<PAGE>

                                                                   Exhibit 10.12

                           MACATAWA BANK CORPORATION

                            STOCK OPTION AGREEMENT


     STOCK OPTION AGREEMENT, made as of this 19th day of November, 1998, between
MACATAWA BANK CORPORATION (herein called the "Company") and BENJAMIN A. SMITH
III, a director of the Company (the "Optionee"). This Option is granted in
substitution for an option granted under the Macatawa Bank Corporation Stock
Compensation Plan on November 19, 1998 ("Original Option") to purchase the same
number of shares and at the same price per share as set forth in this Option.

     IT IS AGREED AS FOLLOWS:

1.  Grant of Option
    ---------------

     Pursuant to the terms of this Agreement, the Company hereby grants to
Optionee, the Option to purchase 25,000 Shares of the Company's common stock, no
par value per share ("Option Shares")

2.  Purchase Price
    --------------

     The purchase price of the Shares covered by this Option shall be $16.50 per
share, which represents one hundred percent (100%) of the Fair Market Value of
the Company's common stock on the date the Original Option was granted ("Grant
Date").

3.  Additional Terms
    ----------------

     (a)  Exercise Period
          ---------------

     The Option may be exercised and Option Shares may be purchased at any time
and from time to time on or after November 19, 1999, and prior to November 19,
2008 ("Exercise Period"), subject to the following:

          (1) If Optionee dies, this Option shall remain exercisable at any time
     prior to November 19, 2008; and

          (2) This Option may not be exercised after November 18, 2008.
<PAGE>

     (b)  Procedure for Exercise
          ----------------------

     Subject to the conditions of this Agreement, the Option may be exercised at
any time and from time to time during the Exercise Period by delivering written
notice to the Company, signed by Optionee, a Permitted Transferee, or Post-Death
Representative, specifying the number of Option Shares to be purchased and
accompanied by this Agreement.

     (c)  Payment of Option Price
          -----------------------

     The Option Price shall be paid in full either (1) in cash or (2) through
the delivery of unencumbered shares of the Company's Stock owned by the person
exercising this Option having a Fair Market Value on the date of exercise equal
to the total exercise price, or (3) by a combination of (1) and (2) above,
except that (i) any portion of the exercise price representing a fraction of a
Share shall be paid in cash, and (ii) no Shares of Stock which have been held
for less than six months may be delivered in payment of the exercise price. If
approved by the Company's Board of Directors, payment of the exercise price of
this Option may be made by a reduction in the number of Shares issuable upon
exercise of this Option, based upon the Fair Market Value of the Stock on the
last trading day preceding exercise of this Option.

4.   Transferability of Option
     -------------------------

     Except as otherwise provided in this paragraph, this Option shall not be
sold, pledged, assigned or transferred in any way, nor be assignable by
operation of law or subject to execution, levy, attachment or similar process.
Except as provided in this paragraph, any attempted sale, pledge, assignment or
other transfer of this Option contrary to the terms hereof, and any execution,
levy, attachment or similar process upon this Option, shall be null and void and
without any effect.  Notwithstanding the foregoing, this Option shall, subject
to the conditions set forth in this paragraph 4, be transferable by the original
Optionee by gift, or other transfer that involves no payment of consideration to
the original Optionee, at any time to a Permitted Transferee.  Payment of any
consideration by a Permitted Transferee to the original Optionee is prohibited
and any attempted transfer for consideration shall be void.  A Permitted
Transferee shall have no  right to transfer the Option.  A Permitted Transferee
shall succeed to all rights and benefits (except the right to further transfer
the Option) and be subject to all obligations, conditions and limitations of the
original Optionee.  However, such rights and benefits (except the rights to
further transfer the Option) and obligations, conditions and limitations shall
be determined as if the original Optionee continued to hold the Option.  In
order to transfer this Option, the Optionee must first give prior written notice
to the Company's president or chief financial officer stating the name, address
and tax identification or social security number of the proposed transferee and
the relationship of the proposed transferee to the Optionee and certifying that
the transfer involves no payment of

                                      -2-
<PAGE>

consideration. This Option may not be transferred if the transfer would
constitute a violation of any applicable federal or state securities or other
law or valid regulation. As a condition to the transfer of this Option, the
Company may require the proposed transferee to make any representations and
warranties to the Company as the Company may deem to be required by applicable
law or regulation. In such event, the Option may not be transferred unless and
until the Company is satisfied with the correctness of any such representation
and warranty. Moreover, the Company, in its discretion, may postpone the
transfer of this Option until completion of such stock exchange listing, or
registration, or other qualification under any state and/or federal law, rule or
regulation as the Company may consider appropriate.

