Document:

exh_101.htm

Exhibit 10.1

 

SETTLEMENT AGREEMENT AND RELEASE

This Settlement Agreement and Release (the “Agreement”) is made on March 20, 2013, between FIFTH THIRD BANK, a Michigan banking corporation, whose address is 111 Lyon Street N.W., Grand Rapids, Michigan 49503 (“Lender”), and Community Shores Bank Corporation, a Michigan Corporation, whose address is 1030 West Norton Avenue, Muskegon, Michigan 49441 (“Borrower”).

FACTS

A.           Borrower is indebted to Lender pursuant to the terms of the following documents, instruments and agreements:

(1) Loan Agreement dated September 7, 2007, evidencing a  revolving line of credit in the amount of $5,000,000.00 between Borrower and Lender, as amended by an Amendment to Loan Agreement dated September 16, 2008, and Second Amendment to Loan Agreement dated December 18, 2009, which Second Amendment to Loan Agreement converted the credit facility to a term loan  (collectively, the “Loan Agreement”).

 

(2) Revolving Credit Note dated September 7, 2007, in the original principal amount of $5,000,000.00, given by Borrower to Lender (the “First Revolving Note”).

 

(3)  Revolving Credit Note dated September 16, 2008, in the original principal amount of $5,000,000.00, given by Borrower to Lender (the “Second Revolving Note”).

 

(4) Promissory Note dated December 18, 2009, in the original principal amount of $5,000,000.00, given by Borrower to Lender (the “Note” and together with the First Revolving Note and the Second Revolving Note, the “Notes”);

 

(5) Pledge Agreement dated September 16, 2008 pursuant to which Borrower granted Lender a security interest in all the capital stock of Community Shores Bank, a Michigan banking corporation (the “Pledge”).

 

B.           The indebtedness, including principal and accrued interest, evidenced and secured by the Loan Agreement, the Notes, and Pledge and any and all related documents, instruments and agreements (collectively, the “Loan Documents”) is $5,799,166.66 as of February 13, 2013, with interest accruing after that date at a daily rate equivalent to six percent (6.0%) per annum (the “Indebtedness”).

C.           Subject to the terms of this Agreement and in consideration of Borrower’s full and timely performance under this Agreement, Lender is willing to accept the sum of $500,000.00 (the “Settlement Payment”) in full satisfaction of the Indebtedness.

AGREEMENTS

The parties agree that the above facts are accurate and further agree as follows:

 

  

 

  

1. Acknowledgements.  Borrower acknowledges and confirms that: (a)  each and every one of the Loan Documents is valid, has been properly executed, and is enforceable according to its terms; (b) the Indebtedness is presently due and owing without defense, counterclaim or setoff of any kind or nature and represents the binding obligation of Borrower to Lender; and (c) Lender has the right to exercise all of its rights and remedies under the Loan Documents and applicable law, subject only to the terms of this Agreement and Borrower’s full and timely performance.

 

2. Representations and Warranties.  (a) Borrower represents and warrants for the protection and benefit of Lender and its agents, employees, successors and assigns, that: (i) with the exception of any approvals necessary under the Written Agreement by and between Borrower and the Federal Reserve Bank of Chicago (the “FRBC”) dated December 16, 2010, there are no actions or proceedings which are pending, or to the knowledge of Borrower threatened, which might prevent Borrower from fully and timely performing this Agreement; (ii) this Agreement is being given freely and voluntarily, and absolutely and unconditionally; (iii) no fraud, coercion or duress has been attempted or done by the Lender or its agents or employees; and (iv) Borrower has been advised by counsel of its choosing concerning this Agreement (b)  Lender represents and warrants for the protection and benefit of Borrower and its agents, employees, successors and assigns, that: (i) Lender is the sole legal and beneficial owner of the Loan Documents; and (ii) Lender has not assigned or otherwise transferred any interest in the Indebtedness or Loan Documents to any third party.

 

3. Closing; Settlement Payment; Release of Collateral.  The closing of this transaction (the “Closing”) shall occur on a date and at a time and place mutually acceptable to Lender and Borrower (the “Closing Date”) following receipt by Borrower of the approval by the FRBC of this Agreement pursuant to paragraph 11 below, provided that the Closing Date shall occur not later than [insert date 60 days after date of this Agreement].  At the Closing, Borrower shall pay the Settlement Payment to Lender in full, collected and immediately available funds, and Lender shall deliver either (a) original Stock Certificate No. 1 for 1,000,000 shares of the Common Stock of Community Shores Bank, a Michigan banking corporation issued in the name of the Community Shores Bank Corporation; or (b) a statement of lost certificate in form of the attached Exhibit A . Subject to Lender’s receipt of the Settlement Payment and Borrower’s full compliance with the terms of this Agreement, Lender authorizes Borrower to: (a) complete and file UCC termination statements in respect of any UCC financing statements filed by Lender with respect to the Indebtedness; and (b) mark the Loan Documents “paid in full” or such other designation as may be appropriate to reflect Lender’s acceptance of the Settlement Payment in full satisfaction of Borrower’s obligations under  the Notes.

4.  Release of Borrower.  Effective upon payment of the Settlement Payment, and subject to the terms of this Agreement, Lender releases and discharges Borrower from further liability for the Indebtedness and forever releases and discharges Borrower and its officers, directors, employees, shareholders, affiliates, agents, and successors and assigns (the “Borrower Releasees”), from any and all liability, claims, demands, equitable relief, damages, costs, expenses, and causes of action of every kind or nature which Lender now has or which Lender may have in the future, whether known or unknown, based on representations, promises, conduct, actions or inactions or any other circumstance of any kind occurring prior to or on the date of execution of this Agreement, that arise from, or are related to (a) the Indebtedness; and (b) the Loan Documents (collectively, the “Note  Claims”). For the avoidance of doubt, this Agreement is a comprehensive release and discharge of the Note Claims and shall be liberally and expansively construed in favor of the Borrower Releasees to effect that intent.   .

