclosure
Statement, contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact necessary to make the statements
contained therein, in light of the circumstances in which they are made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GRAND
Except as otherwise set forth in the Grand disclosure statement ("Grand
Disclosure Statement") previously delivered to Macatawa, Grand represents and
warrants to Macatawa that:
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4.1 Authorization, No Conflicts, Etc.
4.1.1 Authorization of Agreement. The execution, delivery, and
performance of this Plan of Merger by Grand have been duly authorized and
approved by all necessary corporate action except that this Plan of Merger
is subject to the approval of Grand's shareholders as described in Section
1.1 (Approval of Plan of Merger) and, except for such shareholder approval,
when executed and delivered, this Plan of Merger will be legally binding on
and enforceable against Grand in accordance with its terms.
4.1.2 No Conflict, Breach, Violation, Etc. The execution, delivery,
and performance of this Plan of Merger by Grand, and the consummation of
the Merger, do not and will not violate, conflict with, or result in a
breach of:
(a) Articles or Bylaws. Any provision of Grand's Articles of
Incorporation or Bylaws; or
(b) Statutes, Judgments, Etc. Any statute, code, ordinance, rule,
regulation, judgment, order, writ, arbitral award, decree, or
injunction applicable to Grand or its subsidiaries, assuming the
timely receipt of each of the approvals referred to in Section 4.1.4
(Required Approvals).
4.1.3 No Contractual Breach, Default, Liability, Etc. The execution,
delivery, and performance of this Plan of Merger by Grand, and the
consummation of the Merger, do not and will not:
(a) Agreements, Etc. Violate, conflict with, result in a breach of,
constitute a default under, require any consent, approval, waiver,
extension, amendment, authorization, notice or filing under, or extinguish
any material contract right of Grand or any of its subsidiaries under any
agreement, mortgage, lease, commitment, indenture, other instrument, or
obligation to which Grand or its subsidiaries is a party or by which they
are bound or affected: (1) which is material to the business, income, or
financial condition of Grand, the Bank or any other subsidiary of Grand on
a consolidated basis; or (2) the violation or breach of which could prevent
Grand from consummating the Merger;
(b) Regulatory Restrictions. Violate, conflict with, result in a
breach of, constitute a default under, require any consent, approval,
waiver, extension, amendment, authorization, notice, or filing under any
memorandum of understanding or similar regulatory consent agreement to
which Grand, the Bank or any other subsidiary of Grand is a party or
subject, or by which it is bound or affected; or
(c) Tortious Interference. Subject Macatawa or any of its subsidiaries
or their respective directors or officers to liability for tortious
interference with contractual rights.
4.1.4 Required Approvals. No notice to, filing with, authorization of,
exemption by, or consent or approval of, any public body or authority is
necessary for the consummation of the Merger by Grand other than filing the
Certificate of Merger in compliance with the provisions of the Michigan
Act, compliance with federal and state securities laws, and the consents,
authorizations, approvals, or exemptions required under the Federal Bank
Holding Company Act. As of the date of this Plan of Merger, Grand knows of
no reason why the regulatory approvals referred to in this Section 4.1.4
(Required Approvals) cannot be obtained or why this process could be
materially impeded.
4.2 Organization and Good Standing. Grand and its subsidiaries are
corporations duly organized, validly existing, and in good standing under the
laws of the State of Michigan. Grand and its subsidiaries each possess all
requisite corporate power and authority to own, operate, and lease its
properties and to carry on its business substantially as it is now being
conducted in all material respects. Grand is a bank holding company duly
registered and in good standing with the Federal Reserve Board under the Federal
Bank Holding Company Act. Grand and its subsidiaries are not required to be
qualified or admitted to conduct business as a foreign corporation in any other
state.
4.3 Subsidiaries.
4.3.1 Ownership of Subsidiaries. Grand owns all of the issued and
outstanding shares of capital stock of the Bank which owns all of the
issued and outstanding shares of capital stock of the Grand Mortgage
Company (the "Mortgage Company"), in each case free and clear of all
claims, security interests, pledges, or liens of any kind. Grand does not
have "Control" (as defined in Section 2(a)(2) of the Federal Bank Holding
Company Act, using 5 percent rather than 25 percent), either directly or
indirectly, of any corporation engaged in an active trade or business or
which holds any significant assets other than as stated in this Section 4.3
(Subsidiaries).
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4.3.2 Rights to Capital Stock. There are no outstanding
subscriptions, options, warrants, rights to acquire, or any other
similar agreements pertaining to the capital stock of the Bank or the
Mortgage Company.
4.3.3 Qualification and Power. The Bank and the Mortgage Company:
(a) Foreign Qualification. Are not, and are not required to
be, qualified or admitted to conduct business in any other state
except where the lack of such qualification or admission would
not have a Material Adverse Effect on Grand and its subsidiaries
on a consolidated basis; and
(b) Corporate Power. Have full corporate power and authority
to carry on their business substantially as and where now being
conducted.
4.3.4 FDIC; Insurance Assessments. The Bank maintains in full force
and effect deposit insurance through the Bank Insurance Fund of the Federal
Deposit Insurance Corporation ("FDIC"). The Bank has fully paid to the FDIC
as and when due all assessments with respect to its deposits as are
required to maintain such deposit insurance in full force and effect.
4.3.5 Regulatory Fees and Charges. The Bank and the Mortgage Company
have paid as and when due all material fees, charges, assessments, and the
like to each and every governmental or regulatory agency having
jurisdiction as required by law, regulation, or rule.
4.4 Capital Stock and Stock Options.
4.4.1 Classes and Shares. The authorized capital stock of Grand
consists of 250,000 shares of common stock, no par value, of which, as of
the date and time of the execution of this Plan of Merger, 134,959 shares
were issued and outstanding and each of such outstanding shares are legally
and validly issued, fully paid and nonassessable.
4.4.2 No Other Capital Stock. There is no security or class of
securities authorized or issued which represents or is convertible into
capital stock of Grand except as described in this Section 4.4 (Capital
Stock and Stock Options). As of the date of the execution of this Plan of
Merger, there are no outstanding subscriptions, options, warrants, or
rights to acquire any capital stock of Grand, or agreements to which Grand
is a party or by which it is bound to issue capital stock, except for Grand
Stock Options disclosed pursuant to Section 4.4.4 (Stock Options).
4.4.3 Voting Rights. Other than the shares of Grand Common Stock
described in this Section 4.4 (Capital Stock and Stock Options), neither
Grand nor any of its subsidiaries have outstanding any security:
(a) The holder or holders of which have the right to vote on the
approval of the Merger or this Plan of Merger; or
(b) Which entitles the holder or holders to consent to, or
withhold consent on, the Merger or this Plan of Merger.
4.4.4 Stock Options. The Grand Disclosure Statement contains a true,
accurate and complete list of all stock option plans and outstanding
options and other rights to purchase shares of Grand Common Stock or any
other securities of Grand. Each such stock option plan was duly authorized
and approved by the Board of Directors of Grand and complies with the
provisions of any and all applicable laws. Each grant of an outstanding
Grand Stock Option was duly authorized and approved by the Board of
Directors of Grand and was issued in material compliance with the terms of
the applicable stock option plan and applicable laws.
4.5 Financial Statements.
4.5.1 Financial Statements. The audited consolidated financial
statements of Grand and its subsidiaries, as reported on by Grand's
independent accountants, as of and for (i) each of the three years ended
December 31, 2000, 1999 and 1998 and (ii) the year ended December 31, 2001,
if such is prepared and audited prior to the Effective Time of the Merger
(collectively, "Grand's Financial Statements"), including all schedules and
notes relating to such statements, do or will (as applicable) fairly
present, the financial condition and the results of operations, changes in
shareholders' equity, and cash flows of Grand as of the respective dates of
and for the periods referred to in such
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financial statements, all in accordance with GAAP consistently applied. The
unaudited consolidated financial statements of Grand and its subsidiaries
as of and for the quarters ended March 31, 2001, June 30, 2001, and
September 30, 2001, contained in Grand's quarterly reports on Form FRY-9C
filed with the Federal Reserve, and the unaudited consolidated financial
statements of Grand to be filed on Form FRY-9C prior to the Effective Time
of the Merger, including all schedules and notes relating to such
statements and included in such reports (collectively the "FRY-9Cs"), are
and will be correct and complete in all material respects. The FRY-9Cs,
which have been filed, were prepared, and the FRY-9Cs to be filed will be
prepared, in conformity with applicable regulatory accounting principles
("RAP") applied consistently throughout the periods indicated (except as
otherwise noted in such FRY-9Cs).
4.5.2 Call Reports. The reports of condition and income of the Bank as
of and for each of the years ended December 31, 1998, 1999 and 2000, and as
of and for each of the quarters ended March 31, 2001, June 30, 2001, and
September 30, 2001, and the reports of condition and income of the Bank to
be filed with the FDIC prior to the Effective Time of the Merger, including
all schedules, and notes relating to such reports (collectively, the "Call
Reports"), are and will be correct and complete in all material respects.
The Call Reports, which have been filed, were prepared, and the Call
Reports to be filed will be prepared, in conformity with applicable RAP
applied consistently throughout the periods indicated (except as otherwise
noted in such reports).
4.6 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the consolidated balance sheet of Grand and its
subsidiaries as of December 31, 2000, and the notes thereto, neither Grand, the
Bank nor any other subsidiary of Grand had, as of such date, liabilities or
obligations, secured or unsecured (whether accrued, absolute, or contingent)
which are, or as to which there is a reasonable probability that they could be,
materially adverse to the income or financial condition of Grand and
subsidiaries on a consolidated basis.
4.7 Absence of Material Adverse Change. Since December 31, 2000, there has
been no material adverse change in the business, income, or financial condition
of Grand, the Bank and any other subsidiary of Grand on a consolidated basis. No
facts or circumstances have been discovered from which it reasonably appears
that there is a significant risk and reasonable probability that there will
occur a material adverse change in the business, income, or financial condition
of Grand and its subsidiaries on a consolidated basis.
4.8 Absence of Litigation. There is no action, suit, proceeding, claim,
arbitration, or investigation pending or threatened by any person, including
without limitation any governmental or regulatory agency, against Grand or its
subsidiaries, or the assets or business of Grand or its subsidiaries, any of
which has or may have a Material Adverse Effect on the business, income, or
financial condition of Grand and its subsidiaries on a consolidated basis. There
is no factual basis known to Grand or its subsidiaries, which presents a
reasonable potential for any such action, suit, proceeding, claim, arbitration,
or investigation.
4.9 Conduct of Business. Grand and its subsidiaries have conducted their
respective businesses and used their respective properties substantially in
compliance with all federal, state, and local laws, civil or common, ordinances
and regulations, including without limitation applicable federal and state laws
and regulations concerning banking, securities, truth-in-lending,
truth-in-savings, mortgage origination and servicing, usury, fair credit
reporting, consumer protection, occupational safety, civil rights, employee
protection, fair employment practices, fair labor standards, and insurance; and
the Environmental Laws (as defined in Section 4.21.3(b) (Environmental Laws)),
except for violations which would not have a Material Adverse Effect on the
business, income or financial condition of Grand and its subsidiaries on a
consolidated basis.
4.10 Absence of Defaults Under Contracts. There is no existing default by
Grand, the Bank, or any other subsidiary of Grand or any other party, under any
contract, mortgage, lease, indenture or agreement to which Grand, the Bank or
any other subsidiary of Grand is a party, or by which any of them is bound,
which could subject Grand, the Bank or any other subsidiary of Grand to a risk
that would have a Material Adverse Effect on Grand and its subsidiaries on a
consolidated basis.
4.11 Regulatory Filings. In the last five years:
4.11.1 Filings. Grand and its subsidiaries have filed in a timely
manner all filings with regulatory bodies for which filings are required;
4.11.2 Complete and Accurate. All such filings, as amended, were
complete and accurate in all material respects as of the dates of such
filings, and there were no misstatements or omissions therein which, as of
the making
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of this representation and warranty, would be material to the business,
income, or financial condition of Grand and its subsidiaries on a
consolidated basis; and
4.11.3 Compliance with Regulations. All such filings complied in all
material respects with all regulations, forms, and guidelines applicable to
such filings.
4.12 Registration Statement, Etc.
4.12.1 Accurate Information. None of the information to be supplied by
Grand for inclusion, or included, in any Document will:
(a) Be false or misleading with respect to any material fact, or omit
to state any material fact necessary to make the statements therein not
misleading (i) at the respective times such Documents are filed; (ii) with
respect to the Registration Statement, when it becomes effective; and (iii)
with respect to the Prospectus and Proxy Statement, when it is mailed.
(b) With respect to the Registration Statement and the Prospectus
and Proxy Statement, as either may be amended or supplemented, at the
time of either Corporation's shareholders meeting with respect to this
Plan of Merger, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the
solicitation of any proxy for either Corporation's shareholders
meeting.
4.12.2 Compliance of Filings. All Documents that Grand is responsible
for filing with any regulatory agency in connection with the Merger will
comply in all material respects with the provisions of applicable law.
4.13 Tax Matters.
4.13.1 Tax Returns. Grand and its current subsidiaries and any and all
prior subsidiaries of any of them have duly and timely filed all material
tax returns that they have by law been required to file, including without
limitation those with respect to income, withholding, social security,
unemployment, franchise, real property, personal property, intangibles, and
single business taxes. Each such tax return, report, and statement, as
amended, is correct and complies in all material respects with all
applicable laws and regulations.
4.13.2 Tax Assessments and Payments. All material taxes and
assessments, including any penalties, interest, and deficiencies relating
to those taxes and assessments, due and payable by Grand, its current
subsidiaries and any prior subsidiaries (while owned by Grand or any of its
subsidiaries) have been paid in full as and when due including applicable
extension periods. The provisions made for taxes on the consolidated
balance sheet of Grand and its subsidiaries as of December 31, 2000, are
sufficient for the payment of all federal, state, county, and local taxes
of Grand, and all of its subsidiaries accrued but unpaid as of the date
indicated, whether or not disputed, with respect to all periods through
December 31, 2000.
4.13.3 Tax Audits The federal consolidated income tax returns of Grand
and the Bank and any other prior or current subsidiary of Grand, have not
been audited by the Internal Revenue Service ("IRS") within the last 10
years. There is no tax audit or legal or administrative proceeding for
assessment or collection of taxes pending or, to Grand's knowledge,
threatened with respect to Grand or the Bank or any other prior or current
subsidiary of Grand. No claim for assessment or collection of taxes has
been asserted with respect to Grand, the Bank or any other prior or current
subsidiary of Grand. No waiver of any limitations statute or extension of
any assessment or collection period is in effect with respect to Taxes of
Grand, the Bank or any other prior or current subsidiary of Grand.