5.   Certain Definitions
     -------------------

     (a) Fair Market Value means the average of the last reported sales price of
common stock as of the close of business for each of the last twenty (20)
trading days ending the day immediately preceding the day as of which "Fair
Market Value" is to be determined.

     (b) Permitted Transferee means either (i) the spouse, a child, or a
grandchild of the Optionee (each an "Immediate Family Member"), (ii) a trust for
the exclusive benefit of the Optionee and/or one or more Immediate Family
Members, or (iii) a partnership or limited liability company whose only partners
or members are the Optionee and/or one or more Immediate Family Members.

     (c) Post-Death Representative(s) means the executor(s) or administrator(s)
of the Optionee's estate or the person or persons to whom the Optionee's rights
under his Option pass by Optionee's will or the laws of descent and
distribution.

     (d)  Shares means shares of Stock.

     (e) Stock means authorized and unissued shares of common stock, no par
value, of the Company and includes Shares which may be reacquired by the
Company.

6.   Service as a Director
     ---------------------

     Optionee acknowledges that nothing in this Agreement imposes upon the
Company, its Board of Directors, or its shareholders any obligation to retain or
elect the Optionee as director of the Company for any period.

7.   Adjustments
     -----------

     The Company shall make appropriate and proportionate adjustments, to the
number of Option Shares and the Option Price to reflect any Stock dividend,
Stock split, or combination of Shares, merger, consolidation, or other change in
the capitalization of the

                                      -3-
<PAGE>

Company. Any such adjustment shall be made in an equitable manner by the
Company's Board of Directors whose determination shall be conclusive and binding
on all concerned. In the event of any such adjustment, all new, substituted, or
additional securities or other property to which Optionee is entitled under the
Option shall be included in the term "Option Shares."

8.   Postponement of Delivery of Shares and Representations
     ------------------------------------------------------

     The Company, in its discretion, may postpone the issuance or delivery of
Shares upon any exercise of this Option until completion of the registration, or
other qualification of such shares under any state and/or federal law, rule, or
regulation as the Company may consider appropriate.  The Company may require any
person exercising this Option to make such representations, including a
representation that it is their intention to acquire Shares for investment and
not with a view to distribution thereof, and furnish such information as it may
consider appropriate in connection with the issuance or delivery of the Shares
in compliance with applicable laws, rules and regulations.  No Shares shall be
issued unless the Company is satisfied with the accuracy of any such
representations.

9.   Rights as a Shareholder
     -----------------------

     The Optionee shall have no rights as a shareholder with respect to any
Option Shares until the Optionee becomes the holder of record of such shares.

10.  Further Actions
     ---------------

     The parties agree to execute such further instruments and to take such
further actions as may reasonably be required to carry out the intent of this
Agreement.

11.  Notice
     ------

     Any notice required or permitted hereunder shall be given in writing and
shall be deemed effectively given upon personal delivery or upon deposit in the
United States Post Office, by registered or certified mail with postage and fees
prepaid, addressed to the other party hereto at the address set forth in this
Agreement or at such other address as such party may designate by ten day's
advance written  notice to the other party.

12.  Successors and Assigns
     ----------------------

     This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer set forth herein, be binding upon and inure to the benefit of
Optionee's heirs, personal representatives, successors, and permitted assigns.

                                      -4-
<PAGE>

13.  Governing Law
     -------------

     This Agreement and all documents contemplated hereby, and all remedies in
connection therewith and all questions or transactions relating thereto, shall
be construed in accordance with and governed by the laws of the state of
Michigan.

14.  Entire Agreement
     ----------------

     This Agreement constitutes the entire understanding between the Optionee
and the Company with respect to the Option Shares and supersedes all other
agreements, whether written or oral, with respect to such Shares.

                              MACATAWA BANK CORPORATION


                              By:  /s/ Philip J.  Koning
                                   ---------------------
                                 Its:  President
                                       -----------------




The undersigned hereby acknowledges having read this Agreement and hereby agrees
to be bound by all provisions set forth herein.

                              OPTIONEE


                              /s/ Benjamin A. Smith, III
                              --------------------------
                              Signature

                              Benjamin A. Smith III
                              --------------------------

                                      -5-
<PAGE>

                               Record of Exercise



                                                  Shares Subject to
Date       Number of Shares    Price Per Share    Option After Exercise
-----      ----------------    ----------------   ---------------------