 

  

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5. Release of Lender.  Borrower forever releases and discharges Lender and its officers, directors, employees, shareholders, affiliates, agents, and successors and assigns (the “Lender Releasees”), from any and all liability, claims, demands, equitable relief, damages, costs, expenses, and causes of action of every kind or nature which Borrower now has or which Borrower may have in the future, whether known or unknown, based on representations, promises, conduct, actions or inactions or any other circumstance of any kind occurring prior to or on the date of execution of this Agreement, including, without limitation, Lender’s administration of the Loan Documents and the negotiation and execution of this Agreement (collectively, the “Borrower Claims”).  For the avoidance of doubt, this Agreement is a comprehensive, global release and discharge of all Borrower Claims and shall be liberally and expansively construed in favor of the Lender Releasees to effect that intent.

 

6. Reservations.  Nothing in paragraphs 4 or 5 shall operate to release, waive or otherwise discharge any obligation, right or remedy, or otherwise impair or affect any right of either party: (a) under this Agreement; (b) with respect to parties’ correspondent banking relationship.

 

7. Assignment.  Borrower represents and warrants that none of the Borrower Claims have been previously, or in the future will be, assigned, conveyed or transferred in any fashion to any other person or entity.  Borrower agrees to defend, indemnify and hold harmless Lender from and against any and all claims, damages, or liabilities, including reasonable attorney fees, sustained by Lender as a result of the breach of any representation and warranty in this Agreement by Borrower.

 

8. Disclaimer of Relationships.  Nothing in this Agreement, nor any document executed pursuant to this Agreement, nor any act of Lender, or its agents or employees, shall be construed by Borrower or any third party, to create any relationship of third party beneficiary, principal and agent, limited or general partnership, or joint venture, or of any association or relationship whatsoever between Lender and Borrower.

 

9. Waiver of Jury.  BORROWER AND LENDER, AFTER CONSULTING OR HAVING THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT EACH OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.  NEITHER BORROWER NOR LENDER SHALL SEEK TO CONSOLIDATE (BY COUNTER-CLAIM OR OTHERWISE) ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.

  

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10. Knowing Execution.  Each of the parties acknowledges that they have read this Agreement, understands its terms, and has had all the time desired to review and consider it.

 

11. Approval of FRBC.                                           This Agreement is subject to approval by the FRBC.  Borrower agrees to give notice of this Agreement and submit it to the FRBC for review and action promptly after execution of this Agreement.  Such approval by the FRBC shall be in form and substance reasonably satisfactory to Lender. In the event that: (a) such approval is not given by the FRBC, this Agreement shall be null and void and of no legal effect; or (b) such approval is not given by the FRBC within sixty (60) days of execution of this Agreement, Lender, in Lender’s sole discretion, may terminate this Agreement and this Agreement shall be null and void and of no legal effect.

 

12. Reinstatement of Indebtedness.  If the Settlement Payment, or any part of the Settlement Payment, is set aside, rescinded, recovered, or required to be returned by Lender for any reason, including, without limitation, the bankruptcy, insolvency, or reorganization of any person: (a) the Indebtedness shall for all purposes be reinstated to the extent of any such amount returned; and (b) in the case of the bankruptcy, receivership or other reorganization of Borrower, the Indebtedness shall be reinstated in full for purposes of any claim or defense of Lender in any such proceeding.

 

13. Notices.  All notices to be given pursuant to this Agreement shall be in writing and shall be deemed served when hand delivered or mailed by first class Mail, postage prepaid, upon: (a) Borrower, to the attention of Heather D. Brolick, President and Chief Executive Officer, at the address listed on page 1 of this Agreement, Telephone: (231) 780-1845, Fax: (231) 780-1860; E-mail: Hbrolick@communityshores.com; and (b) Lender, to the attention of Francelle Fulton, Vice President, Special Assets Group, Fifth Third Bank, 1000 Town Center, MD JTWN2C, Southfield, Michigan, 48075;  Telephone: (248) 603-0141; Fax: (248) 603-0655. E-mail: francelle.fulton@53.com

 

14. Binding Effect.  This Agreement shall be binding upon the parties and their respective officers, directors, employees, owners, members, shareholders, managers, affiliates, agents, representatives and attorneys, and successors and assigns.

 

15. Severability.  If any provision of this Agreement as applied to any party or to any circumstance shall be adjudged to be illegal, invalid or unenforceable for any reason, such illegality, invalidity or unenforceablility shall not affect the validity or enforceability of the remainder of this Agreement, provided that Lender may elect to specifically enforce the provisions of this Agreement remaining in effect or to rescind this Agreement in its entirety.  Upon rescission of this Agreement, the Loan Documents and all of the Lender’s rights under them shall be reinstated in their entirety and shall be deemed to have been in effect throughout the period of time during which this Agreement may have been effective.

 

16. Entire Agreement.  This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement.  The provisions of this Agreement shall supersede all prior and contemporaneous oral agreements, communications and understandings between the parties with respect to the subject matter of this Agreement.

 

  

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17. Modification.  This Agreement shall not be amended, altered or modified unless done so in writing, signed by the party or such party’s duly authorized representative against whom such modification is sought to be enforced.

 

18. Applicable Law.  The terms and conditions of this Agreement shall be governed, construed, interpreted and enforced in accordance with the laws of the State of Michigan.

 

19. No Reliance upon Representations.  Borrower and Lender each acknowledge and agree that, except as expressly set forth in this Agreement, the effectiveness of this Agreement and the release and discharge contained in it are not dependent or conditioned in any way upon the accuracy of any prior understandings or perceptions that either party may have, or any assumptions that either party may have made, correctly or incorrectly, in electing to enter into this Agreement.  The parties each further acknowledge and affirm that, except as expressly set forth in this Agreement, they are not relying upon any statements, representations, opinions or promises made by the other in electing to enter into this Agreement.