4.14 Title to Properties. Grand and its subsidiaries have good, sufficient,
and marketable title to all of their properties and assets, whether real,
personal, or a combination thereof, reflected in their books and records as
being owned (including those reflected in the consolidated balance sheet of
Grand and its subsidiaries as of December 31, 2000, except as since disposed of
in the ordinary course of business), free and clear of all liens and
encumbrances, except:
4.14.1 Reflected on Balance Sheet. As reflected on the consolidated
balance sheet of Grand and its subsidiaries as of December 31, 2000, and
the notes thereto;
4.14.2 Normal to Business. Liens for current taxes not yet delinquent
and liens or encumbrances which are normal to the business of Grand and its
subsidiaries and which are not material in relation to the business,
income, or financial condition of Grand or its subsidiaries; and
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4.14.3 Immaterial Imperfections. Such imperfections of title,
easements, and encumbrances, if any, as are not material in character,
amount, or extent, and do not materially detract from the value, or
materially interfere with the present use, of the properties subject
thereto or affected thereby, or which would not otherwise be material to
the business, income, or financial condition of Grand or its subsidiaries.
4.15 Condition of Property. The nonfinancial assets owned or leased by
Grand and its subsidiaries constitute all of the assets held for use or used in
connection with the business of Grand and its subsidiaries and are generally
adequate to carry on their respective businesses as presently conducted. All
material nonfinancial assets and properties that Grand or its subsidiaries own,
lease, or use are in good operating condition (normal wear and tear excepted)
are in a good state of maintenance and repair, are reasonably fit for their
intended purposes, are adequately serviced by all utilities reasonably necessary
for the effective operation of Grand's business and also that of its
subsidiaries substantially as presently conducted, and are in the possession of
Grand or its subsidiaries. None of the real property leased or used by Grand or
its subsidiaries is the subject of any condemnation action and there is, to the
best of Grand's knowledge, no proposal under consideration by any public or
governmental authority or entity to use any of the real property leased or used
by Grand or its subsidiaries for some other purpose.
4.16 Leases. All leases pursuant to which Grand or its subsidiaries, as
lessee, lease real property which is material to the business of Grand and its
subsidiaries or personal property having an initial value in excess of $25,000
per lease (a "Material Lease") are valid, effective, and enforceable against the
lessor in accordance with their respective terms. There is no existing default
under any Material Lease, or any event which with notice or lapse of time, or
both, would constitute a default with respect to Grand or its subsidiaries or,
to the best knowledge of Grand, any other party which would be reasonably
expected to have a Material Adverse Effect on Grand and its subsidiaries on a
consolidated basis. No Material Lease contains a prohibition against assignment
by Grand or its subsidiaries, by operation of law or otherwise, or any other
provision which would preclude Grand or its subsidiaries from possessing and
using the leased premises for the same purposes and upon the same rental and
other terms upon consummation of the Merger as are applicable to the possession
and use by Grand or its subsidiaries as of the date of this Plan of Merger.
4.17 Ownership of Real Property. Neither Grand nor its subsidiaries own any
of the real property used in connection with their business.
4.18 Licenses, Permits, Etc. Grand and its subsidiaries hold all licenses,
certificates, permits, franchises, and rights from all appropriate federal,
state, and other public authorities necessary for the conduct of their
businesses as presently conducted, the lack of which would have a Material
Adverse Effect on the business, income, or financial condition of Grand and its
subsidiaries on a consolidated basis.
4.19 Certain Employment Matters.
4.19.1 Employment Policies, Programs, and Procedures. The policies,
programs and practices of Grand and its subsidiaries relating to wages,
hours of work, and other terms and conditions of employment are in
compliance in all material respects with applicable laws, orders,
regulations and ordinances governing employment and terms and conditions of
employment.
4.19.2 Record of Payments. There is no existing or outstanding
material obligation of Grand or its subsidiaries, whether arising by
operation of law, civil or common, by contract, or by past custom, for
Employment-Related Payments (as defined in Section 4.19.3
(Employment-Related Payments) to any trust, fund, company, governmental
agency, present or former director, officer, employee, agent (or his or her
heirs, survivors, legatees, or legal representatives), or person that has
not been duly recorded on the books and records of Grand or its
subsidiaries and paid when due or duly accrued as a liability, in the
ordinary course of business in accordance with GAAP consistently applied.
4.19.3 Employment-Related Payments. For purposes of this Plan of
Merger, "Employment-Related Payments" include any payment to be made with
respect to any contract for employment, unemployment compensation benefits,
profit sharing, pension or retirement benefits or social security benefits,
or for fringe benefits, including vacation or holiday pay, bonuses and
other forms of compensation, or for medical insurance or medical expenses,
which are payable to present or former directors, officers, employees, or
agents of Grand or its subsidiaries, or their respective survivors, heirs,
legatees, or legal representatives.
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4.19.4 Employment Claims. There are no disputes, claims, or charges,
pending or to Grand's knowledge threatened, alleging breach by Grand or any
of its subsidiaries of any express or implied employment contract or
commitment, or breach of any applicable law, order, regulation or ordinance
relating to employment or terms and conditions of employment, and to
Grand's knowledge there is no factual basis for any valid claim or charge
with regard to such matters which could have a Material Adverse Effect on
Grand's business, income or financial condition on a consolidated basis.
4.19.5 Disclosure of Agreements. Grand and its subsidiaries are not
parties to any written or oral, express or implied:
(a) Employment contract or agreement, or guarantee of job
security, made with or to any past or present employee of Grand or any
of its subsidiaries which is not terminable by Grand or such
subsidiary of Grand upon 30 days or less notice without penalty or
obligation;
(b) Plan, contract or arrangement providing for bonuses,
pensions, options, stock purchases, deferred compensation, retirement
payments, retirement benefits of the type described in Statement of
Financial Accounting Standard No. 106, or profit sharing; or
(c) Plan, agreement or arrangement with respect to payment of
medical expenses, insurance (except insurance continuation limited to
that required under provisions of the Consolidated Omnibus Budget
Reconciliation Act), or other benefits for any former employee of
Grand or its subsidiaries or any spouse, child, member of the same
household, estate, or survivor of any such employee.
4.20 Employee Benefit Plans. With respect to any "employee welfare benefit
plan," any "employee pension benefit plan", or any employee benefit plan within
the respective meanings of Sections 3(1), 3(2), and 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (each referred to
as an "Employee Benefit Plan"), maintained by or for the benefit of Grand or its
subsidiaries or to which Grand or its subsidiaries have made payments or
contributions on behalf of its employees:
4.20.1 ERISA Compliance. Grand and its subsidiaries, each Employee
Benefit Plan, and all trusts created thereunder are in substantial
compliance with ERISA and all other applicable laws and regulations
applicable to such plans and trusts.
4.20.2 Internal Revenue Code Compliance. Grand and its subsidiaries,
each Employee Benefit Plan which is intended to be a qualified plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), and all trusts created thereunder are in
compliance in all material respects with the applicable provisions of the
Internal Revenue Code.
4.20.3 Prohibited Transactions. No Employee Benefit Plan and no trust
created thereunder has been involved in any nonexempt "prohibited
transaction" as defined in Section 4975 of the Internal Revenue Code and in
Sections 406, 407, and 408 of ERISA.
4.20.4 Plan Termination. No Employee Benefit Plan which is a qualified
plan under Section 401(a) of the Internal Revenue Code and no trust created
thereunder has been terminated, partially terminated, curtailed,
discontinued, or merged into another plan or trust after June 30, 1974,
except in compliance with notice and disclosure to the IRS and the Pension
Benefit Guaranty Corporation (the "PBGC"), where applicable, as required by
the Internal Revenue Code and ERISA. With respect to each such termination,
all termination procedures have been completed and there are no pending or
potential liabilities to PBGC, to the plans, or to participants under such
terminated plans. Each such termination, partial termination, curtailment,
discontinuance, or consolidation has been accompanied by the issuance of a
current favorable determination letter by the IRS and, where applicable,
has been accompanied by plan termination proceedings with and through the
PBGC.
4.20.5 Multiemployer Plan. No Employee Benefit Plan is a
"multiemployer plan" within the meaning of Section 3(37)(A) of ERISA.
4.20.6 Defined Benefit Plan. Except for the Grand Pension Plan (the
"Grand Pension Plan") no Employee Benefit Plan in effect as of the date of
this Plan of Merger is a "defined benefit plan" within the meaning of
Section 3(35)of ERISA.
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4.20.7 Reportable Events. There has been no "reportable event" as
defined in Section 4043 of ERISA, after September 1, 1974, with respect to
any Employee Benefit Plan or any trust created thereunder.
4.20.8 Payment of Contributions. Grand and its subsidiaries have made
when due all contributions required under any Employee Benefit Plan and
under applicable laws and regulations.
4.20.9 Payment of Benefits. There are no payments which have become
due from any Employee Benefit Plan, the trusts created thereunder, or from
Grand or its subsidiaries with respect to any Employee Benefit Plan, that
have not been paid through normal administrative procedures to the plan
participants or beneficiaries entitled thereto, except for claims for
benefits for which administrative claims procedures under such plan have
not been exhausted.
4.20.10 Accumulated Funding Deficiency. No Employee Benefit Plan which
is intended to be a qualified plan under Section 401(a) of the Internal
Revenue Code and no trust created thereunder has incurred, after June 30,
1974, an "accumulated funding deficiency" as defined in Section 412(a) of
the Internal Revenue Code and Section 302 of ERISA (whether or not waived).
4.20.11 Funding. Neither Grand nor any subsidiary of Grand owes
premiums to the PBGC that are due but unpaid or has been determined by the
PBGC to be liable for a funding deficiency with respect to a plan
termination under Title IV of ERISA.
4.20.12 No Liability. There has been no amendment of the Grand Pension
Plan or related trust or other occurrence subsequent to the date of the
latest actuarial valuation that could result in any liability for further
contributions or other payments with respect thereto (whether direct
liability to the plan, the trust, the participants and beneficiaries of the
Grand Pension Plan, or liability to the PBGC).
4.20.13 Condition of Plan. With respect to the Grand Pension Plan,
there has been no amendment of such plan or other occurrence subsequent to
the date of the latest actuarial reports prepared with respect to such plan
that has materially changed the financial and/or funding condition of the
plan.
4.20.14 Filing of Reports. Grand and its subsidiaries have filed or
caused to be filed, and will continue to file or cause to be filed, in a
timely manner, all filings pertaining to each Employee Benefit Plan with
the IRS, the United States Department of Labor, and the PBGC as prescribed
by the Internal Revenue Code or ERISA, or regulations issued thereunder.
All such filings, as amended, were complete and accurate in all material
respects as of the dates of such filings, and there were no misstatements
or omissions in any such filing which, as the making of this representation
and warranty, would be material to the financial condition, net income or
business of Grand and its subsidiaries on a consolidated basis.
4.21 Environmental Matters.
4.21.1 Owned or Operated Property. With respect to: (i) the real
estate owned or leased by Grand or its subsidiaries or used in the conduct
of their businesses; (ii) other real estate owned by the Bank or the
Mortgage Company (other than real estate held in trust), (iii) to Grand's
knowledge, any real estate held and administered in trust by the Bank or
the Mortgage Company; and (iv) to Grand's knowledge, any real estate
formerly owned or leased by Grand or any subsidiary of Grand (for purposes
of this section, properties described in any of (i) through (iv) are
collectively referred to as "Premises"):
(a) Construction and Content. To the knowledge of Grand, none of
the Premises is constructed of, or contains as a component part, any
material which releases or may release any substance that is a
Hazardous Substance (as defined in Section 4.21.3(a) (Hazardous
Substances)) in a quantity or concentration that would give rise to a
claim of liability under Environmental Laws) or is known to be (either
by single exposure or by repeated or prolonged exposure) injurious or
hazardous to the health of persons occupying the Premises.
(b) Uses of Premises. No part of the Premises has been used by
Grand or its subsidiaries for the generation, manufacture, handling,
storage, disposal, or management of Hazardous Substances (as defined
in Section 4.21.3(a) (Hazardous Substances)), except for the storage
of normal quantities of office supplies and office cleaning and
maintenance products.
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(c) Underground Storage Tanks. To the knowledge of Grand, the
Premises do not contain, and have never contained, any underground
storage tanks. With respect to any underground storage tank listed in
the Grand Disclosure Statement as an exception to the foregoing, to
the knowledge of Grand, each such underground storage tank presently
or previously located on Premises is or has been maintained or
removed, as applicable, in compliance with all applicable
Environmental Laws (as defined in Section 4.21.3(b) (Environmental
Laws)), and has not been the source of any release of a Hazardous
Substance (as defined in Section 4.21.3(a) (Hazardous Substances)) to
the environment.
(d) Absence of Contamination. To the knowledge of Grand, the
Premises do not contain and are not contaminated by any quantity of a
Hazardous Substance (as defined in Section 4.21.3(a) (Hazardous
Substances)) from any source in excess of applicable cleanup criteria.
(e) Environmental Suits and Proceedings. There is no action,
suit, investigation, liability, inquiry, or other proceeding, ruling,
order, notice of potential liability, or citation involving Grand or
its subsidiaries pending or to Grand's knowledge threatened or
previously asserted under, or as a result of any, or alleged, failure
to comply with any requirement of, any Environmental Law (as defined
in Section 4.21.3(b) (Environmental Laws)). To the knowledge of Grand,
there is no factual basis for any of the foregoing.
4.21.2 Loan Portfolio. With respect to any real estate securing any
outstanding loan of Grand or its subsidiaries or related security interest
and any real estate owned by Grand or its subsidiaries that was acquired in
full or partial satisfaction of a debt previously contracted:
(a) Investigation. Grand and its subsidiaries have complied in
all material respects with their policies (as such policies may have
been in effect from time to time and as disclosed in the Grand
Disclosure Statement), and all applicable laws and regulations,
concerning the investigation of each such property to determine
whether or not there exists or is reasonably likely to exist any
Hazardous Substance (as defined in Section 4.21.3(a) (Hazardous
Substances)) on, in, or under such property at a level giving rise to
material liability of Grand and whether or not a release of a
Hazardous Substance has occurred at or from such property.
(b) No Known Contamination. No such property is known to Grand to
contain or be contaminated by any quantity of any Hazardous Substance
(as defined in Section 4.21.3(a) (Hazardous Substances)) from any
source at a level giving rise to material liability of Grand.