 

20. Headings.  The headings used herein have been used for the convenience of the parties and are not to be used in construing this Agreement.

 

21. Negotiated Agreement.  This Agreement is the product of negotiation and the rule of construction that an Agreement is to be construed against its drafters is not applicable.

 

22.  Counterparts.  This Agreement may be executed in any number of counterparts, all of which will be considered a single document.  Such counterpart execution may be by facsimile or electronic mail copy which each party is entitled to rely upon as an original signature for any and all purposes.

 

In witness whereof, the parties have signed this Agreement as of the day and year first above written.

 

	  	
FIFTH THIRD BANK

 

 

	  	
By: /s/ Francelle Fulton

Francelle Fulton

Its:  Vice President

       Special Assets Group

 

 

 

	  	  
	  	
COMMUNITY SHORES BANK CORPORATION

 

By: /s/ Heather D. Brolick

 
       Heather D. Brolick

Its:  President and CEO, signed on behalf of Community Shores Bank Corporation

	  	  

 

 

5exh_102.htm

Exhibit 10.2

 

CONVERTIBLE SECURED NOTE PURCHASE AGREEMENT

 

March 20, 2013

 

	
To: 

	
1030 Norton LLC

Convertible Secured Note of Community Shores

Bank Corporation, Due March 31, 2015

 

Community Shores Bank Corporation, a Michigan corporation (the "Company"), whose address is 1030 W. Norton Avenue, Muskegon, Michigan 49441, agrees with 1030 Norton LLC, a Michigan limited liability company ("you") as follows:

 

1.           The Note.  The Company intends to issue a single convertible secured note in the principal amount of $1,280,000 due March 31, 2015 (the "Note").  The Company has taken all necessary action to authorize the execution and delivery of this Agreement and the sale and issuance to you under this Agreement of the Note.  The Note will be in substantially the form set forth as Exhibit A to this Agreement.  The Note will be dated as of the Closing Date (as defined below), and mature on March 31, 2015 (the “Maturity Date”), unless the Maturity Date is extended by written agreement of the Company and you.  The Note will bear interest on its unpaid principal balance at 8% per annum from the Closing Date until payment in full or conversion of the Note, payable quarterly in arrears on April 1, July 1, October 1, and January 1 of each year, for the immediately preceding quarter, commencing April 1, 2013.  During the continuance of any Event of Default (as defined below) the per annum rate of interest payable on the unpaid principal balance of the Note will increase from 8% per annum to 10% per annum.  The Note will be secured by that certain Pledge Agreement by and between the Company and you, the form of which is attached as Exhibit B to this Agreement (the “Pledge Agreement”), to be delivered at such time and upon the satisfaction of such conditions as specified in Section 3 below.   Further, outstanding principal and accrued and unpaid interest may be convertible into common stock of the Company on the terms and conditions outlined in the Note.  The Note may be prepaid in whole or in part prior to maturity, without any prepayment fee, at any time at the election of the Company, upon at least one (1) days prior written notice to you.

 

THE NOTE WILL BE ISSUED IN REGISTERED FORM ONLY AND WILL BE TRANSFERABLE ONLY AS PROVIDED IN THIS AGREEMENT.  THE NOTE WILL NOT BE ELIGIBLE AS COLLATERAL FOR LOANS FROM THE COMPANY'S SUBSIDIARY, COMMUNITY SHORES BANK (THE "BANK").  THE NOTE IS NOT A DEPOSIT OR OTHER OBLIGATION OF THE BANK.  THE NOTE IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.

 

2.           Purchase and Sale of the Note. Subject to the terms and conditions of this Agreement, and in reliance upon the representations and warranties set forth in this Agreement, you agree to purchase from the Company, and the Company agrees to issue and sell to you the Note, in the aggregate principal amount of $1,280,000, upon delivery by you, at or prior to the Closing Date, of the purchase price specified in Section 3. The Company will initially issue to you one Note registered in your name and payable to you in the aggregate principal amount of the Note being purchased by you.

 

 

 

 

3.           Closing and Post-Closing Events.

 

(a)           The Closing under this Agreement will take place at the main office of the Company at 1030 W. Norton Avenue, Muskegon, Michigan 49441, at 10:00 a.m., on March 20, 2013, or on such other date and time as may be mutually agreed upon between you and the Company (such date and time is called the "Closing Date").  Unless otherwise mutually agreed between you and the Company, at the Closing the Company will deliver the Note to you against payment by you, by delivery to the Company of cash, bank cashier's check, or wire transfer, of 100% of the aggregate principal amount of the Note to be sold and delivered to you (the “Purchase Price”).

 

(b)           After the Closing Date and as soon as reasonably practicable following the release and discharge by Fifth Third Bank of that certain Pledge Agreement made as of September 16, 2008 between the Company and Fifth Third Bank and the return to the Company by Fifth Third Bank of the stock certificate evidencing the shares of the Bank pledged pursuant thereto, the Company will execute and deliver the Pledge Agreement to you.

 

4.           Representations and Warranties of the Company.  The Company represents and warrants to you as follows:

 

(a)           The Company is a corporation organized and validly existing in good standing under the laws of the State of Michigan.

 

(b)           The Company is duly authorized to conduct its current business and has all requisite corporate power and authority to own and operate its properties and assets (including the voting capital stock of the Bank), and to carry on its business; except to the extent that the Company's failure to be so authorized or have such power or authority would not be expected to have a material adverse effect on the Company.

 

(c)           The Company is duly authorized by all requisite corporate action to enter into this Agreement, to issue and sell the Note, and to perform the terms of this Agreement and of the Note.

 

(d)           There are no actions, suits, proceedings or investigations pending before any court or governmental agency, or, to the Company's knowledge, threatened before any such court or governmental agency, which the Company expects will result in any judgment, order, decree or liability having a material adverse effect upon the business or financial condition of the Company, or which questions the validity of the Note or this Agreement, other than a Written Agreement between the Company and the Federal Reserve Bank of Chicago dated December 16, 2010, a Consent Order among the Federal Deposit Insurance Corporation (“FDIC”), the Michigan Office of Financial and Insurance Regulation (“OFIR”) and the Bank dated  September 2, 2010, and a Supervisory Prompt Corrective Action Directive issued by the Chicago Regional Office of the FDIC to the Bank dated August 17, 2011.

 

 

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(e)           The Company has filed all federal, state, local and other tax returns required by law to be filed by it, and all taxes shown to be due and all additional assessments shown to be due, have been paid by the Company; except to the extent that the failure to make any such filing or payment would not be expected to have a material adverse effect on the Company.

 

(f)           Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated by this Agreement, nor compliance with the provisions of this Agreement and of the Note, will result in any violation of any term of the Company’s Articles of Incorporation or its Bylaws, where such violation would be expected to have a material adverse effect on the Company.

 

(g)           There exists no condition, event or act which would constitute an Event of Default, as defined in Section 8 of this Agreement, or which, after notice or lapse of time or both, would constitute such an Event of Default.

 

(h)           The authorized capital stock of the Bank consists of 1,000,0000 shares of common stock, of which 1,000,000 shares are issued and outstanding.  The Company owns all of the issued and outstanding Common Stock of the Bank.  The Bank is a wholly-owned subsidiary of the Company.

 

(i)           The authorized capital stock of the Company consists of 9,000,000 shares of common stock, of which 1,468,800 shares are issued and outstanding, and 1,000,000 shares of preferred stock, of which no shares are issued and outstanding.

 

5.           Representations, Warranties and Covenants of the Purchaser.  You are  aware that the Company intends to issue the Note pursuant to an exemption from registration under Rule 506 of Regulation D or Section 4(2) of the Securities Act of 1933 (the "Securities Act"), and under Section 202(n) of the Michigan Uniform Securities Act (2002) (the "Michigan Act"), or without registration under the Michigan Act in reliance on Section 18 of the Securities Act.   In determining whether these exemptions from registration under the Securities Act, the Michigan Act, or other applicable securities laws, are available, the Company is relying upon your representations, warranties and covenants contained in this Agreement.  You represent and warrant to, and agree with, the Company as follows:

 

(a)           You are acquiring the Note solely for your own account, for investment and not with a view to any further sale or distribution of the Note.

 

 

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(b)           The Note has not been registered under the Securities Act, the Michigan Act, or any other state securities act, and will not be sold or otherwise transferred without registration under the Securities Act, the Michigan Act, and any other applicable state securities act, or an exemption from registration.   You recognize that the Note will bear a restrictive legend providing that no sale or other transfer may be made without registration under federal and state securities laws or an exemption from registration.  The records of the Company will also be marked to note the restrictions on transfer of the Note referred to in this Section.

 

(c)           In addition to the restrictions on transfer set forth in subsection (b) above, you agree that you will give the Company at least 10 business days (or such shorter period as the Company may agree to) advance notice of any proposed sale, pledge, or other transfer of the Note or of any interest in the Note; and will not sell, pledge or otherwise transfer the Note, or any interest in the Note, without the prior written consent of the Company.  The Company may decline to grant its consent for any reason, or no reason.

 

(d)           The Note was not offered to you by means of any advertisement, article, notice or other communication published in any newspaper, magazine or similar medium, or broadcast over television or radio, or any other form of general solicitation or advertising.  Materials submitted to you in connection with the purchase of the Note were received by you at least 48 hours before this Agreement was signed.

 

(e)           You have not paid or agreed to pay any commission to any person for soliciting you to purchase the Note; and you are not aware any other person making any agreement to pay, or paying any commission in connection with the sale of the Note.

 

(f)           You are an "accredited investor" as that term is defined in Regulation D under the Securities Act, because you are a limited liability company, all of the members of which are accredited investors.

 

(g)           All communication with you regarding the purchase of the Note has occurred in the State of Michigan; and your principal office is located in the State of Michigan.

 

(h)           You have full power and authority, and have taken, and your members and manager(s) have taken all action necessary to authorize the purchase of the Note, and you have obtained the consent or approval of all governmental agencies or bodies whose consent or approval is required for your purchase of the Note.  Your purchase of the Note does not violate any law, rule or regulation to which you are subject nor the terms of any agreement or undertaking to which you are a party.

 

 

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(i)           You confirm that, in making your decision to purchase the Note, you have relied solely upon independent investigations made by you or your representatives, including your own professional tax and other advisors, and that you and such representatives and advisors have been given the opportunity to ask questions of, and to receive answers from, persons acting on behalf of the Company concerning the terms and conditions of this offering, and to obtain any additional information, to the extent such persons possess such information or can acquire it without unreasonable effort or expense.

 

(j)           You confirm that (A) each of your members reached his decision to invest in you independently from the other members, (B) none of your members has entered into, and none of your members has any intention to enter into, any agreement or understanding with any other member(s) for the purpose of exercising a controlling influence over the management and policies of the Company, including but not limited to any agreement or understanding regarding the voting or transfer of any shares of the Company’s common stock into which any portion of the principal and unpaid interest on the Note may be converted, and (C) none of your members who is a director of the Company has any intention to act in concert with any other directors or shareholders of the Company, including you, with respect to the exercise of his voting rights as a director, provided, however, that this shall not limit a director’s ability to exercise his legitimate duties and rights as a director, including the ability to consult with other directors and shareholders as appropriate.

 

6.           Payment, Registration and Transfer of the Note.  The Company may make all payments on account of the principal of the Note and any interest thereon directly by check duly mailed or delivered to you at your address set forth in the register referred to in this Section 6, without any presentment or notation of payment, notwithstanding any provisions to the contrary in the Note with respect to the place and manner of payment.  Any amount of principal so paid on the Note shall be regarded as having been retired and cancelled at the time of payment.  When all  principal of and interest on the Note has been fully paid, the Note shall be surrendered to the Company and shall be retired and cancelled.