4.21.3 Definitions.
(a) Hazardous Substances. For purposes of this Plan of Merger,
"Hazardous Substance" has the meaning set forth in Section 9601 of the
Comprehensive Environmental Response Compensation and Liability Act of
1980, as amended, 42 U.S.C.A. ss. 9601 et seq. ("CERCLA"), and also
includes any substance now regulated by or subject to any
Environmental Law (as defined below) and any other pollutant,
contaminant or waste, including without limitation, petroleum,
asbestos, radon and polychlorinated biphenyls.
(b) Environmental Laws. For purposes of this Plan of Merger,
"Environmental Laws" means all laws (civil or common), ordinances,
rules, regulations, and orders that: (i) regulate air, water, soil, or
solid waste management, including the generation, release,
containment, storage, handling, transportation, disposal, or
management of Hazardous Substances; (ii) regulate or prescribe
requirements for air, water, or soil quality; (iii) are intended to
protect the public health or the environment; or (iv) establish
liability for the investigation, removal, or cleanup of, or damage
caused by, any Hazardous Substance.
4.22 Duties as Fiduciary. To the knowledge of Grand, the Bank and the
Mortgage Company have performed all of their duties in any capacity as trustee,
executor, administrator, registrar, guardian, custodian, escrow agent, receiver,
or other fiduciary in a fashion that complies in all material respects with all
applicable laws, regulations, orders, agreement, wills, instruments, and common
law standards. Neither the Bank nor the Mortgage Company has received notice of
any claim, allegation, or complaint from any person that either the Bank or the
Mortgage Company failed to perform these fiduciary duties in a manner that
complies in all material respects with all applicable laws, regulations, orders,
agreements, wills, instruments, and common law standards, except for notices
involving matters that have been resolved and any cost of such resolution is
reflected in Grand's Financial Statements.
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4.23 Investment Bankers and Brokers. Grand has not employed any broker,
finder, or investment banker in connection with the Merger, except for the
engagement of Austin Associates, LLC ("Austin Associates"). Except with respect
to Austin Associates, Grand has no express or implied agreement with any person
or company relative to any commission or finder's fee payable with respect to
the Merger.
4.24 Change in Business Relationships. Neither Grand nor its subsidiaries
have notice that any customer, agent, representative, or supplier of Grand or
its subsidiaries intends to discontinue, diminish, or adversely change their
relationship with Grand or its subsidiaries on account of the Merger or
otherwise, the effect of which would be a Material Adverse Effect on the
business of Grand and its subsidiaries on a consolidated basis. Additionally,
neither Grand nor any of its subsidiaries has been advised as of the date of
this Plan of Merger that any executive officer of Grand or of any of its
subsidiaries intendeds to terminate his or her employment on account of the
Merger or otherwise.
4.25 Related Persons. For purposes of this Plan of Merger, the term "Grand
Related Person" shall mean any director or executive officer of Grand or any
subsidiary of Grand, their spouses and children, and any person who is a member
of the same household as such persons, and any corporation, limited liability
company, partnership, proprietorship, trust, or other entity of which any such
persons, alone or together, has Control (as defined in Section 4.3.1 (Ownership
of Subsidiaries)).
4.25.1 Control of Material Assets. Other than in a capacity as a
shareholder, director, or executive officer of Grand or a subsidiary of
Grand, no Grand Related Person owns or controls any material assets or
properties that are used in the business of Grand or any subsidiary of
Grand.
4.25.2 Contractual Relationships. Other than ordinary and customary
banking, directorship, and employment relationships, no Grand Related
Person has any material contractual relationship with Grand or any
subsidiary of Grand.
4.25.3 Loan Relationships. No Grand Related Person has any outstanding
loan or loan commitment from, or on whose behalf an irrevocable letter of
credit has been issued, by Grand or any subsidiary of Grand, in a principal
amount of $175,000 or more.
4.26 Insurance. Grand and its subsidiaries maintain in full force and
effect insurance on their assets, properties, premises, operations, and
personnel in such amounts and against such risks and losses as are customary and
adequate for comparable entities engaged in the same business and industry.
During the last five years, no insurance company has canceled or refused to
renew a policy of insurance covering Grand's or any of its subsidiaries'
material assets, properties, premises, operations, or personnel.
4.27 Books and Records. The minutes contained in corporate minute books and
files of Grand and its subsidiaries properly and accurately record in all
material respects all actions actually taken by their shareholders, directors,
and committees of directors. The books, accounts, and records of Grand and its
subsidiaries reflect only actual transactions and have been maintained in all
material respects in the usual and regular manner, in accordance with GAAP
consistently applied, and in compliance with all applicable laws and
regulations.
4.28 Loan Guarantees. All guarantees of indebtedness owed to Grand or any
subsidiary of Grand, including without limitation those of the Federal Housing
Administration, the Small Business Administration, and other state and federal
agencies, are valid and enforceable, except where a failure to enforce would not
have a Material Adverse Effect on Grand.
4.29 Events Since December 31, 2000. Except as contemplated by the Plan of
Merger, neither Grand nor its subsidiaries have, since December 31, 2000:
4.29.1 Business in Ordinary Course. Conducted its business other than
in the ordinary course, or incurred or become subject to any material
liability or obligation, except liabilities incurred in the ordinary course
of business, except for any single liability that does not exceed $25,000,
or the aggregate of such liabilities that do not exceed $75,000.
4.29.2 Strikes or Labor Trouble. Experienced or, to the best knowledge
of Grand, been threatened by any strike, work stoppage, organizational
effort, or other labor trouble, or any other event or condition of any
similar character which has been or could reasonably be expected to be
materially adverse to the business, income, or financial condition of Grand
or any of its subsidiaries.
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4.29.3 Mortgage of Assets. Mortgaged, pledged, or subjected to lien,
charge, or other encumbrance any of its assets, or sold or transferred any
such assets, except in the ordinary course of business, except for such
mortgages, pledges, liens, charges, and encumbrances for indebtedness that
does not individually exceed $25,000, or do not collectively exceed
$75,000.
4.29.4 Contract Amendment or Termination. Made or permitted any
amendment or termination of any contract to which it is a party and which
is material to the business, income, or financial condition of Grand and
its subsidiaries.
4.30 Allowance for Loan Losses. The allowance for loan losses reflected in
Grand's audited consolidated financial statements and Call Reports for the
fiscal year ended December 31, 2000, and for the fiscal quarter ended September
30, 2001 (as applicable) and any audited consolidated financial statements and
unaudited Call Reports for any subsequent year or quarter, was or will be (as
applicable) in the reasonable opinion of management of Grand (a) adequate to
meet all reasonably anticipated loan losses, net of recoveries related to loans
previously charged off as of those dates, and (b) consistent with GAAP or RAP
(as applicable) consistently applied and safe and sound banking practices.
4.31 Agreements With Bank Regulators. Neither Grand nor any of Grand's
subsidiaries is a party to any agreement or memorandum of understanding with, or
a party to any commitment letter, board resolution or similar undertaking to, or
is subject to any order or directive by, or is a recipient of any extraordinary
supervisory letter from, any governmental authority that restricts materially
the conduct of its business, or in any manner relates to its capital adequacy,
its credit or reserve policies or its management, nor has Grand been advised by
any governmental authority that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, extraordinary supervisory
letter, commitment letter or similar submission. As of the date of this Plan of
Merger, Grand knows of no reason why the regulatory approvals referred to in
Section 4.1.4 (Required Approvals) cannot be obtained or why this process would
be materially impeded.
4.32 True and Complete Information. No schedule, statement, list,
certificate, or other information furnished or to be furnished by Grand in
connection with this Plan of Merger, including the Grand Disclosure Statement,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements contained
therein, in light of the circumstances in which they are made, not misleading.
ARTICLE V
CERTAIN COVENANTS
5.1 Disclosure Statement. The Grand Disclosure Statement and the Macatawa
Disclosure Statement (collectively the "Disclosure Statements" or individually a
"Disclosure Statement") shall contain appropriate references and cross
references with respect to each of the disclosures, and appropriate identifying
markings with respect to each of the documents, that pertain to one or more
sections or articles of this Plan of Merger. Grand and Macatawa have each
prepared and delivered a copy of its Disclosure Statement to the other party.
Not less than 5 days prior to the Closing, each party shall deliver to the other
an update to its Disclosure Statement describing any material changes and
containing any new or amended documents, as specified below, which are not
contained in its Disclosure Statement as initially delivered. Such update shall
not cure any breach of a representation or warranty occurring on the date of
this Plan of Merger. Each of Grand's and Macatawa's Disclosure Statement and its
respective update shall be certified on its behalf by appropriate executive
officers that such Disclosure Statement contains no untrue statement of a
material fact, or fails to omit to state a material fact necessary to make the
statements contained therein, in light of the circumstances in which they are
made, not misleading.
5.2 Changes Affecting Representations. While this Plan of Merger is in
effect, if either Macatawa or Grand becomes aware of any facts or of the
occurrence of impending occurrence of any event that (a) would cause one or more
of the representations and warranties it has given in this Plan of Merger,
subject to the exceptions contained in the Macatawa Disclosure Statement or the
Grand Disclosure Statement, respectively, to become untrue or incomplete in any
material respect; or (b) would have caused one or more of such representations
and warranties to be untrue or incomplete in any material respect had such facts
been known or had such event occurred prior to the date of this Plan of Merger,
then such party shall immediately give detailed written notice of such discovery
or change, including a detailed description of the underlying facts or events,
together with all pertinent documents, to the other party.
5.3 Conduct of Business Pending the Effective Time of the Merger. From the
date of the execution of this Plan of Merger until the Effective Time of the
Merger, Grand agrees that, except as consented to in writing by Macatawa or as
otherwise provided in this Plan of Merger, it shall, and it shall cause all of
its subsidiaries to:
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5.3.1 Ordinary Course. Conduct their business and manage their
property only in the usual, regular, and ordinary course and not otherwise,
in substantially the same manner as prior to the date of the execution of
this Plan of Merger, and not make any substantial change to their methods
of management or operation in respect of such business or property.
5.3.2 No Inconsistent Actions. Take no action which would be
inconsistent with or contrary to the representations, warranties, and
covenants made by Grand in this Plan of Merger, and take no action which
would cause Grand's representations and warranties to become untrue or
incomplete except as and to the extent required by applicable laws and
regulations or regulatory agencies having jurisdiction.
5.3.3 Compliance. Comply in all material respects with all laws,
regulations, agreements, court orders, and administrative orders applicable
to the conduct of their business unless the application of such laws,
regulations, or orders is being contested in good faith and the other party
has been notified of such contest.
5.3.4 No Amendments. Make no change in their Articles of Incorporation
or their Bylaws, except as effected by this Plan of Merger and the Merger.
5.3.5 Books and Records. Maintain their books, accounts, and records
in the usual and regular manner, and in material compliance with all
applicable laws and accounting standards.
5.3.6 No Change in Stock. Make no change in the number of shares of
their capital stock issued and outstanding other than upon exercise of
Grand Stock Options; grant no warrant, option, or commitment relating to
their capital stock; enter into no agreement relating to their capital
stock; and issue no securities convertible into their capital stock.
5.3.7 Maintenance. Use all reasonable efforts to maintain their
property and assets in their present state of repair, order and condition,
reasonable wear and tear and damage by fire or other casualty excepted.
5.3.8 Preservation of Goodwill. Use all reasonable efforts to preserve
their business organization intact, to keep available the services of their
present officers and employees, and to preserve the goodwill of their
customers and others having business relations with it.
5.3.9 Insurance Policies. Use all reasonable efforts to maintain and
keep in full force and effect insurance coverage, so long as such insurance
is reasonably available, on their assets, properties, premises, operations,
and personnel in such amounts, against such risks and losses, and with such
self-insurance requirements as are presently in force.
5.3.10 Charge-Offs. Charge off loans and maintain their reserve for
loan losses, in each case in a manner in conformity with the prior
practices of Grand and its subsidiaries and applicable industry, regulator,
and accounting standards; provided, however, that in addition to the prior
practices of Grand and its subsidiaries, immediately prior to the Effective
Time of the Merger, the Bank will charge against its earnings an addition
to its loan loss reserve in an amount necessary to bring the Bank's loan
loss reserve up to a level comparable with the loan loss reserve level of
1.42% maintained by Macatawa at its subsidiary bank; and provided further
that such action by the Bank to increase its loan loss reserve to a level
of at least 1.42% irrespective of the Bank's prior practices, shall not
result in any breach of any representation, warranty or covenant in this
Plan of Merger.
5.3.11 Policies and Procedures. Make no material change in any
policies and procedures applicable to the conduct of their business,
including without limitation any loan and underwriting policies, loan loss
and charge-off policies, investment policies, and employment policies,
except as and to the extent required by law or regulatory agencies having
jurisdiction.
5.3.12 New Directors or Officers. Except to reelect persons who are
then incumbent directors and officers at annual meetings, not:
(a) Increase the number of directors or fill any vacancy on the
boards of directors; or
(b) Elect or appoint any person to an executive office without
first consulting Macatawa.
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5.3.13 Compensation and Benefits.
(a) Not increase, or agree to increase, the salary or other
compensation payable to, or fringe benefits of, or pay or agree to pay
any bonus to, any director or officer, or any other class or group of
employees as a class or group, except for increases, agreements or
payments which are reasonable in amount and consistent with the prior
year, annual salary increases as described in the Grand Disclosure
Statement and the payment of bonuses that have previously been
approved by the Board of Directors of Grand as described in the Grand
Disclosure Statement; and
(b) Not introduce, change, or agree to introduce or change, any
pension, profit sharing, or employee benefit plan, fringe benefit
program, or other plan or program of any kind for the benefit of their
employees unless required by law or this Plan of Merger, or necessary
or advisable, in the opinion of counsel, to maintain any tax qualified
status, except as provided in Section 6.8 (Employee Benefit Plans).
5.3.14 New Employment Agreements. Not enter into any employment
agreement which is not terminable by Grand or its subsidiaries without cost
or penalty upon notice of 30 days or less, except any such agreement which
may be approved by Macatawa in writing.
5.3.15 Borrowing. Not borrow money except in the ordinary course of
business.
5.3.16 Mortgaging Assets. Not sell, mortgage, pledge, encumber, or
otherwise dispose of, or agree to sell, mortgage, pledge, encumber, or
otherwise dispose of, any of their property or assets, except in the
ordinary course of business and except for property or assets, or any group
of related properties or assets, that individually has a fair market value
of less than $25,000, or that collectively have an aggregate fair market
value of less than $75,000.
5.3.17 Notice of Actions. Notify the other party of the threat or
commencement of any material action, suit, proceeding, claim, arbitration,
or investigation against or relating to: (i) Grand, the Bank or any other
subsidiary of Grand; (ii) Grand's, the Bank's or any other subsidiary of
Grand's directors, officers, or employees in their capacities as such;
(iii) Grand's, the Bank's or any other subsidiary of Grand's assets,
liabilities, businesses, or operations; or (iv) the Merger or this Plan of
Merger.
5.3.18 New Service Arrangements. Not enter into, or commit to enter
into, any agreement for trust, consulting, professional, data processing,
or other services to Grand or its subsidiaries which is not terminable by
Grand or its subsidiaries without penalty upon notice of 30 days or less,
except for renewal of contracts for data processing and other services
reasonably believed to be necessary for the conduct of business in the
ordinary course and contracts under which the aggregate required payments
do not exceed $25,000, in each case only after consultation with Macatawa.
5.3.19 Capital Improvements. Not open, enlarge, or materially remodel
any bank or other facility, and not lease, purchase, or otherwise acquire
any real property for use as a branch bank or office, or apply for
regulatory approval of any new branch bank, excepting pursuant to prior
commitments made by Grand or its subsidiaries that are disclosed in the
Grand Disclosure Statement.
5.4 Accrual of Transaction Expenses. Grand and its subsidiaries shall
immediately prior to the Effective Time of the Merger accrue and charge against
its earnings all transaction expenses which Grand has incurred or will incur as
a result of the transactions contemplated by this Plan of Merger (including,
without limitation, any retention or change of control payments approved by
Macatawa and its legal, accounting, actuarial, tax services, and investment
banker's fees). Such accrual and charge shall not constitute a result in a
breach of any representation, warranty or covenant in this Plan of Merger.
5.5 Termination of Phantom Stock Plan. Prior to the Effective Time of the
Merger, Grand shall terminate the Grand Bank Financial Phantom Stock Plan (the
"Phantom Plan") and pay out all benefits earned under that plan, whether or not
then vested, according to the terms of that plan. All expenses related to or
caused by the termination of the Phantom Plan, will be accrued and charged
against Grand's earnings prior to the Effective Time of the Merger. Such accrual
and charge shall not constitute a result in a breach of any representation,
warranty or covenant in this Plan of Merger.
5.6 Regular Dividends. Grand shall not declare, set aside, pay or make any
dividend or other distribution or payment (whether in cash, stock or property)
with respect to, or purchase or redeem, any shares of Grand Common Stock other
than regular quarterly cash dividends on Grand Common Stock in an amount not to
exceed $.50 per share per quarter, in each case payable on the regular
historical payment dates and in a manner consistent with Grand's past dividend
practice. Macatawa
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and Grand agree that they will cooperate to assure that, during any calendar
quarter, there shall not be either a duplication or an omission of payment of
dividends to the holders of Grand Common Stock.
5.7 Affiliates. The Grand Disclosure Statement and the update to the Grand
Disclosure Statement shall identify every person who may, to Grand's reasonable
knowledge, be deemed to be an "affiliate" of Grand for purposes of Rule 145
under the Securities Act of 1933, as amended (the "Securities Act"). Grand shall
cause its counsel to deliver to each person who is identified as an affiliate,
on or prior to the Effective Time of the Merger, advice with respect to such
person's obligations under the Securities Act and the regulations issued
thereunder with respect to disposition of securities of Macatawa. Further, Grand
shall use all reasonable efforts to cause each person who is identified as an
affiliate to deliver to Macatawa on or prior to the Effective Time of the Merger
a written agreement, reasonably satisfactory to Macatawa, that such person shall
not offer to sell or otherwise dispose of any shares of Macatawa Common Stock
beneficially owned by or issued to such person pursuant to the Merger in
violation of the Securities Act or the regulations thereunder.
5.8 Approval of Plan of Merger by Macatawa Shareholders. Macatawa, acting
through its Board of Directors, shall, in accordance with the Michigan Act and
its Articles of Incorporation and Bylaws, promptly and duly call, give notice
of, convene, and hold as soon as practicable following the date upon which the
Registration Statement becomes effective, a shareholders meeting for the purpose
of adopting this Plan of Merger and the issuance of the shares of Macatawa
Common Stock pursuant to the Merger (the "Macatawa Shareholders' Meeting"). At
such meeting, the Board of Directors of Macatawa shall unanimously recommend
that its shareholders vote for approval of this Plan of Merger and the issuance
of the shares of Macatawa Common Stock pursuant to the Merger and use all
reasonable efforts to solicit from its shareholders proxies to vote on the
proposal to approve this Plan of Merger and the issuance of such shares and to
secure a quorum at such meeting.
5.9 Approval of Plan of Merger by Grand Shareholders. Grand, acting through
its Board of Directors, or a duly authorized committee shall, in accordance with
the Michigan Act and its Articles of Incorporation and Bylaws, promptly and duly
call, give notice of, convene, and hold as soon as practicable following the
date upon which the Registration Statement becomes effective, a shareholders
meeting for the purpose of adopting this Plan of Merger (the "Grand
Shareholders' Meeting").
5.9.1 Board Recommendation. Except while Grand has received in writing
a Superior Proposal (as defined in Section 5.9.4 (Superior Proposal)),
which proposal is still pending, at the Grand Shareholders' Meeting and in
any proxy materials used in connection with the Grand Shareholders'
Meeting, the Board of Directors of Grand shall recommend that its
shareholders vote for approval of this Plan of Merger.
5.9.2 Solicitation of Proxies. Except after the occurrence of a
Fiduciary Event and while such event continues:
(a) Grand shall use all reasonable efforts to solicit from its
shareholders proxies to vote on the proposal to approve this Plan of
Merger and to secure a quorum at the Grand Shareholders' Meeting.
(b) Except while Grand has received in writing a Superior
Proposal that is still pending, Grand shall use all reasonable efforts
to secure the vote of shareholders required by the Michigan Act and
Grand's Articles of Incorporation and Bylaws to approve this Plan of
Merger.
5.9.3 Fiduciary Event. A "Fiduciary Event" shall have occurred when
the Board of Directors of Grand has (a) received in writing a Superior
Proposal (as defined in Section 5.9.4 (Superior Proposal)) that is then
pending, (b) determined in good faith (having considered the advice of
legal counsel) that its fiduciary duties to Grand's shareholders under
applicable law would require the Board of Directors to so withdraw, modify,
or change its recommendation, and (c) determined to accept and recommend
the Superior Proposal to the shareholders of Grand.
5.9.4 Superior Proposal. A "Superior Proposal" means any bona fide
unsolicited Acquisition Proposal (as defined in Section 5.10.1 (No
Solicitation)) made by a third party on terms that the Board of Directors
of Grand determines in its good faith judgment, (having considered the
written advice of Austin Associates or another financial advisor of
recognized reputation) to be materially more favorable to Grand's
shareholders than this Plan of Merger from a financial point of view.
5.9.5 Notice. Grand shall notify Macatawa at least ten business days
prior to taking any action with respect to such Superior Proposal or taking
any action with respect to the withdrawal, modification, or change of its
recommendation to its shareholders for adoption of this Plan of Merger.
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5.10 Competing Proposals. Except as provided below, neither Grand nor
its subsidiaries, nor any of their respective directors, officers, employees,
investment bankers, representatives, or agents, shall take any action
inconsistent with the intent to consummate the Merger upon the terms and
conditions of this Plan of Merger. Without limiting the foregoing:
5.10.1 No Solicitation. Neither Grand nor its subsidiaries, nor any of
their respective directors, officers, employees, attorneys, investment
bankers, representatives, or agents, shall, directly or indirectly, (i)
invite, initiate, solicit, or encourage an Acquisition Proposal or (ii)
participate in any discussions or negotiations regarding an Acquisition
Proposal unless a Fiduciary Event has occurred and continues or such
discussions or negotiations are likely to lead to a Superior Proposal. A
proposal, offer, or other expression of interest concerning any tender
offer, exchange offer, merger, consolidation, sale of shares, sale of
assets, or assumption of liabilities not in the ordinary course, or other
business combination involving Grand or its subsidiaries, or substantially
all of their respective assets or properties, other than the Merger shall
be referred to as an "Acquisition Proposal".
5.10.2 Communication of Other Proposals. Grand shall cause written
notice to be delivered to Macatawa promptly upon receipt of any Acquisition
Proposal. Such notice shall contain the material terms and conditions of
the Acquisition Proposal to which such notice relates. Within ten business
days after Grand's receipt of an Acquisition Proposal, Grand shall give
notice to Macatawa whether or not a Fiduciary Event has occurred or a
Superior Proposal is reasonably likely to result, and if not, Grand's
notice shall include a copy of Grand's unequivocal rejection of the
Acquisition Proposal in the form actually delivered to the person from whom
the Acquisition Proposal was received. Thereafter, Grand shall promptly
notify Macatawa of any material changes in the terms, conditions, and
status of such Acquisition Proposal.
5.10.3 Furnishing Information. Unless a Fiduciary Event has occurred
and continues or there is reasonable likelihood that a Superior Proposal
would result, neither Grand nor its subsidiaries, nor any of their
respective directors, officers, employees, attorneys, investment bankers,
representatives, or agents, shall furnish any nonpublic information
concerning Grand or its subsidiaries to any person who is not affiliated or
under contract with Grand or Macatawa, except as required by applicable law
or regulations. Prior to furnishing such information to any person who is
not affiliated or under contract with Grand or Macatawa, Grand shall
receive from such person an executed confidentiality agreement with terms
no less favorable to Grand than those contained in its confidentiality
agreement with Macatawa, and Grand shall then provide only such information
as has been furnished previously to Macatawa.
5.10.4 Payment after Certain Events. If, after this Plan of Merger is
executed, the Board of Directors of Grand or the shareholders of Grand
accept or approve any Acquisition Proposal or Superior Proposal, which
competes or is otherwise inconsistent with the transactions contemplated by
this Plan of Merger or terminates this Plan of Merger due to a Fiduciary
Event, then Grand shall promptly pay to Macatawa a fee of $2,000,000.
5.10.5 Corporate Liability for Individual's Breach. For the purposes
of this Section 5.10 (Competing Proposals), any breach of this Section 5.10
(Competing Proposals) or of any subsection hereof by an executive officer,
director, attorney or financial advisor of Grand, in his or her individual
capacity, shall be deemed to be a breach by Grand. Notwithstanding the
above, no provision of this Plan of Merger shall be construed to require
either party or their directors to take any action that would violate
applicable law (whether statutory or common law), rule, or regulation.
5.11 Indemnification. Macatawa shall honor any and all rights to
indemnification and advancement of expenses now existing in favor of the present
and former directors and officers of Grand, the Bank, or the Mortgage Company
under their Articles of Incorporation or Bylaws included in the Grand Disclosure
Statement, which shall survive the Merger as enforceable contractual rights, and
shall, as contractual rights, continue with respect to acts or omissions
occurring before the Effective Time of the Merger with the same force and effect
as prior to the Effective Time of the Merger. This Section 5.11
(Indemnification) is for the benefit of persons who are or have been directors
or officers of Grand and shall be enforceable by and only by such persons and
their estates and personal representatives.
5.12 Insurance. Macatawa shall use all reasonable efforts to cause the
persons currently serving or having served as officers and directors of Grand
immediately prior to the Effective Time of the Merger to be covered for a period
of at least six years from the Effective Time of the Merger by the directors'
and officers' liability insurance policy ("D&O Policy") maintained by Grand
(provided that Macatawa may substitute for such Grand D&O Policy a substitute
D&O Policy of at least the same coverage and amounts as Macatawa provides to its
own officers and directors) with respect to acts or omissions occurring prior to
the Effective Time of the Merger that were committed by such officers and
directors in their capacity as such. In no event shall Macatawa be required to
spend, directly or indirectly, more than $96,000 in the aggregate to either
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maintain or provide insurance coverage pursuant to this Plan of Merger. If
Macatawa does not advise Grand in writing prior to the Grand Shareholders'
Meeting that it has procured such coverage, Grand shall be permitted (after
giving Macatawa three business days prior written notice and an additional two
business day period to purchase such coverage), in lieu of receiving the
foregoing insurance coverage, to procure tail coverage for past acts and
omissions for a single premium amount not in excess of $96,000. This Section
5.12 (Insurance) is for the benefit of persons who are or have been directors or
officers of Grand and shall be enforceable by and only by such persons and their
estates and personal representatives.
5.13 Name. After the Effective Time of the Merger, Macatawa agrees that it
shall retain and use the "Grand" name and charter for a period of at least two
(2) years from the Effective Time of the Merger, unless the Board of Directors
of the Bank agrees otherwise.
5.14 Charitable Giving. Notwithstanding Section 5.3 (Conduct of Business
Pending the Effective Time of the Merger) Grand and Bank shall be permitted to
make charitable contributions, authorized by their respective boards of
directors, with respect to Grand's 2001 fiscal year (some of which will be
payable in 2002) in an amount equal to 10% of pretax profits for 2001, provided
such charitable contributions are properly accrued as an expense for the year
ended on or before December 31, 2001. Macatawa agrees to work with the Board of
Directors of the Bank to develop an appropriate community-giving plan for the
Bank to be implemented after the Effective Time of the Merger.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Registration Statement. As soon as is reasonably practical, Macatawa
agrees to prepare and file with the SEC under the Securities Act the
Registration Statement and the related Prospectus and Proxy Statement included
as a part thereof covering the issuance by Macatawa of the shares of Macatawa
Common Stock as contemplated by this Plan of Merger, together with such
amendments as may reasonably be required for the Registration Statement to
become effective. Macatawa agrees to provide Grand with the opportunity to
review and comment upon the Registration Statement, each amendment to the
Registration Statement, and each form of the Prospectus and Proxy Statement
before filing. Macatawa agrees to provide Grand with copies of all
correspondence received from the SEC with respect to the Registration Statement
and its amendments and with all responsive correspondence to the SEC. Macatawa
agrees to notify Grand of any stop orders or threatened stop orders with respect
to the Registration Statement. Grand agrees to provide all necessary information
pertaining to Grand and its subsidiaries promptly upon request, and to use all
reasonable efforts to obtain the cooperation of Grand's independent accountants
and attorneys, in connection with the preparation of the Registration Statement.
6.2 Other Filings. Macatawa agrees to prepare and file, as soon as is
reasonably practical, with the Federal Reserve Board, the State of Michigan, and
any other appropriate regulatory agencies all documents in connection with the
transactions contemplated by this Plan of Merger. Macatawa agrees to provide
Grand with the opportunity to review and comment upon such documents before
filing, to make such amendment and file such supplements thereto as Macatawa may
reasonably request, and to provide Grand with copies of all correspondence
received from these agencies and all responsive correspondence sent to these
agencies.