 

The Company will cause to be kept at its principal office a register in which shall be entered the name and address of the holder of the Note, the particulars of the Note, and of all transfers of the Note.  The person in whose name the Note shall be so registered shall be deemed and treated as the owner of the Note for all purposes of this Agreement and the Company shall not be affected by any notice to the contrary.  Payment of or on account of the principal of and interest on the Note shall be made only to or upon the written order of the registered owner (which in the case of a payment on an Interest Payment Date shall be the registered owner at the close of business on the related Regular Record Date as defined in the Note).  For the purpose of any request, direction, consent, or waiver under this Agreement, the Company may deem and treat the registered owner of the Note as the owner of the Note without production of the Note.

 

 

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Subject to compliance with the requirements of Sections 5(b) and 5(c) of this Agreement, the holder of the Note may at any time prior to maturity or payment in full of the Note transfer the Note by surrender of the Note at the principal office of the Company with an appropriate instrument of transfer, and the Company shall, without expense to such holder or transferee (other than payment of a sum sufficient to cover any tax or other governmental charge payable in connection with such transfer or exchange), execute and deliver to the transferee a new Note registered in the name of such transferee in principal amount equal to the unpaid principal amount of the Note so transferred.  All Notes so issued upon transfers or exchanges shall have the same maturity and rate of interest, contain the same provisions, and be subject to the same terms and conditions as the Note so surrendered, including all of the provisions of this Agreement.

 

Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Note, and, if requested by the Company, upon delivery of an indemnity agreement or security reasonably satisfactory to the Company, the Company will issue a new Note of like tenor and amount in lieu of such lost, stolen, destroyed or mutilated Note.   References in this Agreement to the Note shall include any Note issued pursuant to this Section 6.

 

7.           Covenants of the Company.  The Company covenants and agrees that, so long as the Note is outstanding, it will perform and observe the following covenants and provisions:

 

(a)           The Company will pay the principal of and interest on the Note at the time and place and in the manner stated in the Note.

 

(b)           The Company will not sell all or substantially all of its assets unless the purchaser agrees to be liable for the payment of all of the Company's obligations under the Note.

 

(c)           The Company will not consolidate with or merge into any other corporation or entity or permit any other corporation or entity to consolidate with or merge into the Company; provided that the foregoing shall not apply to any consolidation or merger to which the Company is a party if the Company is the surviving corporation, or the surviving corporation agrees to be liable for the payment of all of the Company's obligations under the Note.

 

(d)           The Company will, from time to time, within ten (10) days after submission of a written request for payment, reimburse you for all reasonable out-of-pocket costs, including legal fees and expenses, incurred by you in connection with the preparation or review of this Agreement, the Note, any amendment or proposed amendment to this Agreement or the Note, or any related documents, or in analyzing or enforcing any of your rights under this Agreement or the Note, or in connection with any claim or inquiry brought by any shareholder of the Company or by any bank regulatory organization, in connection with this Agreement, the Note, or any  of the related transactions.

 

 

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(e)           To the extent permitted by law, the Company agrees that it will not cause or permit the Bank to issue additional shares of capital stock while any amount under the Note is outstanding, without the prior written consent of the holder of the Note.

 

(f)           The Company will utilize a portion of the proceeds of the Note to obtain the release and discharge of all indebtedness owed by the Company to Fifth Third Bank under that certain Loan Agreement made as of September 7, 2002, as amended, and a release and discharge of that certain Pledge Agreement made as of September 16, 2008 between the Company and Fifth Third Bank.

 

8.           Defaults.  Each of the following events shall constitute an "Event of Default" under this Agreement:

 

(a)           If the Company shall default in the payment of any part of the principal of the Note when the same shall become due and payable, whether at maturity or at a date fixed for prepayment or by acceleration or otherwise; and the default continues for more than (ten) 10 days after the holder of the Note provides written notice of the default to the Company; or

 

(b)           If the Company shall default in the payment of any installment of interest on the Note, and the default continues for more than (fifteen) 15 days after the holder of the Note provides written notice of the default to the Company; or

 

(c)           If the Company shall default in the performance or observance of any of the terms, covenants, or conditions of this Agreement or the Note, and such default shall continue for more than thirty (30) days after the holder of the Note provides written notice of the default  to the Company; or

 

(d)           If any representation or warranty made by the Company in this Agreement shall prove to have been false or incorrect in any material respect on the date as of which it was made; or

 

(e)           The Commissioner of the Michigan Office of Financial and Insurance Regulation, the Board of Governors of the Federal Reserve System, or the Federal Deposit Insurance Corporation, or any other regulatory authority having jurisdiction shall take possession of the properties, assets, and business of the Bank or appoint a receiver or conservator of the Bank; or

 

(f)           Any action or proceeding shall be commenced by or against the Company for reorganization, liquidation or similar relief under the Bankruptcy Code, or any other bankruptcy, reorganization or insolvency law or statute, and shall remain undismissed for 30 days.

 

 

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If an Event of Default under paragraphs (e) or (f) above shall occur and be continuing, the Note shall, without further action on the part of the holder or any other person, automatically and immediately become due and payable.  If an Event of Default under paragraphs (a), (b), (c) or (d) above shall occur and be continuing, then the holder of the Note shall have the option (unless such event shall have been remedied) to declare the Note to be due and payable.  In the event that the Note becomes due and payable automatically as provided for in the first sentence of this paragraph, then the Note shall immediately mature and become due and payable without presentment, demand, protest or further notice of any kind, all of which are expressly waived.  No delay on the part of the holder of the Note in exercising any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude other or further exercise thereof or the exercise of any other rights, power or privilege under this Agreement.