6.3 Press Releases. Grand and Macatawa shall cooperate with each other in
the development and distribution of all news releases and other public
information disclosures with respect to this Plan of Merger, except as may be
otherwise required by law. Neither Grand nor Macatawa shall issue any news
releases with respect to this Plan of Merger or the Merger unless such news
releases have been mutually agreed upon by the parties, except as required by
law.
6.4 Miscellaneous Agreements and Consents. Subject to the terms and
conditions of this Plan of Merger, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper, or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Plan of Merger. Macatawa and Grand will use reasonable
efforts to obtain consents of all third parties and governmental bodies
necessary or desirable for the consummation of the Merger.
6.5 Financial Information. Subject to Section 6.6 (Investigation), after
the date of the execution of this Plan of Merger until the Effective Time of the
Merger, each party shall promptly deliver to the other party copies of:
(a) Each monthly internal financial report (if any) prepared with
respect to Grand or Macatawa, as applicable, and its subsidiaries on a
consolidated or unconsolidated basis; and
(b) Each financial report or statement submitted to regulatory
authorities for Grand or Macatawa, as applicable, and/or any
subsidiary.
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6.6 Investigation.
6.6.1 Access to Information by Macatawa. For the purpose of permitting
an examination of Grand by such of Macatawa's officers, attorneys,
accountants, and representatives for the purposes of Macatawa's evaluation
of the Merger, Grand shall:
(a) Permit, and shall cause the Bank and all other subsidiaries
of Grand to permit, full access to their respective properties, books,
and records at reasonable times;
(b) Use reasonable efforts to cause its and the Bank's directors,
officers, employees, accountants, and attorneys and those of all
subsidiaries of Grand to cooperate fully, for the purpose of
permitting a complete and detailed examination of such matters by
Macatawa's officers, attorneys, accountants, and representatives;
(c) Furnish to Macatawa, upon request, any information reasonably
requested respecting Grand's and any of its subsidiaries' properties,
assets, business, and affairs; and
(d) Permit representatives of Macatawa to attend meetings of the
Board of Directors and committees of the boards of directors of Grand
and its subsidiaries; provided, however, that representatives of
Macatawa will excuse themselves during discussion of this Plan of
Merger and the transactions contemplated hereby and during discussion
of matters that the Board of Directors of Grand reasonably believes to
be of competitive significance.
6.6.2 Access to Information by Grand. For the purposes of permitting
an examination of Macatawa by such of Grand's officers, attorneys,
accountants, and representatives for the purposes of Grand's evaluation of
the Merger, Macatawa shall permit access to such of Macatawa's and its
subsidiaries books and records and at such times as reasonably and mutually
agreed between the President of each of Macatawa and Grand.
6.6.3 Consent to Disclose. Macatawa and Grand each acknowledge that
certain information may not be disclosed by Macatawa or Grand or their
subsidiaries without the prior written consent of persons not affiliated
with Macatawa or Grand. If such information is requested by Macatawa or
Grand, then the other party shall use, or cause its subsidiaries to use,
reasonable efforts to obtain such prior consent and shall not be required
to disclose such information unless and until such prior consent has been
obtained.
6.6.4 Confidentiality. Except as provided in Section 6.6.6 (Other
Information), while this Plan of Merger is in effect and at all times
thereafter, Macatawa and Grand each agree to treat as strictly confidential
and agree not to divulge to any other person, natural or corporate (other
than employees of, and attorneys, accountants, and financial advisers for,
such party who are reasonably believed to have a need for such information
in connection with the Merger), and not to make any business use not
related to the Merger of, any financial statements, schedules, contracts,
agreements, instruments, papers, documents, or other information relating
to the other party and the other party's subsidiary(ies) which it may come
to know as a direct result of a disclosure by the other party or the other
party's subsidiary(ies), or which may come into its possession directly as
a result of and during the course of such investigation. Macatawa and Grand
recognize and understand the close proximity of their respective markets
and agree that the fact that a party to this Plan of Merger is or begins
doing business with a customer of the other party will not be presumed to
be a breach of the provisions of this Section 6.6.4 (Confidentiality).
6.6.5 Return of Materials. Upon the termination of this Plan of
Merger, Macatawa and Grand each agree to promptly return to the other party
or to destroy all written materials furnished to it by the other party and
the other party's subsidiary(ies), and all notes and summaries of such
written materials, in connection with such investigation, including any and
all copies of any of the foregoing. Macatawa and Grand each agree to
preserve intact all such materials which are returned to them and to make
such materials reasonably available upon request or subpoena for a period
of not less than five years from the termination of this Plan of Merger or
such longer or shorter period of time as they may mutually agree.
6.6.6 Other Information. The provisions of this Section 6.6
(Investigation) shall not preclude Macatawa or Grand, or their respective
subsidiaries, from using or disclosing information which is: (i) readily
ascertainable from public information or trade sources; (ii) known by it
before the commencement of discussions between the parties or subsequently
developed by it or its subsidiaries independent of any investigation under
this Plan of Merger or received
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from a third party not under any obligation to Grand or Macatawa, or their
respective subsidiaries, to keep such information confidential; or (iii)
reasonably required to be included in any filing or application required by
any governmental or regulatory agency, including without limitation
Macatawa's application or applications to the Federal Reserve Board, and
Macatawa's or Grand's annual report and proxy statement. Macatawa shall
permit Grand to review Macatawa's application or applications to the
Federal Reserve Board prior to filing and Grand may reasonably request that
sensitive or competitive information be separately filed as confidential in
accordance with instructions, rules, and regulations issued by such agency.
6.6.7 Insider Trading. Grand and Macatawa shall take responsible steps
to assure that any person who receives nonpublic information concerning
Macatawa or Grand pursuant to this Plan of Merger will not buy or sell, or
advise other persons to buy or sell, Macatawa Common Stock or Grand Common
Stock until such information is disclosed to the public.
6.7 Environmental Investigation. Macatawa may, at its own option and
expense, engage environmental consultants to conduct a preliminary ("Phase I")
environmental assessment of any parcel of real estate owned and used in the
operation of Grand's or its subsidiaries' businesses and any other real estate
owned. Grand and its subsidiaries shall provide reasonable assistance, including
site access, to such a consultant for purposes of conducting the Phase I
assessments. The fees and expenses of a consultant with respect to the Phase I
assessments shall be paid by Macatawa, subject to the provisions of Section 10.5
(Expenses). If any environmental conditions are found, reasonably suspected, or
would tend to be indicated by the report of the consultant which may be contrary
to the representations and warranties set forth in Section 4.21 (Environmental
Matters), without regard to any exceptions that may be contained in the Grand
Disclosure Statement, then Macatawa shall obtain from one or more mutually
acceptable consultants or contractors, as appropriate, an estimate of the cost
of any further environmental investigation, sampling, analysis, remediation, or
other follow-up work that may be necessary to address those conditions in
accordance with applicable Environmental Laws. Macatawa shall forward copies of
any such estimates to Grand upon receipt.
6.7.1 Mutual Agreement. Upon receipt of the estimate of the costs of
all follow-up work to the Phase I assessments or any subsequent
investigation phases that may be conducted, the parties shall attempt to
agree upon a course of action for further investigation and remediation of
any environmental condition suspected, found to exist, or that would tend
to be indicated by the report of the consultant. All work plans for any
post-Phase I assessment activities, or any removal or remediation actions
that may be performed, shall be mutually satisfactory to Macatawa and
Grand. If the work plans or removal or remediation actions would entail a
material cost to complete, Macatawa and Grand shall discuss a mutually
acceptable modification to this Plan of Merger. Macatawa and Grand shall
cooperate in the review, approval, and implementation of all work plans.
6.7.2 Right to Abandon. If the parties are unable to agree upon a
course of action for further investigation and remediation of an
environmental condition or issue raised by an environmental assessment
and/or a mutually acceptable modification to this Plan of Merger, and the
condition or issue is not one for which it can be determined to a
reasonable degree of certainty that the risk and expense to which Macatawa
and its subsidiaries (after the Merger) would be subject as owner or
operator of the property involved can be quantified and limited to an
amount which would not have a Material Adverse Effect on the business or
financial condition of Grand and its subsidiaries on a consolidated basis ,
then Macatawa may abandon this Plan of Merger pursuant to Section 9.3.3
(Environmental Risk).
6.8 Employee Benefit Plans. The Grand Pension Plan will be frozen as of the
Effective Time of the Merger, so that there shall be no further accrual of
benefits under the Grand Pension Plan after such time. Simultaneously with or in
anticipation of freezing of the Grand Pension Plan, Grand will amend the Grand
Benefit Restoration Plan to provide that the restored benefit under that plan
includes the portion of any accrued benefit under the Grand Pension Plan that is
not vested when benefit accruals are frozen and does not later vest due to
termination of the Grand Pension Plan. Macatawa expressly reserves the right to
terminate the Grand Pension Plan at any time it so chooses after the Effective
Time of the Merger. The Grand 401(k) Plan will be merged into or combined with
the Macatawa Bank 401(k) Plan at such time after the Effective Time of the
Merger and in such manner as determined by Macatawa.
ARTICLE VII
CONDITIONS PRECEDENT TO MACATAWA'S OBLIGATIONS
All obligations of Macatawa under this Plan of Merger are subject to the
fulfillment (or waiver in writing by a duly authorized officer of Macatawa),
prior to or at the Closing, of each of the following conditions:
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7.1 Renewal of Representations and Warranties, Etc.
7.1.1 Representations and Warranties. Grand's representations and
warranties shall then be true in all material respects or, if one or more
representations or warranties shall then be untrue or incomplete, the
cumulative effect of all untrue or incomplete representations and
warranties shall not then be materially adverse relative to the business,
income, financial condition or prospects of Grand and its subsidiaries on a
consolidated basis. For purposes of this Section 7.1.1 (Representations and
Warranties), representations and warranties made with respect to specified
dates or events need only to have been true in all material respects as of
such dates or events. Any representation or warranty which becomes untrue
because of any change intended by this Plan of Merger shall not be
considered to be a breach of this Plan of Merger because of such change.
7.1.2 Compliance with Agreements. Grand and its subsidiaries shall
have performed and complied with all agreements, conditions, and covenants
required by this Plan of Merger to be performed or complied with by Grand
or its subsidiaries prior to or at the Closing in all material respects.
7.1.3 Certificates. Compliance with Sections 7.1.1 (Representations
and Warranties) and 7.1.2 (Compliance with Agreements) shall be evidenced
by one or more certificates signed on behalf of Grand by appropriate
officers of Grand and, with respect to agreements, conditions, and
covenants pertaining to its subsidiaries, by appropriate officers of its
subsidiaries, dated as of the date of the Closing, certifying the foregoing
in such detail as Macatawa may reasonably request, and describing any
exceptions to such compliance in such certificates.
7.2 Opinion of Legal Counsel. Grand shall have delivered to Macatawa an
opinion of its counsel consistent with Appendix A, dated as of the date of the
Closing and reasonably satisfactory to counsel for Macatawa.
7.3 Required Approvals. Macatawa shall have received:
7.3.1 Regulatory. All such approvals, consents, authorizations, and
licenses of all regulatory and other governmental authorities having
jurisdiction as may be required to permit the performance by Grand and
Macatawa of their respective obligations under this Plan of Merger and the
consummation of the Merger.
7.3.2 Shareholder. The requisite approval of the Macatawa shareholders
of this Plan of Merger and the Merger and evidence reasonably satisfactory
to Macatawa of the requisite approval of Grand's shareholders of this Plan
of Merger and the Merger.
7.4 Order, Decree, Etc. Neither Macatawa nor Grand shall be subject to any
order, decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits the consummation of the Merger.
7.5 Proceedings. There shall not be any action, suit, proceeding, claim,
arbitration, or investigation pending or threatened: (i) against Grand or its
subsidiaries or their respective properties or businesses which may result in
any liability to either of them or its subsidiaries which could have a Material
Adverse Effect on the financial condition, net income, business, or properties
of Grand and its subsidiaries on a consolidated basis; or (ii) which challenges
the Merger or this Plan of Merger.
7.6 Tax Matters. Macatawa shall have received an opinion of Varnum,
Riddering, Schmidt & Howlett LLP, reasonably satisfactory in form and substance,
substantially to the effect that:
7.6.1 Reorganization. The Merger of Grand with and into Macatawa will
constitute a reorganization within the meaning of Section 368(a)(1)(A) of
the Internal Revenue Code, and Macatawa and Grand will each be a "party to
a reorganization" within the meaning of Section 368(b) of the Internal
Revenue Code.
7.6.2 Assets' Tax Basis. The basis of the Grand assets in the hands of
Macatawa immediately after the Merger will be the same as the basis of
those assets in the hands of Grand immediately prior to the Merger.
7.6.3 No Gain or Loss. No gain or loss will be recognized to Macatawa
on the receipt by Macatawa of the assets of Grand in exchange for Macatawa
Common Stock and the assumption by Macatawa of the liabilities of Grand.
7.6.4 Holding Period. The holding period of the assets of Grand in the
hands of Macatawa will include the holding period during which Grand held
such assets.
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The tax opinion shall be supported by one or more fact certificates or
affidavits in such form and content as may be reasonably requested by
Macatawa's counsel from Grand and its subsidiaries and Macatawa and its
subsidiaries.
7.7 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and shall not be subject to a stop order or any
threatened stop order.
7.8 Certificate as to Outstanding Shares. Macatawa shall have received one
or more certificates signed by the secretary of Grand on behalf of Grand,
certifying the total number of shares of capital stock of Grand issued and
outstanding as of the close of business on the day immediately preceding the
Closing, all in such form as Macatawa may reasonably request.
7.9 Change of Control Waivers. Macatawa shall have received evidence of the
waiver of any material rights and the waiver of the loss of any material rights
which may be triggered by the change of control of Grand upon consummation of
the Merger under any agreements, contracts, mortgages, deeds of trust, leases,
commitments, indentures, notes, or other instruments, all in form and substance
reasonably satisfactory to Macatawa.
7.10 Employment Agreements. The Amended and Restated Employment Agreements
described in the Grand Disclosure Statement shall have been executed and shall
not have been terminated, cancelled or amended.
7.11 Grand Stock Options. There shall not have been any issuances of Grand
Stock Options since the date of this Plan of Merger.
7.12 Amendment of Grand Stock Options. Grand shall have amended its stock
option plans or caused the written amendment of each outstanding Grand Stock
Option grant prior to the Closing if and to the extent necessary to permit the
conversion of the outstanding Grand Stock Options as contemplated by Section 2.2
(Conversion of Grand Stock Options).
7.13 Fairness Opinion. Macatawa shall have received an opinion reasonably
acceptable to Macatawa, dated as of the date of this Plan of Merger and renewed
as of a date approximately the date of the Prospectus and Proxy Statement, that
the terms of the Merger are fair to Macatawa's shareholders from a financial
standpoint as of that date and such opinion shall not have been subsequently
withdrawn; provided, that Macatawa shall have used all reasonable efforts to
obtain such a fairness opinion.
ARTICLE VIII
CONDITIONS PRECEDENT TO GRAND'S OBLIGATIONS
All obligations of Grand under this Plan of Merger are subject to the
fulfillment (or waiver in writing by a duly authorized officer), prior to or at
the Closing, of each of the following conditions:
8.1 Renewal of Representations and Warranties, Etc.
8.1.1 Representations and Warranties. Macatawa's representations and
warranties shall then be true in all material respects or, if one or more
representations or warranties shall then be untrue, the cumulative effect
of all untrue representations and warranties shall not then be materially
adverse relative to the business, income, or financial condition of
Macatawa and its subsidiaries on a consolidated basis. For purposes of this
Section 8.1.1 (Representations and Warranties), representations and
warranties made with respect to specified dates or events need only to have
been true in all material respects as of such dates or events. Any
representation or warranty which becomes untrue because of any change
intended by this Plan of Merger shall not be considered to be a breach of
this Plan of Merger because of such change.
8.1.2 Compliance with Agreements. Macatawa and its subsidiaries shall
have performed and complied with all agreements, conditions, and covenants
required by this Plan of Merger to be performed or complied with by
Macatawa and its subsidiaries prior to or at the Closing in all material
respects.
8.1.3 Certificates. Compliance with Sections 8.1.1 (Representations
and Warranties) and 8.1.2 (Compliance with Agreements) shall be evidenced
by one or more certificates signed on behalf of Macatawa by the appropriate
officers of Macatawa and, with respect to agreements, conditions, and
covenants pertaining to its subsidiaries, by appropriate officers of its
subsidiaries, dated as of the date of the Closing, certifying the foregoing
in such detail as Grand may reasonably request, and describing any
exceptions to such compliance in such certificates.
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8.2 Opinions of Legal Counsel. Macatawa shall have delivered to Grand an
opinion of its counsel consistent with Appendix B, dated as of the date of the
Closing and reasonably satisfactory to counsel for Grand.
8.3 Required Approvals. Grand shall have received:
8.3.1 Regulatory. Grand and Macatawa shall have received all such
approvals, consents, authorizations, and licenses of all regulatory and
other governmental authorities having jurisdiction as may be required to
permit the performance by Grand and Macatawa, or their subsidiaries, of
their respective obligations under this Plan of Merger and the consummation
of the Merger.
8.3.2 Shareholder. The Grand shareholders shall have approved this
Plan of Merger and Grand shall have received evidence reasonably
satisfactory to Grand of the requisite approval of the Macatawa
shareholders of this Plan of Merger and the Merger.
8.4 Order, Decree, Etc. Neither Macatawa nor Grand shall be subject to any
order, decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits the consummation of the Merger.
8.5 Proceedings. There shall not be any action, suit, proceeding, claim,
arbitration, or investigation pending or threatened: (i) against or relating to
either Grand or Macatawa or their respective subsidiaries or their respective
properties or businesses which may result in any liability to either of them or
its subsidiaries which could have a Material Adverse Effect on the financial
condition, net income, business, properties, operations, or prospects of either
of them and its subsidiaries on a consolidated basis; or (ii) which challenges
the Merger or this Plan of Merger.
8.6 Tax Matters. Grand shall have received an opinion from Varnum,
Riddering Schmidt & Howlett LLP, reasonably satisfactory in form and substance,
substantially to the effect that:
8.6.1 Reorganization. The Merger of Grand with and into Macatawa will
constitute a reorganization within the meaning of Section 368(a)(1)(A) of
the Internal Revenue Code, and Macatawa and Grand will each be a "party to
a reorganization" within the meaning of Section 368(b) of the Internal
Revenue Code.
8.6.2 No Gain or Loss. No gain or loss will be recognized by the
shareholders of Grand who receive shares of Macatawa Common Stock in
exchange for all of their shares of Grand Common Stock, except to the
extent of any cash received in lieu of a fractional share of Macatawa
Common Stock.
8.6.3 Stock Tax Basis. The basis of the Macatawa Common Stock to be
received by shareholders of Grand will, in each instance, be the same as
the basis of the respective shares of Grand Common Stock surrendered in
exchange therefor.
8.6.4 Holding Period. The holding period of the Macatawa Common Stock
received by shareholders of Grand will, in each instance, include the
period during which the Grand Common Stock surrendered in exchange therefor
was held, provided that the Grand Common Stock was, in each instance, held
as a capital asset in the hands of the shareholder of Grand at the
Effective Time of the Merger.
8.7 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and shall not be subject to a stop order or any
threatened stop order.
8.8 Listing of Shares. The shares of Macatawa Common Stock that shall be
issued to the shareholders of Grand upon consummation of the Merger shall have
been authorized for listing on The NASDAQ Stock Market upon official notice of
issuance.
8.9 Certificate as to Outstanding Shares. Grand shall have received one or
more certificates signed by Macatawa's transfer agent and the secretary of
Macatawa on behalf of Macatawa, certifying the total number of shares of capital
stock of Macatawa issued and outstanding as of the close of business on the day
immediately preceding the Closing, all in such form as Grand may reasonably
request.
8.10 Fairness Opinion. Grand shall have received an opinion acceptable to
Grand, dated as of the date of this Plan of Merger and renewed as of a date
approximately the date of the Prospectus and Proxy Statement, that the financial
terms of the Merger are fair to Grand's shareholders from a financial standpoint
as of that date and such opinion shall not have been subsequently withdrawn;
provided, that Grand shall have used all reasonable efforts to obtain such a
fairness opinion.
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ARTICLE IX
ABANDONMENT OF MERGER
This Plan of Merger may be terminated and the Merger abandoned at any time
prior to the Effective Time of the Merger (notwithstanding that approval of this
Plan of Merger by the shareholders of Grand and Macatawa may have previously
been obtained) as follows:
9.1 Mutual Abandonment. By mutual consent of the boards of directors, or
duly authorized committees thereof, of Macatawa and Grand.
9.2 Upset Date. By either Macatawa or Grand if the Merger shall not have
been consummated on or before June 30, 2002 and such failure to consummate the
Merger is not caused by a breach of this Plan of Merger by the terminating
party.
9.3 Macatawa's Rights to Terminate. By Macatawa under any of the following
circumstances:
9.3.1 Failure to Satisfy Closing Conditions. If any of the conditions
specified in Article VII have not been met or waived by Macatawa, at such
time as such condition can no longer be satisfied notwithstanding Grand's
reasonable efforts to comply with those covenants and satisfy those
conditions by Grand in this Plan of Merger.
9.3.2 Shareholder Approval. This Plan of Merger is not approved by the
requisite vote of the shareholders of Grand or Macatawa at a meeting duly
called and held for that purpose at which a quorum is present and voted in
person or by proxy and such meeting has been finally adjourned.
9.3.3 Environmental Risks. If Macatawa has given Grand notice of
termination based on an unacceptable Environmental Risk, as provided in
Section 6.7.2 (Right to Abandon).
9.3.4 Occurrence of a Fiduciary Event. At any time after there has
occurred a Fiduciary Event.
9.3.5 Material Adverse Event. If there shall have occurred one or more
events that shall have caused or are reasonably likely to cause a Material
Adverse Effect on Grand.
9.3.6 Community Reinvestment Act Rating. If, prior to the Closing, the
Bank is examined for compliance with the Community Reinvestment Act and
receives a rating lower than "Satisfactory" or, if the report of
examination is still pending on the date of the Closing, Macatawa is unable
to satisfy itself that the Bank will receive a rating of Satisfactory or
better.
9.4 Grand's Rights to Terminate. By the Board of Directors, or a duly
authorized committee thereof, of Grand under any of the following circumstances:
9.4.1 Failure to Satisfy Closing Conditions. If any of the conditions
specified in Article VIII have not been met or waived by Grand at such time as
such condition can no longer be satisfied notwithstanding Macatawa's reasonable
efforts to comply with those covenants given by Macatawa in this Plan of Merger.
9.4.2 Shareholder Approval. This Plan of Merger is not approved by the
requisite vote of the shareholders of Grand or Macatawa at a meeting duly called
and held for that purpose at which a quorum is present and voted in person or by
proxy and such meeting has been finally adjourned.
9.4.3 Community Reinvestment Act Rating. If, prior to the Closing, any of
the banking subsidiaries of Macatawa is examined for compliance with the
Community Reinvestment Act and receives a rating lower than "Satisfactory" or,
if the report of examination is still pending on the date of the Closing, Grand
is unable to satisfy itself that such bank or banks will receive a rating of
Satisfactory or better.
9.4.4 Material Adverse Event. If there shall have occurred one or more
events that shall have caused or are reasonably likely to cause a Material
Adverse Effect on Macatawa.
9.5 Effect of Termination. In the event of termination of this Plan of
Merger by either Grand or Macatawa as provided in this Article IV (Abandonment
of Merger), this Plan of Merger shall forthwith have no effect, and none of
Grand,
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Macatawa, any of their respective subsidiaries, or any of their respective
directors, officers, or employees shall have any liability of any nature
whatsoever under this Plan of Merger, or in connection with the transactions
contemplated by this Plan of Merger, except that (a) Sections 5.10.4 (Payment
after Certain Events), 6.6.4 (Confidentiality), 6.6.5 (Return of Materials),
10.3 (Nonsurvival of Representations, Warranties, and Agreements), and 10.5
(Expenses) shall survive any termination of this Plan of Merger, and (b)
notwithstanding anything to the contrary contained in this Plan of Merger,
neither Grand nor Macatawa shall be relieved or released from any of its
liabilities or damages arising out of a knowing or intentional breach of a
representation and warranty or a breach of any other provision of this Plan of
Merger.
ARTICLE X
MISCELLANEOUS
Subject to the terms and conditions of this Plan of Merger, Macatawa and
Grand further agree as follows:
10.1 "Material Adverse Effect" Defined. As used in this Plan of Merger, the
term "Material Adverse Effect" means any change or effect that, individually or
when taken together with all other such changes or effects that have occurred
prior to the date of determination of the occurrence of the Material Adverse
Effect, has had or could have a material negative impact on (a) the business,
assets, financial condition, results of operations, or value of Macatawa and its
subsidiaries, taken as a whole, or Grand and its subsidiaries, taken as a whole,
as the case may be; or (b) the ability of Macatawa or Grand, as the case may be,
to satisfy the applicable closing conditions or consummate the Merger.
Notwithstanding the above, the impact of the following shall not be included in
any determination of a Material Adverse Effect: (a) changes in GAAP, generally
applicable to financial institutions and their holding companies; (b) actions
and omissions of a party (or any of its subsidiaries) taken with the prior
written consent of the other party; (c) changes in economic conditions
(including changes in the level of interest rates) generally affecting financial
institutions; and (d) fees and expenses reasonably related to this transaction
(such as any additional insurance coverages, employment and consulting services,
legal, accounting, and investment banking fees and expenses, and severance and
retention provisions) incurred or paid without violation of the representations,
warranties or covenants contained in this Plan of Merger.
10.2 "Knowledge" Defined. As used in this Plan of Merger, the term
"knowledge" means the actual knowledge of any director or officer (as that term
is defined in Rule 16a-1 of the Exchange Act) of Grand or Macatawa, as the case
may be.
10.3 Nonsurvival of Representations, Warranties, and Agreements. None of
the representations, warranties, covenants, and agreements in this Plan of
Merger or in any other agreement or instrument delivered pursuant to this Plan
of Merger, including any rights arising out of any breach of such
representations, warranties, covenants, and agreements, shall survive the
Effective Time of the Merger, except for those covenants and agreements
contained herein that, by the terms hereof, apply or are to be performed in
whole or in part after the Effective Time of the Merger.
10.4 Amendment. Subject to applicable law, this Plan of Merger may be
amended, modified, or supplemented by, and only by, written agreement of
Macatawa and Grand, executed by the respective officers thereunto duly
authorized, at any time prior to the Effective Time of the Merger.
10.5 Expenses. Except as otherwise provided in this Plan of Merger, Grand
and Macatawa shall each pay its own expenses incident to preparing for, entering
into, and carrying out this Plan of Merger, and incident to the consummation of
the Merger. Each party shall pay the fees and expenses of any investment banker
engaged by that party. The costs of all filing fees pertaining to the
Registration Statement shall be paid by Macatawa. The costs of printing and
mailing the Prospectus and Proxy Statement to their respective shareholders
shall be borne by Macatawa and by Grand respectively.
10.6 Specific Enforcement. The parties each agree that, consistent with the
terms and conditions of this Plan of Merger, in the event of a breach by a party
to this Plan of Merger, money damages will be inadequate and not susceptible of
computation because of the unique nature of Grand, the subsidiaries of Grand,
and the Merger. Therefore, the parties each agree that a federal or state court
of competent jurisdiction shall have authority, subject to the rules of law and
equity, to specifically enforce the provisions of this Plan of Merger by
injunctive order or such other equitable means as may be determined in the
court's discretion.
10.7 Jurisdiction; Jury. The parties acknowledge that jurisdiction and
venue may be permissible in more than one jurisdiction or court district.
Macatawa and Grand each hereby agree not to assert any defense of improper
jurisdiction or venue and each waive their right to a trial by jury.
10.8 Waiver. Any of the terms or conditions of this Plan of Merger may be
waived in writing at any time by action taken by the Board of Directors of a
party, a duly authorized committee thereof, or a duly authorized officer of such
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party. The failure of any party at any time or times to require performance of
any provision of this Plan of Merger shall in no manner affect such party's
right at a later time to enforce the same provision. No waiver by any party of
any condition, or of the breach of any term, covenant, representation, or
warranty contained in this Plan of Merger, whether by conduct or otherwise, in
any one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such condition or breach, or as a waiver of any other
condition or of the breach of any other term, covenant, representation, or
warranty.