 

9           Amendments, Waivers and Consents.  Changes or additions to this Agreement may be made, and compliance with any covenant or provision herein set forth may be omitted or waived, if the Company shall obtain consent thereto in writing from the holder of the Note. Any consent may be given subject to the satisfaction of conditions stated in the document setting forth or accompanying the consent.

 

10.           Survival of Representations and Warranties.  All representations and warranties contained in this Agreement are made in writing in connection with the transactions contemplated by this Agreement, are made as of the date of this Agreement, and shall survive the execution and delivery of this Agreement and of the Note.

 

11.           Notices.  Any notice or demand which by any provision of this Agreement is required or provided to be given shall be deemed to have been sufficiently given or served for all purposes when actually delivered, or if earlier, three business days after being sent by registered or certified United States mail, return receipt requested, and postage prepaid, to the applicable party at the address set forth opposite the signature of such party below or at such other address with respect to either party as such party shall notify the other in writing.

 

12.           Benefits.  All of the terms and provisions of this Agreement shall bind and inure to the benefit of the parties to this Agreement and their respective successors and permitted assigns, including all permitted assignees and subsequent holders of the Note; provided that despite any purported assignment or transfer of the Note the Company shall be entitled to treat as the owner of the Note the holder designated as payee on the records maintained by the Company unless and until a transfer of the Note in conformity with the terms of this Agreement shall have been completed, including without limitation registration of transfer as provided for in Section 6 hereof.

 

 

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13.           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan, without regard to choice of law principles of such State.

 

14.           Counterparts.  This Agreement may be executed in any number of counterparts, each of which, when executed and delivered shall be an original, but such counterparts shall together constitute one and the same instrument.

 

 

If you agree with the above, please sign this Agreement and return it to the Company, at which time this Agreement will become and evidence a binding agreement between the Company and you as of the date and year first above written.

 

Very truly yours,

 

COMMUNITY SHORES BANK

  CORPORATION

 

	  	
Address of Company:

	  	  
	  	
1030 W. Norton Avenue

Muskegon, Michigan 49441

	
By: /s/ Heather Brolick

	
Attention: Heather Brolick

	
Heather Brolick, President and CEO

	
President and CEO

	  	  
	  	  
	
PURCHASER

	  
	  	  
	
This Agreement is hereby accepted

	  
	
 and agreed to:

	  
	  	  
	  	
Address of Purchaser:

	  	  
	
1030 Norton LLC

	
1985 East Laketon Ave.

	  	
Muskegon, MI 49442

	  	
Attention: Bruce J. Essex,

Managing Partner

	
By: /s/Bruce J. Essex

	  
	
Bruce J. Essex

	  
	
Its: Managing Partner

	  

 

 

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EXHIBIT A

 

FORM OF SECURED CONVERTIBLE NOTE

 

The Note shall be in substantially the form set forth in this Exhibit, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by resolution of the Board of Directors of the Company or by the officer or officers executing the Note, as evidenced by his, her, or their execution of the Note.

 

COMMUNITY SHORES BANK CORPORATION

 

SECURED CONVERTIBLE NOTE

 DUE March 31, 2015

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, THE MICHIGAN UNIFORM SECURITIES ACT, OR THE SECURITIES LAWS OF ANY OTHER STATE.  THIS NOTE MAY NOT BE SOLD OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, THE MICHIGAN UNIFORM SECURITIES ACT, AND ANY OTHER APPLICABLE STATE SECURITIES LAWS, UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

 

THIS NOTE IS SUBJECT TO RESTRICTIONS ON SALE, PLEDGE AND OTHER TRANSFERS SET FORTH IN AN AGREEMENT BETWEEN THE HOLDER AND ISSUER OF THIS NOTE, INCLUDING RESTRICTIONS REQUIRING, IN MOST CASES, THE ISSUER'S CONSENT PRIOR TO ANY SALE, PLEDGE OR OTHER TRANSFER.

 

THIS NOTE IS NOT A DEPOSIT OR OTHER OBLIGATION OF COMMUNITY SHORES BANK AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.  THIS NOTE IS INELIGIBLE TO SECURE A LOAN FROM COMMUNITY SHORES BANK.

 

Community Shores Bank Corporation, a Michigan corporation (the "Company"), for value received, hereby promises to pay to:

 

1030 Norton LLC, a Michigan limited liability company

 

or permitted registered assigns, on March 31, 2015, the principal sum of One Million Two Hundred Eighty Thousand Dollars ($1,280,000) and to pay interest on the unpaid principal amount of this Note from the date of this Note or from the most recent Interest Payment Date (as defined below) to which interest hereon has been paid or duly provided for, whichever is later, quarterly  in arrears on the 1st day of April, July, October, and January (each an "Interest Payment Date") in each year commencing on April 1, 2013, at eight percent (8%) per annum until the principal of this Note is paid or converted pursuant to the next paragraph.

 

 

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If the Company makes an offering of its common stock upon maturity of the Note to retire the Note, the holder of the Note may elect to convert any portion of the total principal amount and accrued and unpaid interest of the Note into fully paid and nonassessable shares of the Company's common stock (the "Share(s)").  The number of Share(s) into which any portion of the total principal amount and accrued and unpaid interest of the Note may be converted shall be determined by dividing such portion of the total principal balance and accrued and unpaid interest of the Note by seventy-five percent (75%) of the per share price at which the shares of common stock are offered.  (Expressed algebraically, the number of Shares into which any portion of the total principal amount and accrued and unpaid interest of the Note is convertible equals x/(.75*y); where x is equal to the portion of the total principal balance and accrued and unpaid interest of the Note to be converted and y is equal to the offering price per share established by the Company for the offering.) No fractional shares shall be issued.

 

During the continuance of any Event of Default (as defined in the Purchase Agreement referred to below) the per annum rate of interest payable on the unpaid principal balance of this Note will increase from eight percent (8%) to ten percent (10%) per annum.

 

The interest so payable and punctually paid or duly provided for on any Interest Payment Date will be paid to the person in whose name this Note is registered at the close of business on the Regular Record Date for such interest which shall be the 15th day (whether or not a business day) of the calendar month immediately preceding an Interest Payment Date, notwithstanding the cancellation of this Note upon any transfer or exchange of this Note subsequent to such Regular Record Date and prior to such Interest Payment Date.  The principal of and interest on this Note shall be payable at the principal office of the Company in Muskegon County, Michigan; provided, however, that payment of interest or principal may be made at the option of the Company by check mailed to the address of the person entitled to the payment as such address may appear on the Note Register.  All such payments shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.

 

This Note may be prepaid in whole or in part prior to maturity, without any prepayment fee, at any time at the election of the Company, upon at least one (1) days prior written notice to the person in whose name this Note is registered.

 

This Note is issued under and pursuant to a Convertible Secured Note Purchase Agreement dated March 20, 2013, by and between the Company and the initial registered owner of this Note (the "Purchase Agreement") to which Purchase Agreement (and any amendments thereto) reference is made for a description of the rights, limitations of rights, obligations, and duties of the Company and the person in whose name this Note is registered, the terms upon which the Note is, and is to be, registered and delivered, and a description of the circumstances under which the maturity of the Note may be subject to acceleration.

 

 

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Upon execution and delivery of the Pledge Agreement by the Company as and when provided in the Purchase Agreement, this Note will be secured by a security interest, as more particularly described in the Pledge Agreement.

 

This Note is issued subject to the provisions of the Purchase Agreement, and each holder of this Note, by accepting the same, agrees to and shall be bound by such provisions.

 

This Note is issuable only as a registered Note.  No service charge will be made for any permitted transfer or exchange of this Note, but the Company will require payment of a sum sufficient to cover any tax or other governmental charge payable in connection with any transfer or exchange.  The Company may treat the person in whose name this Note is registered as the owner of this Note for the purpose of receiving payment and for all other purposes whether or not this Note is overdue, and the Company shall not be affected by any notice to the contrary.

 

As provided in the Purchase Agreement and subject to certain limitations set forth in the Purchase Agreement, this Note is transferable on the Note Register of the Company, upon surrender of this Note for transfer at the principal office of the Company in Muskegon County, Michigan, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company, duly executed by, the registered holder of this Note.

 

Community Shores Bank Corporation has caused this Note to be executed in its corporate name by the manual signature of its duly authorized officer.

 

Date:   March 20, 2013

 

COMMUNITY SHORES BANK CORPORATION

 

BY: /s/ Heather Brolick

Heather Brolick, President and CEO

 

 

 

 

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EXHIBIT B

 

FORM OF PLEDGE AGREEMENT

 

The Pledge Agreement shall be in substantially the form set forth in this Exhibit, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by resolution of the Board of Directors of the Company or by the officer or officers executing the Note, as evidenced by his, her, or their execution of the Note.

 

 

PLEDGE AGREEMENT

 

THIS PLEDGE AGREEMENT (this “Agreement”) is made as of March 20, 2013, by and between COMMUNITY SHORES BANK CORPORATION, a Michigan corporation, of 1030 West Norton Avenue, Muskegon, Michigan 49441, (“Debtor”) and 1030 NORTON LLC, a Michigan limited liability company, of 1985 East Laketon Ave., Muskegon, MI 49412 (“Secured Party”).

 

1. Grant of Security Interest.   Debtor grants to Secured Party a security interest in all shares of the capital stock of Community Shores Bank, a Michigan banking corporation, that Debtor now owns and acquires in future (the “Shares”) and in (1) all securities, security entitlements and other financial assets, instruments and other property (“Additional Property”) that Debtor at any time receives or is entitled to receive by reason of any stock dividend, stock split, recapitalization, reclassification, merger, consolidation, liquidation, exchange, renewal, redemption, substitution or other transaction regarding the Shares or regarding any Additional Property, (2) all dividends, interest and other distributions that Debtor at any time receives or is entitled to receive in respect of any of the Shares or any Additional Property (“Distributions”) and (3) all proceeds of the Shares, the Additional Property and the Distributions.  The Shares, the Additional Property, the Distributions and the proceeds thereof are referred to in this Agreement as “Collateral”.

 

2. Indebtedness Secured.  Debtor gives this security interest to secure payment and performance of Debtor’s obligations under that certain Convertible Secured Note Purchase Agreement dated March 20, 2013, as the same may be amended or restated from time to time (the “Note Purchase Agreement”), and that certain Convertible Secured Note Due March 31, 2015 issued under the Note Purchase Agreement (together with any substitute or replacement note(s) issued therefor from time to time, the “Note”).  The Note Purchase Agreement and the Note are secured by this Agreement and are collectively referred to as the “Indebtedness.”

 

 

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3. Warranties and Representations.  Debtor represents and warrants to, and agrees with, Secured Party as follows:

 

a. Debtor is a corporation organized and validly existing in good standing under the laws of the State of Michigan; Debtor has full corporate power and authority to enter into and perform its obligations under this Agreement; the signing, delivery and performance of this Agreement have been duly authorized by all necessary action of Debtor’s board of directors and will not violate Debtor’s articles of incorporation or bylaws; and this Agreement is Debtor’s valid and binding obligation, enforceable in accordance with its terms.

 

b. Debtor owns the Collateral and, subject to the consent of the Federal Reserve Bank of Chicago [(which has been obtained),] has the unqualified right to transfer the Collateral to Secured Party.  The Collateral is not subject to any security interest, lien, encumbrance, adverse claim or other claim in favor of any third party, or to any right or option of any third party to purchase or acquire any of the Collateral.

 

c. Each instrument, security or other financial asset included in the Collateral is genuine and what it purports to be and has not been materially altered.  Each security included in the Collateral is validly issued and fully paid.  The Shares are subject to assessment to the extent and in the manner provided by the Michigan Banking Code of 1999, as amended.

 

d. Debtor’s address set forth on the first page of this Agreement is the location of Debtor’s chief executive office.

 

4. Agreements of Debtor.  Debtor agrees that

 

a. Debtor shall promptly sign and deliver to Secured Party all stock powers, bond powers, assignments, endorsements, power of attorney, agreements, instructions to issuers, security intermediaries and other parties and other documents, including financing statements, that Secured Party from time to time requests to perfect Secured Party’s security interest in the Collateral.  Debtor consents to the filing by Secured Party of a financing statement reflecting Secured Party’s security interest in the Collateral.

 

b. Debtor shall not sell, lease, transfer, or assign any Collateral or any interest in any Collateral or permit any Collateral to be transferred by operation of law.

 

c. Debtor shall pay promptly when due all taxes and assessments upon the Collateral.

 

 

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d. Debtor shall furnish to Secured Party all information regarding the Collateral that Secured Party requests and shall allow Secured Party at any reasonable time to inspect Debtor’s records regarding the Collateral.

 

e. Debtor shall promptly deliver to Secured Party all certificates and other instruments or documents that evidence title or rights to the Collateral, including certificates and other instruments and documents that Debtor receives in the future.

 

f. Debtor shall immediately notify Secured Party in writing of any change in Debtor’s name, identity or corporate structure and of any change in the location of Debtor’s chief executive office.

 

5. Secured Party’s Rights.   Secured Party shall have the rights specified in this Section 5 only after the occurrence of (i) failure by Debtor to pay any of the Indebtedness at maturity, (ii) Secured Party has given the notice specified in Section 7 following such failure, and (iii) the 90-day period specified in Section 7 has expired without cure.

 

a. If Debtor fails to perform any of Debtor’s obligations under this Agreement, then Secured Party may, without giving Debtor notice or obtaining the consent of Debtor, perform that obligation on Debtor’s behalf.  (This may include, for example, signing stock powers and other documents described in Section 4(a) above).  To the extent necessary, Debtor appoints Secured Party as Debtor’s agent and attorney-in-fact with full power and authority to perform those obligations.  Debtor shall reimburse Secured Party on demand for any expense that Secured Party incurs in performing any obligation and shall pay to Secured Party interest on the expense, from the date on which the Secured Party incurred the expense, at an annual rate equal to 8% per annum.  Secured Party is not required to perform an obligation that Debtor has failed to perform.

 

b. With respect to the custody and preservation of Collateral in its possession, Secured Party’s only duty will be to use reasonable care.  Secured Party shall not have any obligation to take any steps necessary to preserve rights against prior parties.  Secured Party shall not have any duty to sell any Collateral even if its value declines.  Secured Party shall not have any obligation to exercise, or to notify Debtor of, any conversion or redemption rights or to take any similar action with regard to any Collateral.

 

6. Voting Rights.  Unless and until Debtor fails to pay any of the Indebtedness at maturity, Secured Party has given the notice specified in Section 7 following such failure, and the 90-day period specified in Section 7 has expired without cure, Debtor may exercise all voting and other powers and rights pertaining to any Collateral and may receive and retain all dividends on Collateral.

 

 

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7. Remedies.  If any of the Indebtedness is not paid at maturity, then upon 90 days’ prior written notice by Secured Party to Debtor and the expiration of such 90-day period without cure, Secured Party shall have all of the rights and remedies of a secured party under applicable laws.  Without limiting those rights and remedies, if all or any part of the Indebtedness is not paid at maturity, following such written notice by Secured Party to Debtor and the expiration of such 90-day period without cure then:

 

a. Secured Party shall have the right, but no obligation, to exercise and enforce any or all of Debtor’s rights and remedies with respect to the Collateral, including, but not limited to, the right to demand, enforce payment of, collect and receive all dividends, interest, principal payments and other sums that are at any time owing with respect to any of the Collateral and to apply the sums to the Indebtedness in any manner that Secured Party determines.

 

b. Secured Party may sell or otherwise dispose of the Collateral in any commercially reasonable manner.  Any notification that Secured Party is required to give to Debtor regarding any sale or other disposition of Collateral shall be considered reasonable if Secured Party mails or otherwise sends or delivers it to Debtor at least thirty days before the sale or other disposition.

 

c. Secured Party shall apply the proceeds of any collection or disposition of Collateral first to Secured Party’s attorney fees and expenses, as provided in Paragraph 8 of this Agreement, and then to the Indebtedness, in any manner that Secured Party determines, and Debtor shall be liable for any deficiency remaining.

 

All rights and remedies of Secured Party shall be cumulative and may be exercised from time to time.

 

8. Expenses.  Debtor shall reimburse Secured Party on demand for all reasonable attorney fees, legal expenses, and other expenses that Secured Party incurs in protecting and enforcing Secured Party’s rights under this Agreement.  This includes fees and expenses incurred in trying to obtain possession of Collateral from Debtor, a trustee or receiver in bankruptcy or any other person.  Secured Party may apply any proceeds of collection or disposition of Collateral to Secured Party’s reasonable attorney fees, legal expenses and other expenses.

 

9. Amendments and Waivers.  A provision of this Agreement may not be modified or waived except by a written agreement signed by Secured Party.  Secured Party shall continue to have all of Secured Party’s rights under this Agreement even if Secured Party does not fully and promptly exercise them on all occasions.

 

 

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10. Notices.  Any notice to Debtor or Secured Party shall be considered to have been given if and when it is mailed, with postage prepaid, to the respective address of Debtor or Secured Party appearing on the first page of this Agreement or if and when it is delivered personally.

 

11. Other.  In this Agreement “maturity” of any of the Indebtedness means the time when that Indebtedness has become due and payable, for whatever reason (including, for example, acceleration due to default or bankruptcy).  This Agreement shall be binding upon and inure to the benefit of Debtor and Secured Party and their successors and permitted assigns.

 

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