10.9 Notices. All notices, requests, demands, and other communications
under this Plan of Merger shall be in writing and shall be deemed to have been
duly given and effective immediately if delivered or sent and received by a fax
transmission (if receipt by the intended recipient is confirmed by telephone and
if hard copy is delivered by overnight delivery service the next day), a hand
delivery, or a nationwide overnight delivery service (all fees prepaid) to the
following addresses:
If to Grand: With a copy to:
Grand Bank Financial Corporation Warner Norcross & Judd LLP
Attention: Charles C. Stoddard, CEO Attention: Gordon R. Lewis
126 Ottawa Avenue, NW, Suite 100 900 Fifth Third Center
P.O. Box 3580 111 Lyon Street, NW
Grand Rapids, Michigan 49503-2867 Grand Rapids, Michigan 49503-2487
Telephone: 616-235-7000 Telephone: 616-752-2000
Fax: 616-235-2160 Fax: 616-222-2752
If to Macatawa: With a copy to:
Macatawa Bank Corporation Varnum, Riddering Schmidt & Howlett LLP
Attention: Benj. A. Smith, III, Attention: Donald L. Johnson
Chairman and CEO Bridgewater Place
c/o Smith & Associates P.O. Box 352
106 East 8th Street 333 Bridge Street, NW
Holland, Michigan 49423 Grand Rapids, Michigan 49501-0352
Telephone: 616-396-0199 (49504 for deliveries)
Fax: 616-396-2381 Telephone: 616-336-6000
Fax: 616-336-7000
10.10 Governing Law. This Plan of Merger shall be governed, construed, and
enforced in accordance with the laws of the State of Michigan, without regard to
principles of conflicts of laws.
10.11 Entire Agreement. This Plan of Merger (including all exhibits and
ancillary agreements described in this Plan of Merger) supersedes all prior
agreements between the parties with respect to its subject matter and
constitutes (along with the agreements and documents referred to in this Plan of
Merger) a complete and exclusive statement of the terms of the agreement between
the parties with respect to its subject matter; except for matters set forth in
any written instrument concurrently or contemporaneously executed by the
parties. No party may assign any of its rights or obligations under this Plan of
Merger to any other person.
10.12 Third Party Beneficiaries. The terms and conditions of this Plan of
Merger shall inure to the benefit of and be binding upon Macatawa and Grand and
their respective successors. Except to the extent provided in Sections 5.11
(Indemnification) and 5.12 (Insurance), nothing in this Plan of Merger, express
or implied, is intended to confer upon any person other than Macatawa and Grand
any rights, remedies, obligations, or liabilities under or by reason of this
Plan of Merger.
10.13 Counterparts. This Plan of Merger may be executed in one or more
counterparts, which taken together shall constitute one and the same instrument.
Executed counterparts of this Plan of Merger shall be deemed to have been fully
delivered and shall become legally binding if and when executed signature pages
are received by facsimile transmission from a party. If so delivered by
facsimile transmission, the parties agree to promptly send original, manually
executed copies by nationwide overnight delivery service.
10.14 Further Assurances; Privileges. Macatawa and Grand each shall, at the
request of the other, execute and deliver such additional documents and
instruments and take such other actions as may be reasonably requested to carry
out the terms and provisions of this Plan of Merger.
A-35
10.15 Headings, Etc. The article headings and section headings contained in
this Plan of Merger are inserted for convenience only and shall not affect in
any way the meaning or interpretation of this Plan of Merger. With respect to
any term, references to the singular form of the word include its plural form
and references to the plural form of the word include its singular form.
10.16 Calculation of Dates and Deadlines. Unless otherwise specified, any
period of time to be determined under this Plan of Merger shall be deemed to
commence at 12:01 a.m. on the first full day after the specified starting date,
event, or occurrence. Any deadline, due date, expiration date, or period-end to
be calculated under this Plan of Merger shall be deemed to end at 5 p.m. on the
last day of the specified period. The time of day shall be determined with
reference to the then current local time in Holland, Michigan.
10.17 Severability. If any term, provision, covenant, or restriction
contained in this Plan of Merger is held by a final and unappealable order of a
court of competent jurisdiction to be invalid, void, or unenforceable, then the
remainder of the terms, provisions, covenants, and restrictions contained in
this Plan of Merger shall remain in full force and effect, and shall in no way
be affected, impaired, or invalidated unless the effect would be to cause this
Plan of Merger to not achieve its essential purposes.
The undersigned have duly executed and acknowledged this Plan of Merger as
of the date first written above.
GRAND BANK FINANCIAL CORPORATION
By: /s/ Charles C. Stoddard
Charles C. Stoddard
Its Chairman and CEO
MACATAWA BANK CORPORATION
By: /s/ Benj. A. Smith III
Benj. A. Smith III
Its Chairman and CEO
A-36
Appendix B
November 20, 2001
CONFIDENTIAL
Board of Directors
Grand Bank Financial Corporation
126 Ottawa Avenue NW, Ste 100
Grand Rapids, Michigan 49503
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Grand Bank Financial Corporation, Grand Rapids, Michigan ("Grand") and
its shareholders, of the terms of the Agreement and Plan of Merger dated as of
November 20, 2001 (the "Agreement") between Grand and Macatawa Bank Corporation,
Holland, Michigan ("Macatawa"). The Agreement provides for the Merger of Grand
with and into Macatawa (the "Merger"), with Macatawa being the surviving
company.
The terms of the Agreement provide for a fixed exchange ratio in which each
common share of Grand will be exchanged for 17.5979 shares of Macatawa
common stock. Based on Grand's current common shares outstanding, Macatawa
will issue approximately 2,375,000 shares of common stock to Grand common
stockholders. The Agreement further provides that stock options previously
granted by Grand be converted into and become options to purchase Macatawa
common stock.
Austin Associates, LLC ("Austin Associates"), as part of its investment banking
practice, is customarily engaged in the valuation of businesses and securities
in connection with mergers and acquisitions, and valuations for estate,
corporate and other purposes. Austin Associates acted as Grand's financial
advisor in connection with, and has participated in negotiations leading to, the
Agreement. In connection with rendering our opinion set forth herein, we have
among other things:
(i) Reviewed the audited financial statements of Grand for each of the
years ending 1996 through 2000, and the audited financial statements
of Macatawa for each of the years ending 1998-2000;
(ii) Reviewed unaudited financial statements of Grand and Macatawa for the
quarters ended March 31, 2001, June 30, 2001 and September 30, 2001;
(iii) Reviewed certain other internal information, primarily financial in
nature, relating to the respective businesses, earnings, assets and
prospects of Grand and Macatawa provided to us or publicly available
for purposes of our analysis;
(iv) Participated in meetings and telephone conferences with
representatives of Grand and Macatawa concerning the financial
condition, business, assets, financial forecasts and prospects of the
companies, as well as other matters we believed relevant to our
inquiry;
(v) Compared the results of operations and financial condition of Grand
with that of certain companies, which we deemed to be relevant for
purposes of this opinion;
(vi) Reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions, which we deemed to be relevant for
purposes of this opinion;
(vii) Reviewed the Agreement and certain related documents; and
(viii) Performed such other reviews and analyses as we have deemed
appropriate.
B-1
In our review and analysis, we relied upon and assumed the accuracy and
completeness of the financial and other information provided to us or publicly
available, and have not attempted to verify the same. We have made no
independent verification as to the status and value of Grand or Macatawa's
assets, and have instead relied upon representations and information concerning
assets of both companies in the aggregate. In rendering our opinion, we have
assumed that the transaction will be a tax-free reorganization with no material
adverse tax consequences to Grand or Macatawa, or to Grand shareholders
receiving Macatawa stock. In addition, we have assumed in the course of
obtaining the necessary approvals for the transaction, no condition will be
imposed that will have a material adverse effect on the contemplated benefits of
the transaction to Grand and its shareholders.
This opinion is based on economic and market conditions and other circumstances
existing on, and information made available as of, the date hereof. This opinion
is limited to the fairness, from a financial point of view, of the terms of the
Agreement, and does not address the underlying business decision by Grand's
Board of Directors to effect the Merger and does not constitute a recommendation
to any Grand shareholder as to how such shareholder should vote with respect to
the Merger.
Austin Associates reserves the right to review all disclosures in the proxy
materials and consent to the characterization of our fairness opinion. For our
services in rendering this opinion, Grand will pay us a fee, a significant
portion of which is contingent upon the consummation of the Merger. Grand has
also agreed to indemnify us against certain liabilities.
Based upon our analysis and subject to the qualifications described herein, we
believe that as of the date of this letter, the terms of the Agreement are fair,
from a financial point of view, to Grand and its shareholders.
Respectfully,
/s/ Austin Associates, LLC
Austin Associates, LLC
B-2
Appendix C
[To be filed by Amendment]
C-1
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Macatawa Bank Corporation ("Macatawa") is obligated under its Restated
Articles of Incorporation to indemnify its directors and executive officers who
serve or have served at the request of Macatawa as directors, officers,
employees, agents or fiduciaries of Macatawa or another corporation or other
enterprise to the fullest extent permitted under the Michigan Business
Corporation Act. Persons who are not directors or executive officers may be
similarly indemnified in respect of such services to the extent authorized by
Macatawa's Board of Directors.
Sections 561 through 571 of the Michigan Business Corporation Act contain
provisions governing the indemnification of directors and officers by Michigan
corporations. That statute provides that a corporation has the power to
indemnify a person who was or is a party or is threatened to be made a party to
a threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal (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, 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 foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, whether for profit or
not, against expenses (including attorneys' fees), judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by him or her in
connection with the action, suit or proceeding, if the person 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 a
criminal action or proceeding, if the person had no reasonable cause to believe
his or her conduct was unlawful. The termination of an action, suit or
proceeding by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, does not, of itself, create a presumption that the
person did not act in good faith and in a manner that 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 a criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
Indemnification of expenses (including attorneys' fees) and amounts paid in
settlement is permitted in derivative actions, except that indemnification is
not allowed for any claim, issue or matter in which such person has been found
liable to the corporation unless and to the extent that a court decides
indemnification is proper. To the extent that any director or officer has been
successful on the merits or otherwise in defense of an action, suit or
proceeding, or in defense of a claim, issue or matter in the action, suit or
proceeding, he or she shall be indemnified against actual and reasonable
expenses (including attorneys' fees) incurred by him or her in connection with
the action, suit or proceeding, and any action, suit or proceeding brought to
enforce the mandatory indemnification provided under the Michigan Business
Corporation Act. The Michigan Business Corporation Act permits partial
indemnification for a portion of expenses (including reasonable attorneys'
fees), judgments, penalties, fines and amounts paid in settlement to the extent
the person is entitled to indemnification for less than the total amount.
A determination that the person to be indemnified meets the applicable
standard of conduct and an evaluation of the reasonableness of the expenses
incurred and amounts paid in settlement shall be made by a majority vote of a
quorum of the Board of Directors who are not parties or threatened to be made
parties to the action, suit or proceeding, by a majority vote of a committee of
not less than two disinterested directors, by independent legal counsel, by all
"independent directors" not parties or threatened to be made parties to the
action, suit or proceeding, or by the shareholders. An authorization for payment
of indemnification may be made by: (1) the Board of Directors by (a) a majority
vote of two or more directors who are not parties or threatened to be made
parties to the action, suit or proceeding, (b) a majority vote of a committee of
two or more directors who are not parties or threatened to be made parties to
the action, suit or proceeding, (c) a majority vote of one or more "independent
directors" who are not parties or threatened to be made parties to the action,
suit or proceeding, or (d) if the corporation lacks the appropriate persons for
alternatives (a) through (c), by a majority vote of the entire Board of
Directors; or (2) the shareholders. Under the Michigan Business Corporation Act,
Macatawa may indemnify a director without a determination that the director has
met the applicable standard of conduct unless the director received a financial
benefit to which he or she was not entitled, intentionally inflicted harm on the
corporation or its shareholders, violated Section 551 of the Michigan Business
Corporation Act (which prohibits certain dividends, distributions to
shareholders and certain loans to insiders of the corporation), or intentionally
committed a criminal act. A director may file for a court determination of the
propriety of indemnification in any of the situations set forth in the preceding
sentence.
Under the Michigan Business Corporation Act, Macatawa may pay or reimburse
the reasonable expenses incurred by a director, officer, employee or agent who
is a party or threatened to be made a party to an action, suit or proceeding in
advance of final disposition of the proceeding if the person furnishes the
corporation a written undertaking to repay the
Part II-1
advance if it is ultimately determined that he or she did not meet the standard
of conduct, which undertaking need not be secured.
The indemnification provisions of the Michigan Business Corporation Act are
not exclusive of the rights to indemnification under a corporation's articles of
incorporation or bylaws or by agreement. However, the total amount of expenses
advanced or indemnified from all sources combined may not exceed the amount of
actual expenses incurred by the person seeking indemnification or advancement of
expenses. The indemnification provided for under the Michigan Business
Corporation Act continues as to a person who ceases to be a director, officer,
employee or agent.
The Michigan Business Corporation Act permits Macatawa to purchase
insurance on behalf of its directors, officers, employees and agents against
liabilities arising out of their positions with Macatawa, whether or not such
liabilities would be within the above indemnification provisions. Pursuant to
this authority, Macatawa maintains such insurance on behalf of its directors,
officers, employees and agents.
Part II-2
Item 21. Exhibits and Financial Statement Schedules.
A. Exhibits. The following exhibits are filed as part of this Registration
Statement:
Number Exhibit
2 Agreement and Plan of Merger dated November 20, 2001. Included as
Appendix A to the prospectus and joint proxy statement.
4.1 Articles of Incorporation of Macatawa Bank Corporation, incorporated
by reference to Exhibit 3.1 to the Macatawa Bank Corporation
Registration Statement on Form SB-2 (Registration No. 333-45755).
4.2 Bylaws of Macatawa Bank Corporation, incorporated by reference to
Exhibit 3.2 to the Macatawa Bank Corporation Registration Statement on
Form SB-2 (Registration No. 333-45755).
5.1 Opinion of Varnum, Riddering, Schmidt & Howlett LLP.
8.1 Opinion of Varnum, Riddering, Schmidt & Howlett LLP as to Tax Matters.*
23.1 Consent of Macatawa's Independent Accountants, Crowe, Chizek and
Company LLP.
23.2 Consent of Grand's Independent Certified Public Accountants, BDO
Seidman LLP.
23.3 Consent of Macatawa's Counsel. Included in Exhibit 5.1
23.4 Consent of Grand's Counsel.
23.5 Consent of Grand's Financial Advisor.
23.6 Consent of Macatawa's Financial Advisor. *
24 Powers of Attorney (included on the signature page on page II-6 of
this Registration Statement on Form S-4).
99.1 Notice of Special Meeting of Macatawa Shareholders.
99.2 Form of Proxy for Macatawa Bank Corporation.
99.3 Notice of Special Meeting of Grand Shareholders.
99.4 Form of Proxy for Grand Bank Financial Corporation.
* To be filed by Amendment.
B. Financial Statements and Schedules.
All schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission have been omitted because they either are not
required under the related instructions or the required information has been
included in the financial statements of Macatawa or notes thereto.
C. Opinions of Financial Advisor.
The form of opinion of Austin Associates, LLC is included as Appendix B to
the prospectus and joint proxy statement. The opinion of Donnelly, Penman,
French, Haggarty & Co. will be included as Appendix C to the prospectus and
joint proxy statement upon filing of an Amendment.
Part II-3
Item 22. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low end or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;"
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The undersigned registrant undertakes that every prospectus: (i) that is
filed pursuant to the paragraph immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to Rule 415, shall be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
Part II-4
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
* * * *
Part II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Holland, State of
Michigan, on December 28, 2001.
MACATAWA BANK CORPORATION
By: /s/ Benjamin A. Smith, III
Benjamin A. Smith, III
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Benj. A. Smith, III and Philip J. Koning, and
each of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents , and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in a and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or his substitute may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated
Signature Title Date
--------- ----- ----
/s/ Benj. A. Smith, III
Benj. A. Smith, III Principal Executive Officer December 28, 2001
and a Director
/s/ Steven L. Germond
Steven L. Germond Principal Financial and December 28, 2001
Accounting Officer
/s/ Philip J. Koning
Philip J. Koning President and a Director December 28, 2001
/s/ G. Thomas Boylan
G. Thomas Boylan Director December 28, 2001
/s/ Robert E. DenHerder
Robert E. DenHerder Director December 28, 2001
/s/ John F. Koetje
John F. Koetje Director December 28, 2001
Part II-6
EXHIBIT INDEX
Number Exhibit
2 Agreement and Plan of Merger dated November 20, 2001. Included as
Appendix A to the prospectus and joint proxy statement.
4.1 Articles of Incorporation of Macatawa Bank Corporation, incorporated
by reference to Exhibit 3.1 to the Macatawa Bank Corporation
Registration Statement on Form SB-2 (Registration No. 333-45755).
4.2 Bylaws of Macatawa Bank Corporation, incorporated by reference to
Exhibit 3.2 to the Macatawa Bank Corporation Registration Statement on
Form SB-2 (Registration No. 333-45755).
5.1 Opinion of Varnum, Riddering, Schmidt & Howlett LLP.
8.1 Opinion of Varnum, Riddering, Schmidt & Howlett LLP as to Tax Matters.*
23.1 Consent of Macatawa's Independent Accountants, Crowe, Chizek and
Company LLP.
23.2 Consent of Grand's Independent Certified Public Accountants, BDO
Seidman, LLP.
23.3 Consent of Macatawa's Counsel. Included in Exhibit 5.1
23.4 Consent of Grand's Counsel.
23.5 Consent of Grand's Financial Advisor.
23.6 Consent of Macatawa's Financial Advisor. *
24 Powers of Attorney (included on the signature page on page II-6 of
this Registration Statement on Form S-4).
99.1 Notice of Special Meeting of Macatawa Shareholders.
99.2 Form of Proxy for Macatawa Bank Corporation.
99.3 Notice of Special Meeting of Grand Shareholders.
99.4 Form of Proxy for Grand Bank Financial Corporation.
* To be filed by Amendment
Part II-7
Exhibit 5.1
December 28, 2001
Macatawa Bank Corporation
348 South Waverly Road
Holland, Michigan 49423
Subject: Registration Statement on Form S-4
2,459,905 Shares of Common Stock, No Par Value per Share
Gentlemen:
We are counsel to Macatawa Bank Corporation ("Macatawa") in connection with
the registration under the Securities Act of 1933, as amended (the "Securities
Act"), of shares of Macatawa common stock, no par value ("Common Stock"),
pursuant to a registration statement on Form S-4 (the "Registration Statement")
filed with the Securities and Exchange Commission (the "Commission") on or about
December 28, 2001.
We are familiar with the proceedings taken by Macatawa in connection with
the authorization of up to 2,459,905 shares of Common Stock to be issued to the
shareholders of Grand Bank Financial Corporation. We have examined such
documents, records, and matters of law as we have deemed necessary for purposes
of this opinion. In our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such copies.
Based upon the foregoing, we are of the opinion that the Common Stock will
be, when duly registered under the Securities Act and issued and delivered as
described in the Registration Statement, legally issued, fully paid, and
nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the references to our firm in the Registration Statement.
This opinion is rendered for the purposes of Item 21 of Form S-4 and Item
601 of Regulation S-K, may be relied upon only by you and the Commission and may
not be used, quoted, or referred to or filed for any other purpose without our
prior written permission.
Very truly yours,
VARNUM, RIDDERING, SCHMIDT & HOWLETT LLP
/s/ Varnum, Riddering, Schmidt & Howlett LLP
DLJ/mjb
Exhibit 5.1-1
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement of Macatawa Bank Corporation on Form S-4 and related Prospectus/Joint
Proxy Statement of our report dated January 24, 2001, on the consolidated
financial statements of Macatawa Bank Corporation, as of December 31, 2000 and
1999, and for each of the three years in the period ended December 31, 2000
appearing in the 2000 Form 10-K of Macatawa Bank Corporation. We also consent to
the use of our name as "Experts" in the Prospectus/Joint Proxy Statement.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
December 26, 2001
Grand Rapids, Michigan
Exhibit 23.1-1
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We do hereby consent to the use in this Registration Statement (Form S-4)
of Macatawa Bank Corporation and related Prospectus/Joint Proxy Statement of our
report dated January 17, 2001 on the consolidated balance sheets of Grand Bank
Financial Corporation as of December 31, 2000 and 1999, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2000,
contained therein.
We also consent to the reference to us under the caption "Experts" in the
Prospectus/Joint Proxy Statement.
/s/ BDO SEIDMAN, LLP
Grand Rapids, Michigan
December 28, 2001
Exhibit 23.2-1
Exhibit 23.5
Consent of Austin Associates, LLC
We hereby consent to the use of our opinion letter to the Board of
Directors of Grand Bank Financial Corporation, included as Appendix B to the
Proxy Statement/Prospectus which forms part of the Registration Statement dated
as of the date hereof on Form S-4 relating to the proposed Merger of Grand Bank
Financial Corporation and Macatawa Bank Corporation and to the references to
such opinion therein.
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we hereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term experts as used in
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Austin Associates, LLC
By: /s/ Austin Associates, LLC
December 28, 2001
Grand Rapids, Michigan
Exhibit 23.5-1
Exhibit 99.1
[MACATAWA LOGO]
MACATAWA BANK CORPORATION
348 Waverly Road
Holland, Michigan 49423
Telephone (616) 820-1444
Dear Shareholder:
On behalf of Macatawa Bank Corporation's Board of Directors, I cordially
invite you to attend the Special Meeting of Shareholders of Macatawa Bank
Corporation to be held on:
_____________, ____________, 2002
___________ local time
___________________________
___________________________
Holland, Michigan 49423
for the following purposes:
1. The approval and adoption of the Agreement and Plan of Merger, dated as of
November 20, 2001, between Macatawa Bank Corporation and Grand Bank
Financial Corporation and the issuance of shares of Macatawa Bank
Corporation's common stock pursuant to the Agreement and Plan of Merger,
pursuant to which Grand will merge into Macatawa and each share of Grand
common stock will be converted into 17.5979 shares of Macatawa common stock
(and cash in lieu of fractional shares); and
2. To transact such other business as may properly come before the special
meeting or any adjournment or postponements thereof.
The terms of the Merger Agreement, as well as other important information
relating to Macatawa and Grand, are contained in the attached prospectus and
joint proxy statement. Please give this document your careful attention.
Macatawa's Board of Directors has approved the Merger Agreement and unanimously
recommends that Macatawa's shareholders vote "FOR" its approval and adoption and
the approval of the issuance of shares of Macatawa Bank Corporation's common
stock pursuant to the Merger Agreement. Only holders of Macatawa common stock as
of the close of business on _____________, 2002 are entitled to vote at the
special meeting.
This notice and the attached prospectus and joint proxy statement and the
accompanying form of proxy are being mailed on or about _____________, 2002.
Because of the significance of the issuance of stock and proposed Merger to
Macatawa, your vote at the special meeting, either in person or by proxy, is
especially important. Whether or not you plan to attend the special meeting,
please complete, sign and date the enclosed proxy card and return it in the
enclosed postage-paid envelope. You may revoke your proxy at any time before the
special meeting, as more fully explained in the attached prospectus and joint
proxy statement. Thank you for your prompt attention to this important matter.
By Order of the Board of Directors
Philip J. Koning,
Secretary
Holland, Michigan
Exhibit 99.1-1
Exhibit 99.2
REVOCABLE PROXY
MACATAWA BANK CORPORATION
Special Meeting of Shareholders
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Benj. A. Smith, III and Philip J. Koning,
or either of them, of Macatawa Bank Corporation ("Macatawa"), with full power of
substitution, to act as attorneys and proxies for the undersigned to vote all
shares of common stock of Macatawa that the undersigned is entitled to vote at
Macatawa's Special Meeting of Shareholders (the "Meeting"), to be held on
__________, 2002, at , located at _________________, Holland, Michigan 49423, at
__________ local time, and any and all adjournments and postponements thereof.
This proxy may be revoked at any time before it is voted by: (i) filing
with the Secretary of Macatawa at or before the Meeting a written notice of
revocation bearing a later date than this proxy; (ii) duly executing a
subsequent proxy relating to the same shares and delivering it to the Secretary
of Macatawa at or before the Meeting; or (iii) attending the Meeting and voting
in person (although attendance at the Meeting will not in and of itself
constitute revocation of this proxy). If this proxy is properly revoked as
described above, then the power of such attorneys and proxies shall be
considered terminated and of no further force and effect.
The undersigned acknowledges receipt from Macatawa, prior to the execution
of this proxy, of Notice of the Special Meeting and a Prospectus and Joint Proxy
Statement.
(Continued and to be signed on reverse side)
Exhibit 99.2-1
MACATAWA BANK CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. (X)
The approval and adoption of the Agreement and Plan of Merger, dated as of
November 20, 2001 (the "Merger Agreement"), between Macatawa Bank
Corporation and Grand Bank Financial Corporation and the issuance of shares
of Macatawa Bank Corporation common stock pursuant to the Merger Agreement.
For Against Abstain
( ) ( ) ( )
The Board of Directors recommends a vote "FOR" approval of the Merger Agreement.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT AND THE
ISSUANCE OF SHARES OF MACATAWA BANK CORPORATION PURSUANT TO THE MERGER
AGREEMENT. IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY
WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR JUDGMENT. AT THE
PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE MEETING.
Dated: ______________, 2002
Print Name:_____________________
Signature:______________________
Print Name:_____________________
Signature:______________________
Please sign exactly as your name
appears on this card. When
signing as attorney, executor,
administrator, trustee or
guardian, please give your full
title. If shares are held
jointly, each holder should
sign.
PLEASE PROMPTLY COMPLETE, SIGN
AND MAIL THIS PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE
Exhibit 99.2-2
Exhibit 99.3
[GRAND BANK FINANCIAL CORPORATION LOGO]
GRAND BANK FINANCIAL CORPORATION
126 Ottawa Avenue, N.W., Ste. 100
Grand Rapids, Michigan 49503-2867
Telephone: (616) 235-7000
Dear Shareholder:
On behalf of Grand Bank Financial Corporation's Board of Directors we
cordially invite you to attend a special meeting of shareholders of Grand Bank
Financial Corporation to be held on:
[TIME, DATE, AND LOCATION
TO BE COMPLETED]
for the purpose of considering and acting upon approval of an Agreement and Plan
of Merger, dated as of November 20, 2001, between Macatawa Bank Corporation and
Grand Bank Financial Corporation, pursuant to which Grand will merge into
Macatawa and each share of Grand common stock will be converted into 17.5979
shares of Macatawa common stock (and cash in lieu of fractional shares); and
such other matters as may properly come before the special meeting or any
adjournments or postponements thereof.
The terms of the Merger Agreement, as well as other important information
relating to Macatawa and Grand, are contained in the attached prospectus and
joint proxy statement. Please give this document your careful attention. Grand's
Board of Directors has adopted the Merger Agreement and recommends that Grand's
shareholders vote "FOR" its approval. Only holders of Grand common stock as of
the close of business on December ___, 2001 are entitled to vote at the special
meeting.
This notice and the attached prospectus and joint proxy statement and the
accompanying form of proxy are being mailed on or about ____________, 2002.
Because of the significance of the proposed Merger to Grand, your vote at the
special meeting, either in person or by proxy, is especially important. Whether
or not you plan to attend the special meeting, please complete, sign and date
the enclosed proxy card and return it promptly in the enclosed postage-paid
envelope. Thank you for your prompt attention to this important matter.
Sincerely,
Charles C. Stoddard Thomas J. Wesholski
Chairman of the Board and Chief President and Chief Operating Officer
Executive Officer
Grand Rapids, Michigan
Exhibit 99.3-1
Exhibit 99.4
REVOCABLE PROXY
GRAND BANK FINANCIAL CORPORATION
Special Meeting of Shareholders
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Charles C. Stoddard, Thomas J. Wesholski
and Robert W. DeJonge or any of them, with full power of substitution, to act as
attorneys and proxies for the undersigned to vote all shares of common stock of
Grand Bank Financial Corporation ("Grand") that the undersigned is entitled to
vote at Grand's Special Meeting of Shareholders (the "Meeting"), to be held on
_______________, 2002, at _____________________________, located at
_______________________, at ______ a.m., local time, and any and all
adjournments and postponements thereof..
The undersigned acknowledges receipt from Grand prior to the execution of
this proxy, of Notice of the Special Meeting and a Prospectus and Joint Proxy
Statement.
(Continued and to be signed on reverse side)
Exhibit 99.4-1
GRAND BANK FINANCIAL CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. (X)
Approval of the Agreement and Plan of Merger, dated as of November 20, 2001
(the "Merger Agreement"), between Macatawa Bank Corporation and Grand Bank
Financial Corporation.
For Against Abstain
( ) ( ) ( )
The Board of Directors recommends a vote "FOR" approval of the Agreement and
Plan of Merger.
This proxy will be voted as directed. If no directions are specified, this
proxy will be voted for approval of the Merger Agreement. If any other
business is presented at the meeting, this proxy will be voted by those
named in this proxy in their judgment. At the present time, the Board of
Directors knows of no other business to be presented at the meeting.
Dated: ___________________, 2002
Print Name:______________________
Signature:_______________________
Print Name:______________________
Signature:_______________________
Please sign exactly as your name
appears on this card. When
signing as attorney, executor,
administrator, trustee or
guardian, please give your full
title. If shares are held
jointly, each holder should sign.
YOUR VOTE IS IMPORTANT!
PLEASE PROMPTLY COMPLETE, SIGN
AND MAIL THIS PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE