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As filed with the Securities and Exchange Commission on December 16, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FLAGSTAR BANCORP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MICHIGAN 38-3150651
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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2600 TELEGRAPH ROAD
BLOOMFIELD HILLS, MICHIGAN 48302-0953
(248) 338-7700
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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THOMAS J. HAMMOND
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
FLAGSTAR BANCORP, INC.
2600 TELEGRAPH ROAD
BLOOMFIELD HILLS, MICHIGAN 48302-0953
(248) 338-7700
(Name, address, including zip code, and telephone number, including area code,
of agent for service of process)
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Copies To:
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<S> <C>
MATTHEW G. ASH, ESQ. DONALD J. KUNZ, ESQ.
KUTAK ROCK HONIGMAN MILLER SCHWARTZ AND COHN
1101 CONNECTICUT AVENUE, N.W., SUITE 1000 2290 FIRST NATIONAL BUILDING
WASHINGTON, DC 20036-4374 660 WOODWARD AVENUE
(202) 828-2400 (PHONE) DETROIT, MICHIGAN 48226-3583
(202) 828-2488 (FAX) (313) 465-7000 (PHONE)
(313) 465-7455 (FAX)
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
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Common Stock, $0.01 par value............... 1,495,000(2) $ $41,000,000 $11,500
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(1) Estimated solely for the purpose of computing the registration fee based
upon the average of the high and low prices of the common stock, par value
$0.01 per share, of the registrant as reported on the Nasdaq Stock Market on
December 14, 1998, in accordance with Rule 457(c) of the General Rules and
Regulations under the Securities Act of 1933, as amended.
(2) Includes 195,000 shares which are being registered in connection with an
over-allotment option granted to the Underwriters.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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THIS PRELIMINARY PROSPECTUS IS NOT YET COMPLETED. JANUARY , 1999
PROSPECTUS
FLAGSTAR LOGO
1,300,000 SHARES
COMMON STOCK
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Flagstar Bancorp, Inc.
2600 Telegraph Road
Bloomfield Hills, Michigan 48302
(248) 338-7700
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<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Price......... $ $
Underwriting
Discounts and
Commissions........
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Proceeds to Selling
Stockholder........ $ $
====== ===========
</TABLE>
- - We are the largest independent thrift based in Michigan and one of the largest
home mortgage lenders in the United States. Through our wholly owned
subsidiary, Flagstar Bank, FSB, we attract deposits from the general public
and make loans that are secured by residential and commercial real estate.
- - We have prepared this Prospectus for use by Mr. Thomas J. Hammond, Chairman of
the Board and Chief Executive Officer of the Company, to offer for sale
1,300,000 shares of our Common Stock. Mr. Hammond owns all of the shares
offered by this Prospectus and accordingly will receive all of the proceeds
from any sale of our Common Stock in this offering. After these shares are
sold, Mr. Hammond will still own 3,970,245 shares of our Common Stock, which
represents 29.0% of the total Common Stock outstanding.
- - This offering is for 1,300,000 shares; however, the Underwriters have a 30-day
option to purchase up to 195,000 additional shares from Mr. Hammond.
- - Our Common Stock trades on the Nasdaq Stock Market under the trading symbol
"FLGS." On December 15, 1998, the closing price of our Common Stock on the
Nasdaq Stock Market was $25 15/16.
------------------------------------
BEFORE MAKING AN INVESTMENT IN OUR COMPANY, YOU SHOULD CONSIDER CAREFULLY THE
"RISK FACTORS" BEGINNING ON PAGE 8.
THE COMMON STOCK IS NOT A DEPOSIT OR AN ACCOUNT AND IS NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION
OR ANY BANK REGULATORY AUTHORITY NOR ANY OTHER GOVERNMENT AGENCY HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
MCDONALD INVESTMENTS INC.
RONEY CAPITAL MARKETS
A DIVISION OF FIRST CHICAGO
CAPITAL MARKETS, INC.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
THE DATE OF THIS PROSPECTUS IS JANUARY , 1999
THE INFORMATION IN THIS PROSPECTUS 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. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES, IN ANY STATE WHERE THEIR OFFER OR SALE IS NOT PERMITTED.
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[MAP OF PROPOSED MARKET AREA]
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WHERE YOU CAN FIND MORE INFORMATION;
INCORPORATION BY REFERENCE
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
read and copy, upon payment of a fee set by the SEC, any document that we file
with the SEC at its public reference rooms in Washington, D.C. (450 Fifth
Street, N.W., 20549), New York, New York (Seven World Trade Center, 13th Floor,
Suite 1300, 10048) and Chicago, Illinois (Citicorp Center, 500 West Madison
Street, 14th Floor, Suite 1400, 60661). You may also call the SEC at
1-800-432-0330 for more information on the public reference rooms. Our filings
are also available to the public on the internet, through the SEC's EDGAR
database. You may access the EDGAR database at the SEC's web site at
http://www.sec.gov.
The SEC allows us to "incorporate by reference" into this Prospectus the
information we file with them. This means that we can disclose important
business, financial and other information in our SEC filings by referring you to
the documents containing this information. All information incorporated by
reference is part of this Prospectus, unless that information is updated and
superseded by the information contained in this Prospectus or by any information
filed subsequently that is incorporated by reference or by any prospectus
supplement. Any prospectus supplement or any information that we subsequently
file with the SEC that is incorporated by reference will automatically supersede
any prior information that is part of this Prospectus or any prior prospectus
supplement. We incorporate by reference the documents listed below and any
future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") until the termination of
this offering:
- Annual Report on Form 10-K for the year ended December 31, 1997.
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998.
- The description of our Common Stock contained in our Registration
Statement on Form 8-A, dated April 7, 1997, which registers the Common
Stock under Section 12(b) of the Exchange Act.
This Prospectus is part of a registration statement (on Form S-3) we have
filed with the SEC relating to our Common Stock registered under this
Prospectus. As permitted by SEC rules, this Prospectus does not contain all of
the information contained in the registration statement and accompanying
exhibits and schedules we file with the SEC. You may refer to the registration
statement, the exhibits and schedules for more information about us and our
Common Stock. The registration statement, exhibits and schedules are also
available at the SEC's public reference rooms or through its EDGAR database on
the internet.
You may obtain a copy of these filings at no cost by writing to us at
Flagstar Bancorp, Inc., 2600 Telegraph Road, Bloomfield Hills, Michigan,
48302-0953, Attention: Mary Kay McGuire, or by telephoning us at (248) 338-7700.
In order to obtain timely delivery, you must request the information no later
than five business days prior to the date you decide to invest in our Common
Stock.
SPECIAL NOTE OF CAUTION REGARDING
FORWARD-LOOKING STATEMENTS
Certain statements contained in (i) this Prospectus, (ii) any applicable
prospectus supplement and (iii) the documents incorporated by reference into
this Prospectus, may constitute "forward-looking statements within the meaning
of the federal securities laws. Forward-looking statements are based on our
management's beliefs, assumptions and expectations of our future economic
performance, taking into account the information currently available to them.
These
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statements are not statements of historical fact. Forward-looking statements
involve risks and uncertainties that may cause our actual results, performance
or financial condition to be materially different from the expectations of
future results, performance or financial condition we express or imply in any
forward-looking statements. Some of the important factors that could cause our
actual results, performance or financial condition to differ materially from our
expectations are:
- The effect that changes in interest rates have on our earnings and
assets.
- Our cost of funds.
- Our ability to resell mortgages.
- Our level of loan defaults and delinquencies.
- Concentrations of our loans in one geographic area or with a few mortgage
companies.
- The seasonal variations in the mortgage banking business.
- Our ability to manage our retail banking expansion.
- Our ability to retain key personnel.
- The degree and nature of our competition.
- Changes in government regulation of our business.
- The threat of litigation in the mortgage banking business.
- Environmental liability associated with foreclosures.
- Year 2000 problem.
When used in our documents or oral presentations, the words "anticipate,"
"estimate," "expect," "objective," "projection," "forecast," "goal," or similar
words are intended to identify forward-looking statements. We qualify any such
forward-looking statements entirely by these cautionary factors.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this Prospectus.
The summary is not complete and does not contain all of the information that you
should consider before investing in the Common Stock. You should read the entire
Prospectus carefully.
We use the term "we" or "the Company" to refer to Flagstar Bancorp, Inc., a
business corporation organized under Michigan law. We use the term "the Bank" to
refer to Flagstar Bank, FSB, a federal savings bank, organized under federal
laws of the United States. In some cases, a reference to "we" or "the Company"
will include the Bank, since the Bank is our wholly-owned subsidiary.
We are one of the largest home mortgage lenders in the United States. Our
business is the origination of single-family mortgage loans. Through our Bank,
we attract deposits from the general public and originate or acquire residential
mortgage loans. The Bank is the largest independent thrift in Michigan based on
asset size. We also acquire funds on a wholesale basis from a variety of
sources, service a significant volume of mortgage loans for others, and to a
lesser extent, make consumer loans, commercial real estate loans, and non-real
estate commercial loans. For the nine months ended September 30, 1998, we ranked
13th in the United States in residential mortgage loan originations.
At September 30, 1998, we had consolidated total assets of $3.1 billion,
net loans of $2.7 billion, total deposits of $1.6 billion and total
stockholders' equity of $152.1 million. For the year ended December 31, 1997,
our net earnings were $21.8 million ($1.68 per share -- diluted), our return on
average assets was 1.29% and our return on average equity was 20.69%. For the
nine months ended September 30, 1998, our net earnings were $28.2 million ($2.00
per share -- diluted), our annualized return on average assets was 1.42% and our
return on average equity was 27.28%.
We report our business operations and results in two segments: mortgage
banking and retail banking. A majority of our revenue (net interest income and
non-interest income) and earnings before income taxes is attributable to the
mortgage banking segment. We believe that our retail banking business provides
us with access to attractive and relatively stable funding sources for our
mortgage origination business. Our funding sources include retail deposits,
Federal Home Loan Bank ("FHLB") advances and escrowed funds. We believe we have
a strategic advantage compared to other mortgage originators with no retail
banking operations due to our stable, lower cost of funds. See "Business."
Retail Banking. We provide a full range of retail banking services to
consumers and small businesses in southern and western Michigan. We currently
operate a network of 28 bank branches (including nine opened in 1998) located in
southern and western Michigan counties. Since 1994, we have focused on expanding
our branch network in these markets in order to increase our access to retail
deposit funding sources. We believe that this also provides a greater
opportunity for cross-marketing of consumer banking services to our large base
of mortgage customers in Michigan. We believe we can benefit from the customer
displacement in our markets caused by the substantial consolidation of the
banking industry in Michigan. See "Business."
Mortgage Banking. Our mortgage banking operations originate residential
mortgages through 33 retail loan origination offices located in Michigan (29),
Florida (3) and Ohio (1). In addition, we originate mortgage loans on a
wholesale basis through a nationwide network of independent mortgage brokers.
These independent mortgage brokers originate such loans using our underwriting
standards and close such loans using our advanced funds. We service this network
through over 60 account executives, who are organized among 10 regional
wholesale/correspondent lending offices and five wholesale/correspondent
satellite offices. We also purchase mortgage loans on a regular basis from
independent mortgage lenders, commercial banks, savings and loan associations
and other financial institutions with whom we are familiar. See "Business."
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For the nine months ended September 30, 1998, we produced $13.1 billion in
mortgage loans. These included $12.1 billion in mortgage loans produced through
the wholesale and correspondent network and $970.3 million originated through
the retail network. We produced mortgage loans of $7.9 billion during 1997 which
included $7.1 billion produced through the wholesale and correspondent network
and $745.2 million originated through the retail network. For the year ended
December 31, 1996, the wholesale and correspondent network produced $6.1 billion
and the retail network originated $685.3 million for a total production of $6.8
billion.
We sell a substantial portion of our loan production into the secondary
market. These sales are principally completed by securitizing pools of loans
through programs offered by government-sponsored enterprises such as Fannie Mae
and Freddie Mac and through sales to private investors. In addition, we
originate and sell loans conforming to the underwriting criteria of the Federal
Housing Administration ("FHA") and the Department of Veterans Affairs ("VA"). We
generally retain the servicing rights to many of the loans that we sell. We also
realize additional income by selling servicing rights on an individual and a
bulk basis to other mortgage servicers. Our loan servicing portfolio totaled
$11.3 billion at September 30, 1998, $6.4 billion at December 31, 1997 and $4.8
billion at December 31, 1996 (net of loans subserviced for others).
Substantially all of our servicing portfolio is comprised of conventional loans.
We make extensive use of advanced technology and automated processes which
we believe enhance our competitiveness and reduce the cost of our mortgage
origination operations. We were one of the first major mortgage lenders to
utilize video conferencing for loan production. In 1996, we began full-scale
operational use of automated underwriting system technologies, including Fannie
Mae's Desktop Underwriter(TM) and Freddie Mac's Loan Prospector.(TM) In fact, we
are currently one of the largest users of the Loan Prospector(TM) system. We
have also combined these two technologies into a customized video conferencing
and underwriting system. We underwrite substantially all of our mortgage loans
using automated systems. We believe that our use of these systems reduces
overhead, enhances customer service and better ensures that appropriate mortgage
loans conform to Freddie Mac and Fannie Mae guidelines.
Business Strategy. Our strategy consists of the following key elements:
- continue to expand our branch network into demographically desirable
communities in Michigan in order to gain access to additional retail
funding sources;
- as market conditions permit, retain a portion of our mortgage loan
production volume or mortgage servicing rights or both (thereby
benefitting from economies of scale);
- continue to utilize advanced technology and automated processes
throughout our business to improve customer service, reduce costs of loan
production and servicing and increase efficiencies; and
- cross-sell retail banking services to our large Michigan base of existing
mortgage customers.
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THE OFFERING
Common Stock offered by the
Selling Stockholder........... 1,300,000 shares(1)
Common Stock to be outstanding
immediately after the
Offering...................... 13,670,000 shares(2)
Nasdaq Symbol................. "FLGS"
- -------------------------
(1) Does not include up to 195,000 shares of Common Stock that may be sold by
the Selling Stockholder upon exercise of the Underwriters' option. This
option is referred to as an "over-allotment option."
(2) Represents the amount outstanding immediately prior to the Offering because
the Common Stock offered by the Selling Stockholder is already outstanding.
The Company will not receive any proceeds from the shares being sold in the
Offering. The Company expects to incur approximately $170,000 of expenses in
connection with the Offering.
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RISK FACTORS
In addition to the other information in this Prospectus, you should
carefully consider the following factors before investing in our Common Stock.
CHANGES IN INTEREST RATES MAY ADVERSELY AFFECT OUR EARNINGS AND FINANCIAL
CONDITION
Changes in interest rates affect our operating performance and financial
condition in diverse ways. Our profitability depends in substantial part on our
"net interest spread," which is the difference between the rates we receive on
loans and investments and the rates we pay for deposits and other sources of
funds. Our net interest spread will depend on many factors that are partly or
entirely outside our control, including competition, federal economic, monetary
and fiscal policies, and economic conditions generally. Historically, net
interest spreads for other financial institutions have widened and narrowed in
response to these and other factors, which are often collectively referred to as
"interest rate risk." We intend to try to minimize our exposure to interest rate
risk, but we will be unable to eliminate it.
In our retail banking operations, we are subject to interest rate risk on
loans held in our portfolio arising from mismatches (i.e., the interest rate
sensitivity gap) between the dollar amount of repricing or maturing assets and
liabilities, which is measured in terms of the ratio of the interest rate
sensitivity gap to total assets. A higher level of assets repricing or maturing
than liabilities over a given time frame is considered asset-sensitive and is
reflected as a positive gap. In contrast, a higher level of liabilities
repricing or maturing than assets over a given time frame is considered
liability-sensitive and is reflected as a negative gap. An asset-sensitive
position (i.e., a positive gap) will generally enhance earnings in a rising
interest rate environment and will negatively impact earnings in a falling
interest rate environment. A liability-sensitive position (i.e., a negative gap)
will generally enhance earnings in a falling interest rate environment and
negatively impact earnings in a rising interest rate environment. Fluctuations
in interest rates are not predictable or controllable. Although we have
attempted to structure our asset and liability management strategies to mitigate
the impact on net interest income of changes in market interest rates, we can
not give any assurance that a sudden or significant change in prevailing
interest rates will not have a material adverse effect on our operating results.
In our mortgage banking operations, we are exposed to interest rate risk
from the time the interest rate on a mortgage loan application is committed to
by us through the time we sell or commit to sell the mortgage loan. On a daily
basis, we analyze various economic and market factors and, based upon these
analyses, project the amount of mortgage loans we expect to sell for delivery at
a future date. The actual amount of loans we sell will be a percentage computed
as (i) the number of mortgage loans on which we have issued binding commitments
(and thereby locked in the interest rate) but have not yet closed ("pipeline
loans") divided by (ii) actual closings. If interest rates change in an
unanticipated fashion, the actual percentage of pipeline loans that close may
differ from the projected percentage. The resulting mismatch of commitments to
fund mortgage loans and commitments to sell mortgage loans may have an adverse
effect on the results of operations in any such period. For instance, a sudden
increase in interest rates can cause a higher percentage of pipeline loans to
close than projected. To the degree that this is not anticipated, we may not
have made commitments to sell these additional pipeline loans and may incur
significant losses upon their sale as the market rate of interest will be higher
than the mortgage interest rate we committed to on such additional pipeline
loans. Our profitability may be adversely affected to the extent our hedging
strategy is not successful.
The market value of, and earnings from, our mortgage loan servicing
portfolio may be adversely affected by declines in interest rates. When mortgage
interest rates decline, mortgage loan prepayments usually increase as customers
refinance their loans. When this happens, the income stream from our current
mortgage loan servicing portfolio may decline. In that case, we may be required
to amortize the portfolio over a shorter period of time or reduce the carrying
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value of our mortgage loan servicing portfolio. This would adversely affect our
operating results and financial condition.
LOSS OF OR INCREASED COST OF OUR OPERATING FUNDS MAY REDUCE OUR EARNINGS
The principal sources of funding for our operations have been our retail
bank customers' deposits and, to a lesser extent, borrowings from the FHLB and
funds held in escrow for mortgage loan servicing purposes. Historically, our
cost of funds associated with deposits has generally been lower than our cost to
borrow from the FHLB. If we are unable to fund our asset growth through the
maintenance and growth of our deposit base, we may have to rely to a greater
extent on borrowings from the FHLB or other sources. If this causes our net cost
of funds to increase, our net interest margin would be adversely affected. At
September 30, 1998, we had a $1.3 billion line of credit with the FHLB, of which
$910.5 million had been drawn and was outstanding.
We cannot assume that we will be successful in retaining our access to
funds at the level or cost necessary to continue originations of single-family
mortgage loans at their current volume and level of profitability. We may have
to curtail our origination of single-family mortgage loans if we cannot maintain
our low cost of funds. If we have to reduce our single family mortgage loan
originations, we may suffer a material adverse effect on our operating results
and financial condition.
WE MAY NOT BE ABLE TO RESELL MORTGAGES
Currently, we sell substantially all the mortgage loans we originate. Our
ability to sell mortgage loans readily is dependent upon the availability of an
active secondary market for single-family mortgage loans, which in turn depends
in part upon the continuation of programs currently offered by Fannie Mae,
Freddie Mac and other institutional and non-institutional investors. These
entities account for a substantial portion of the secondary market in
residential mortgage loans. Some of the largest participants in the secondary
market, including Freddie Mac and Fannie Mae, are government-sponsored
enterprises whose activities are governed by federal law. Any future changes in
laws that limit the activity of such government sponsored enterprises could, in
turn, adversely affect our operations.
In addition, our ability to sell mortgage loans readily is dependent upon
our ability to remain eligible for the programs offered by Fannie Mae, Freddie
Mac and other institutional and non-institutional investors. We expect to remain
eligible to participate in such programs but any significant impairment of such
eligibility could materially and adversely affect our operations. Further, the
criteria for loans to be accepted under such programs may be changed from time
to time by the sponsoring entity. The profitability of participating in specific
programs may vary depending on a number of factors, including our administrative
costs of originating and purchasing qualifying loans.
SOME OF OUR LOANS MAY HAVE DEFAULTS OR DELINQUENCIES
We are generally at risk for any loan defaults from the time we fund a loan
until the time we sell the loan. This time period is generally 10 to 40 days.
Once we sell the mortgage loans, the risk of loss from loan defaults and
foreclosure generally passes to the purchaser or insurer of the loans. In
connection with the sale, we typically make certain representations and
warranties to the purchasers and insurers of such loans. Such representations
and warranties generally relate to the origination and servicing of loans in
substantial conformance with the laws of the state of origination and applicable
investor guidelines and program eligibility standards. We rely upon our
underwriting department to ascertain compliance with individual investor
standards prior to sale of the loans in the secondary market, and we rely upon
our quality control department to test sold loans on a sample basis for
compliance. The purchasers of such loans will typically conduct a more detailed
review of such loans following acquisition to determine whether such loans were
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originated in compliance with the purchaser's underwriting guidelines and
program eligibility standards. We become liable for the unpaid principal and
interest on any defaulted mortgage loan if there has been a breach of our
representations and warranties. In such instances, we may be required to
repurchase the loan.
We are also affected by loan delinquencies and defaults on mortgage loans
that we service. At September 30, 1998, approximately 1.76% of the loans we
serviced for others were 30 days or more delinquent (including foreclosures).
Under certain types of servicing contracts, the servicer must advance all or
part of the scheduled payments to the owner of the loan, even when loan payments
are delinquent. Also, to protect their liens on mortgaged properties, owners of
loans usually require the servicer to advance the cost of mortgage and hazard
insurance and tax payments on schedule even if sufficient escrow funds are not
available. The servicer will be reimbursed by the mortgage owner or from
liquidation proceeds for payments advanced that the servicer is unable to
recover from the mortgagor, although the timing of such reimbursement is
typically uncertain. In the interim, the servicer must absorb the cost of funds
advanced. Further, the servicer must bear the costs of attempting to collect on
delinquent and defaulted loans. We do not collect servicing income from the time
a loan becomes delinquent until foreclosure, at which time such amounts, if any,
may be recovered.
ADVERSE CONDITIONS IN ONE GEOGRAPHIC AREA OR WITH A FEW CUSTOMERS MAY HAVE A
DISPROPORTIONATELY LARGE EFFECT ON US
Historically, our single-family mortgage loan portfolio has been
concentrated in certain geographic regions, particularly Michigan, based upon
the location of the property collateralizing the mortgage loan. Because
borrowers of single-family mortgage loans usually reside on the collateral
property, changes in economic and business conditions in the area in which the
property is located can affect the borrower and thus have an effect on the
performance of the loan. For instance, the mortgage loans we serviced (as
measured by unpaid principal balance), including loans held for investment, that
were collateralized by property located in Michigan comprised 25.7% of total
mortgage loans at December 31, 1997. As a result, unfavorable or worsened
economic conditions in Michigan could have a material adverse effect on our
financial condition and results of operations.
In addition to risks associated with a geographic concentration of our loan
portfolio, our results of operations can be affected by concentration of credit
to just a few borrowers. We currently provide warehouse lines of credit ranging
up to $21.5 million to certain mortgage companies. We have also originated
commercial real estate loans in amounts up to $6.5 million. Repayment of such
loans is primarily dependent upon the successful operation of the business
involved and therefore could be subject to a greater extent to adverse
conditions in the economy. If any single large loan customer defaults on their
loan from us, it could adversely affect our operating results.
THE MORTGAGE BANKING BUSINESS IS SEASONAL
We earn a significant amount of income in the mortgage banking industry,
which is generally subject to seasonal variations. These variations reflect the
general national pattern of sales and resales of homes, although refinancings
tend to be less seasonal and more closely related to changes in interest rates.
Sales and resales of homes typically peak during the spring and summer seasons
and decline to lower levels from mid-November through February. In addition,
delinquency rates typically rise in the winter months, which results in higher
servicing costs. The magnitude of these variations, which is beyond our control,
could adversely affect our operating results.
10
<PAGE> 12
EXPANSION OF OUR RETAIL BANKING BUSINESS WILL BE EXPENSIVE
We intend to expand our retail banking operations through the acquisition
or establishment of additional bank branches. This expansion is expected to
occur in communities across southern and western Michigan. If we are unable to
generate a customer base within these communities because of consumer loyalty to
other financial institutions or for other reasons, we will have incurred
construction or building acquisition costs and liabilities under lease
agreements as well as related branch overhead expenses without an appropriate
return on our investment.
WE ARE DEPENDENT ON OUR KEY PERSONNEL
Our growth and development to date have been largely dependent on certain
key employees, the loss of whom could have a material adverse effect. Our key
employees are Thomas J. Hammond, Chief Executive Officer; Mark T. Hammond,
President; Michael W. Carrie, Executive Vice President and Chief Financial
Officer; and Joan H. Anderson, Executive Vice President. Each of these persons
are officers of the Company and the Bank. Our key employees also include Kirstin
A. Hammond, Executive Vice President; and Robert O. Rondeau, Jr., Executive Vice
President, who are officers of the Bank. We do not carry "key person" life
insurance on the lives of any officers.
WE ARE IMPACTED BY COMPETITION FROM MANY OTHERS
Both our retail banking business and mortgage banking business are
extremely competitive. In the retail banking segment, we will have to overcome
historical relationships to attract customers away from our competition. In the
mortgage banking segment, many of our competitors are, or are affiliates of,
enterprises that have greater resources than we do.
Through our various businesses, we compete with different institutions,
including:
- - mortgage companies;
- - other banks and thrift institutions;
- - credit unions;
- - full service and discount broker dealers;
- - investment companies, mutual funds and money market funds; and
- - insurance companies.
Some of our competitors are not regulated as extensively as we are and,
therefore, may have greater flexibility in competing for business. Some of these
competitors are subject to similar regulation but have the advantages of
established customer bases, higher lending limits, extensive branch networks,
numerous automated teller machines or other factors. We compete by offering
market rates on our products and prompt service to our customers.
OUR ABILITY TO PAY DIVIDENDS IS UNCERTAIN
Our ability to pay dividends on the Common Stock and to meet our other
obligations is dependent upon our receipt of dividends from the Bank. The
declaration of dividends by the Bank on all classes of its capital stock is
subject to the discretion of the Board of Directors of the Bank and to
applicable federal regulatory limitations. At September 30, 1998, federal
regulations permit the Bank to pay up to $33.8 million in dividends without
obtaining advance regulatory approval.
GOVERNMENT REGULATION HAS A SIGNIFICANT IMPACT ON OUR BUSINESS
We are subject to extensive regulation by state and federal banking
authorities that govern our general operations as well as mortgage origination,
processing, underwriting, selling and servicing. Many of these regulations are
intended to protect depositors, the public or the FDIC and not our shareholders.
Regulatory requirements will affect our lending practices, capital structure,
investment practices, dividend policy and growth. Any change in these regulatory
requirements could adversely affect us. In some instances, regulatory changes
are applied
11
<PAGE> 13
retroactively. Our mortgage banking operations are also affected by the rules
and regulations of quasi-governmental agencies that purchase, guarantee or
insure mortgage loans. Further, federal economic and monetary policies, which
are entirely out of our control, will affect various aspects of our operations.
In addition, certain states require that interest be paid to mortgagors on
funds deposited by them in escrow to cover mortgage-related payments such as
property taxes and insurance premiums. Federal legislation has been introduced
in the past that would, if enacted, revise current escrow regulations and
establish a uniform escrow calculation methodology in all states. If such
federal legislation were enacted or if other states enact legislation relating
to payment of, or increases in the rate of, interest on escrow balances, or if
such legislation were retroactively applied to loans in our servicing portfolio,
our earnings would be adversely affected.
IN THE FUTURE, WE MAY BE AFFECTED BY LITIGATION
In recent years, mortgage originators have been subject to class action
lawsuits that allege violations of federal and state laws and regulations,
including the propriety of collecting and paying various fees and charges and
the calculation of escrow amounts. Class action lawsuits may continue to be
filed in the future against mortgage originators generally. The results of our
operations could be adversely affected if we suffer an unfavorable court
judgment in any such lawsuit.
OWNERSHIP OF OUR STOCK BY AN INDIVIDUAL OR GROUP IS LIMITED BY REGULATIONS
Federal regulations generally limit the amount of our stock that you may
purchase or own. Except in certain limited exceptions, federal regulations
prohibit an investor from acquiring, either directly, indirectly or through a
holding company, more than 10% of any class of voting stock of a savings
institution such as the Bank or its holding company, the Company. If an investor
desires to acquire more than 10% of a savings institution or its holding
company, such investor must first apply to and be approved by the OTS. Under
these same federal regulations, an "investor" is defined as a person or company
or a group of persons deemed to be "acting in concert" to acquire any class of
voting stock. The federal regulations also apply to investors who obtain the
ability to control the election of a majority of the directors or could
otherwise direct the management or policies of a savings institution or its
holding company.
OUR STOCK IS CONCENTRATED IN THE HAMMOND FAMILY
Immediately following the Offering, the Selling Stockholder beneficially
will own 29.0% of the outstanding shares of Common Stock, or approximately 27.6%
if the Underwriters exercise the over-allotment option in full. Such ownership
percentage is based upon the anticipated sale of 1,300,000 shares of Common
Stock by the Selling Stockholder in the Offering (1,495,000 shares assuming full
exercise of the over-allotment option). See "Selling Stockholder." Following
completion of the Offering, the combined ownership of the Selling Stockholder
and other members of the Hammond family will still represent a majority interest
in our Common Stock. They will therefore still be able to control the election
of the Board of Directors and thus direct our affairs, including decisions
regarding acquisitions and other business opportunities, the declaration of
dividends and the issuance of additional shares of our Common Stock and other
securities.
ANTI-TAKEOVER PROVISIONS OF OUR CHARTER MAY REDUCE THE LIKELIHOOD THAT WE ARE
ACQUIRED BY A THIRD PARTY
Our Restated Articles of Incorporation and Bylaws and applicable provisions
of the Michigan Business Corporation Act ("MBCA") contain several provisions
that may make it more difficult to acquire control of us without the approval of
the Board of Directors. Certain provisions of our Restated Articles of
Incorporation, among other things, (i) authorize the issuance of additional
shares of Common Stock and serial preferred stock; (ii) classify the Board of
Directors into three
12
<PAGE> 14
classes, each of which serves for staggered three year periods; (iii) provide
that our directors may be removed by the stockholders only for cause; (iv)
provide that only our Board of Directors or Chairman of the Board may call
special meetings of the stockholders; (v) provide that the stockholders may take
action only at a meeting of the stockholders; (vi) provide that the stockholders
must comply with certain advance notice procedures in order to nominate
candidates for director to our Board of Directors or to place stockholders'
proposals on the agenda for communication at stockholders meetings; and (vii)
provide that the stockholders may amend or repeal any of the foregoing
provisions of the Restated Articles of Incorporation or Bylaws only by a vote of
80% of the stock entitled to vote generally in the election of directors. In
addition, the MBCA contains various other anti-takeover provisions that apply to
us even though those provisions are not in our Restated Articles.
WE MAY OWN ENVIRONMENTALLY CONTAMINATED REAL ESTATE AFTER A FORECLOSURE
If we foreclose on a defaulted mortgage loan to recover our investment in
such mortgage loan, we may be subject to environmental liabilities in connection
with the underlying real property which could exceed the fair value of the real
property. It is possible that hazardous substances or wastes, contaminants,
pollutants or their sources (as defined by state and federal laws and
regulations) may be discovered on properties during our ownership or after they
are sold to a third party. If they are discovered on a property that we have
acquired through foreclosure or otherwise, we may be required to remove those
substances and clean up the property. We may have to pay for the entire cost of
any removal and clean-up without the contribution of any other third parties.
These costs may also exceed the fair value of the property. We may also be
liable to tenants and other users of neighboring properties. In addition, we may
find it difficult or impossible to sell the property prior to or following any
such clean-up.
THE YEAR 2000 PROBLEM MAY HAVE AN ADVERSE IMPACT ON US OR ON OTHERS UPON WHOM WE
DEPEND
Much of today's information technology (i.e., computer systems) and
embedded technology (e.g., microcontrollers) identifies a particular year on the
basis of the last two digits of that year. For example, the year "1998" is
recognized by the digits "98." The inability of information technology and
embedded technology to properly recognize a year that begins with "20" instead
of "19," if not corrected, may result in the production of erroneous results or
the failure of systems which rely on information technology and embedded
technology. This failure of systems, production of erroneous results and the
resulting damages is commonly known as the "Year 2000 Problem" or the "Y2K
Problem."
We are dependent, to a substantial degree, upon the proper functioning of
our computer systems as well as those of our vendors, suppliers and customers.
Most of our products and services rely on information and data provided by
others. Most of this information and data is provided electronically and is
dependent on information systems and telecommunications. The inability of our
vendors and suppliers to provide accurate information in a timely manner, our
inability to accurately and timely process such information, the inability of
our customers to receive and use our products and services, and a general
disruption of telecommunications and utilities as a result of the Year 2000
Problem would most likely result in business interruption or shutdown, financial
loss, potential regulatory action, harm to our reputation and potential legal
liability.
We have conducted internal development and testing of our computer systems
to insure millennium compliance. However, we can give no assurance that our
internal systems will be completely free of errors. In addition, we can give no
assurance that all of our vendors will deliver Year 2000 compliant certificates
or that the vendors will in fact be Year 2000 compliant despite their
certification of compliance. If either our computer systems or those of our
vendors fail to function properly because of the Year 2000 problem, the results
of our operations may materially suffer.
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA (UNAUDITED)
The following table presents the Company's selected consolidated financial
data as of and for the nine months ended September 30, 1998 and 1997, and as of
and for each of the five years in the period ended December 31, 1997. The
information has been derived from the consolidated financial statements of the
Company, including the unaudited consolidated financial statements of the
Company incorporated in this Prospectus by reference to the Company's September
30, 1998 Form 10-Q, and the audited consolidated financial statements of the
Company incorporated in this Prospectus by reference to the Company's 1997 Form
10-K, and should be read in conjunction therewith and with the notes thereto.
See "WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE."
Historical results are not necessarily indicative of results to be expected
for any future period. Results for the nine-month period ended September 30,
1998 are not necessarily indicative of results which may be expected for any
other interim period or for the year as a whole.
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS
ENDED SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------------------------------
1998 1997 1997 1996(1) 1995 1994 1993
---- ---- ---- ------- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF STATEMENTS OF EARNINGS:
Interest income....................... $ 134,004 $ 84,789 $ 122,752 $ 76,179 $ 71,304 $ 35,112 $ 29,760
Interest expense...................... 97,400 54,597 80,033 45,967 41,443 14,486 12,052
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income................... 36,604 30,192 42,719 30,212 29,861 20,626 17,708
Provisions for losses................. 12,838 3,730 5,015 2,604 238 290 644
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after provisions
for losses.......................... 23,766 26,462 37,704 27,608 29,623 20,336 17,064
Other income.......................... 80,063 43,728 59,836 58,534 36,988 42,732 33,654
Operating and administrative
expenses............................ 53,088 45,244 62,503 58,820 41,716 37,619 21,292
----------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings before federal income tax
provision........................... 50,741 24,946 35,037 27,322 24,895 25,449 29,426
Provision for federal income taxes.... 22,500 9,090 13,265 10,299 9,419 9,318 10,405
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings.......................... $ 28,241 $ 15,856 $ 21,772 $ 17,023 $ 15,476 $ 16,131 $ 19,021
=========== ========== ========== ========== ========== ========== ==========
Basic earnings per share:............. $ 2.07 $ 1.25 $ 1.70 $ 1.51 $ 1.37 $ 1.42 $ 1.65
Diluted earnings per share:........... $ 2.00 $ 1.24 $ 1.68 $ 1.51 $ 1.37 $ 1.42 $ 1.65
Dividends per common share............ $ 0.20 $ -- $ 0.06 $ 0.09 $ 0.18 $ 0.04 $ 0.07
SUMMARY OF CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION:
Total assets.......................... $ 3,092,515 $2,033,260 $1,901,084 $1,297,226 $1,045,094 $ 723,150 $ 467,629
Loans receivable...................... 2,661,922 1,803,424 1,655,259 1,110,836 923,933 633,409 415,078
Mortgage servicing rights............. 149,367 51,713 83,845 30,064 27,957 18,179 17,563
Deposits.............................. 1,596,003 1,011,594 1,109,933 624,485 526,974 307,624 190,761
FHLB advances......................... 910,500 718,879 482,378 389,801 191,156 200,750 55,000
Stockholders' equity.................. 152,123 121,549 126,617 78,468 62,445 49,419 35,114
OTHER FINANCIAL AND STATISTICAL DATA:
Tangible capital ratio................ 5.99% 5.49% 5.40% 5.58% 5.19% 5.54% 7.41%
Core capital ratio.................... 6.10% 5.71% 5.62% 6.01% 5.84% 6.63% 7.41%
Total risk-based capital ratio........ 12.28% 10.83% 11.74% 10.91% 10.12% 12.08% 13.84%
Equity-to-assets ratio (end of the
period)............................. 4.92% 5.98% 6.66% 6.05% 5.98% 6.83% 7.51%
Equity-to-assets ratio (average)...... 5.22% 6.27% 6.22% 6.19% 5.54% 8.91% 6.32%
Book value per share.................. $ 11.13 $ 8.89 $ 9.26 $ 6.97 $ 5.55 $ 4.37 $ 3.05
Average shares outstanding............ 13,670 12,685 12,837 11,250 11,274 11,389 11,527
Mortgage loans originated or
purchased........................... $13,105,795 $5,287,711 $7,873,099 $6,791,665 $5,195,605 $3,720,173 $6,220,415
Mortgage loans sold................... $12,016,950 $4,518,451 $7,222,394 $6,581,897 $4,760,806 $3,551,319 $6,034,828
Mortgage loans serviced for others.... $11,250,121 $4,143,352 $6,412,797 $4,801,581 $6,788,530 $5,691,421 $6,198,311
Capitalized mortgage servicing
rights.............................. 1.33% 1.25% 1.31% 0.63% 0.41% 0.32% 0.28%
Interest rate spread.................. 1.69% 2.27% 2.10% 2.13% 2.36% 3.37% 3.39%
Net interest margin................... 2.06% 2.83% 2.74% 3.07% 3.46% 4.63% 4.55%
Return on average assets.............. 1.42% 1.34% 1.29% 1.53% 1.63% 3.19% 4.39%
Return on average equity.............. 27.28% 21.32% 20.69% 24.68% 29.42% 35.78% 69.56%
Efficiency ratio...................... 44.7% 59.9% 59.7% 64.8% 60.4% 58.3% 41.5%
Ratio of allowance to non-performing
loans............................... 43.2% 11.2% 12.4% 11.4% 19.7% 107.6% 58.2%
Ratio of allowance to total loans..... 0.57% 0.27% 0.33% 0.31% 0.23% 0.29% 0.22%
Ratio of non-performing assets to
total assets........................ 1.90% 3.04% 3.29% 3.16% 1.25% 0.42% 0.60%
Ratio of net charge-offs to average
loans............................... 0.18% 0.22% 0.20% 0.13% 0.00% 0.08% 0.08%
Number of bank branches............... 26(2) 19 19 15 13 9 1
</TABLE>
- -------------------------
(1) Included in the 1996 operating and administrative expenses is a one-time
assessment to recapitalize the SAIF, which totaled $3.4 million ($.20 per
share on an after-tax basis). Without this assessment, return on average
assets would have been 1.73%, return on average equity would have been
27.87%, and the efficiency ratio would have been 61.0%.
(2) Two more branches were added through December 15, 1998.
14
<PAGE> 16
BUSINESS
Flagstar Bancorp, Inc., a Michigan-based thrift holding company, is one of
the largest originators of conforming single-family mortgage loans in the United
States. The Company is engaged, through its principal subsidiary, the Bank, in
the business of attracting deposits from the general public and originating or
acquiring residential mortgage loans. The Bank is the largest independent thrift
in Michigan based on asset size. The Company also acquires funds on a wholesale
basis from a variety of sources, services a significant volume of loans for
others, and to a lesser extent makes consumer loans, commercial real estate
loans, and non-real estate commercial loans. For the nine months ended September
30, 1998, the Company ranked thirteenth in the United States in residential
mortgage loan originations.
At September 30, 1998, the Company had consolidated total assets of $3.1
billion, net loans of $2.7 billion, total deposits of $1.6 billion and total
stockholders' equity of $152.1 million. For the year ended December 31, 1997,
the Company's net earnings were $21.8 million ($1.68 per share -- diluted) and
its return on average assets and return on average equity were 1.29% and 20.69%,
respectively. For the nine months ended September 30, 1998, the Company's net
earnings were $28.2 million ($2.00 per share -- diluted), and its annualized
return on average assets and return on average equity were 1.42% and 27.28%,
respectively.
The Company's operations are segregated into two segments, mortgage banking
and retail banking, with a majority of the Company's revenue (net interest
income and non-interest income) and earnings before income taxes attributable to
the mortgage banking segment. The Company believes that its retail banking
business provides it with access to attractive and relatively stable funding
sources for its mortgage origination business. These funding sources include
retail deposits, FHLB advances and escrowed funds. The Company believes it has a
strategic advantage compared to other mortgage originators with no retail
banking operations due to its stable, lower cost of funds.
Retail Banking. The Company provides a full range of retail banking
services to consumers and small businesses in southern and western Michigan. The
Company currently operates a network of 28 bank branches (including nine opened
in 1998) located in southern and western Michigan counties. Since 1994, the
Company has focused on expanding its branch network in these markets in order to
increase its access to retail deposit funding sources. The Company believes that
this also provides a greater opportunity for cross-marketing of consumer banking
services to the Company's large base of mortgage customers in Michigan. The
Company believes that it can benefit from the customer displacement in its
markets caused by the substantial consolidation of the banking industry in
Michigan.
Mortgage Banking. The Company's mortgage banking operations, which have
historically generated a majority of the Company's earnings, originate
residential mortgages through 33 retail loan origination offices located in
Michigan (29), Florida (3) and Ohio (1). In addition, the Company originates
mortgage loans on a wholesale basis through a nationwide network of independent
mortgage brokers (who originate such loans using the Company's underwriting
standards and close such loans using funds advanced by the Company). This
network is serviced by the Company through over 60 account executives, who are
organized among 10 regional wholesale/ correspondent lending offices and five
wholesale/correspondent satellite offices. The Company also purchases mortgage
loans on a regular basis from independent mortgage lenders, commercial banks,
savings and loan associations and other financial institutions with whom the
Company has established a correspondent relationship.
For the nine months ended September 30, 1998 the Company produced $13.1
billion in mortgage loans. These included $12.1 billion in mortgage loans
produced through the wholesale and correspondent network and $970.3 million
originated through the Company's retail network. During the years ended December
31, 1997 and 1996, the Company's mortgage loan production totaled $7.9 billion
and $6.8 billion, respectively. Of these amounts, $7.1 billion was produced
15
<PAGE> 17
during the year ended December 31, 1997 through the Company's wholesale and
correspondent loan production network and $745.2 million was originated through
the Company's retail network ($6.1 billion and $685.3 million, respectively,
during 1996).
The Company sells a substantial portion of its loan production into the
secondary market, principally by securitizing pools of loans through programs
offered by government-sponsored enterprises such as Fannie Mae and Freddie Mac
and through sales to private investors. In addition, the Company originates and
sells loans conforming to the underwriting criteria of the FHA and the VA.
Generally, the Company retains the servicing rights to many of the loans that it
sells, but also realizes additional income by selling servicing rights on an
individual and a bulk basis to other mortgage servicers. At September 30, 1998
and at December 31, 1997 and 1996, the Company's loan servicing portfolio
totaled $11.3 billion, $6.4 billion and $4.8 billion, respectively (net of loans
subserviced for others), substantially all of which related to conventional
loans.
The Company makes extensive use of advanced technology and automated
processes in order to enhance the competitiveness and reduce the cost of its
mortgage origination operations. The Company was one of the first mortgage
lenders to utilize video conferencing for loan production. In 1996, the Company
began full-scale operational use of automated underwriting system technologies,
including Fannie Mae's Desktop Underwriter(TM) and Freddie Mac's Loan
Prospector(TM) (of which the Company is currently one of the largest users), and
has combined the two technologies into a customized video conferencing and
underwriting system. Substantially all of the Company's mortgage loan production
is underwritten using automated systems, which the Company believes reduces
overhead, enhances customer service and facilitates conformity of the Company's
loan production with Freddie Mac and Fannie Mae underwriting guidelines.
Business Strategy. The Company's strategy consists of the following key
elements:
- continue to expand the Company's branch network into demographically
desirable communities in Michigan in order to gain access to additional
retail funding sources;
- as market conditions permit, retain a portion of its mortgage loan
production volume or mortgage servicing rights (thereby benefitting from
economies of scale), or both;
- continue to utilize advanced technology and automated processes
throughout the Company's business to improve customer service, reduce
costs of loan production and servicing and increase efficiencies; and
- cross-sell retail banking services to the Company's large Michigan base
of existing mortgage customers.
YEAR 2000 UPDATE
The Company has substantially completed its efforts to identify the systems
affected by the Year 2000 Problem issue and is currently in the process of
determining each system's readiness. Testing of the Company's significant
systems is complete. All of the Company's system vendors have provided the
Company with a certificate of compliance or have committed to doing so by the
end of the first quarter of 1999.
Although the Company believes that it is taking appropriate actions to
become Year 2000 compliant, there can be no assurance that such preparation will
be adequate.
16
<PAGE> 18
MARKET PRICE AND DIVIDEND INFORMATION
The following table sets forth, for the periods indicated, the high and low
closing sales prices of the Common Stock as reported on Nasdaq since the
Company's initial public offering on April 30, 1997 and cash dividends per share
declared. These prices reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
PRICE RANGE
----------------------- CASH DIVIDENDS
HIGH LOW PER SHARE
---- --- --------------
<S> <C> <C> <C>
Year Ended December 31, 1997
2nd Quarter (from April 30, 1997).................. $16.625 $13.000 $ --
3rd Quarter........................................ 21.500 16.000 --
4th Quarter........................................ 21.750 17.875 .06
Year Ended December 31, 1998
1st Quarter........................................ 26.500 17.750 .06
2nd Quarter........................................ 28.375 23.500 .07
3rd Quarter........................................ 28.125 21.000 .07
4th Quarter (through December 11, 1998)............ 29.813 20.250 .08
</TABLE>
SELLING STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock by the Selling Stockholder on the date of this
Prospectus and as adjusted to reflect the sale of the shares offered hereby. The
Selling Stockholder has sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by him except as otherwise
indicated.
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
-------------------------- -----------------------------
NUMBER OF PERCENTAGE SHARES BEING NUMBER PERCENTAGE
SHARES(1) OF CLASS(2) OFFERED(3) OF SHARES(1) OF CLASS(2)
--------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Thomas J. Hammond.............. 5,270,245 38.6% 1,300,000 3,970,245 29.0%
</TABLE>
- -------------------------
(1) For purposes of the above table, a person is considered to "beneficially
own" any shares with respect to which he/she exercises sole or shared voting
or investment power or of which he/she has the right to acquire the
beneficial ownership within 60 days of the date of this Prospectus. Includes
962,913 shares of Common Stock held by Mr. Hammond's wife, Janet G. Hammond,
as to which Mr. Hammond disclaims beneficial ownership. Also does not
include any shares held by Mark Hammond, Catherine Rondeau or Carrie
Langdon, each of whom are adult children of Mr. and Mrs. Hammond and each of
whom currently hold 7.1% of the outstanding shares of Common Stock.
(2) "Percentage of Class" is calculated by dividing the total number of
outstanding shares beneficially owned by the Selling Stockholder as of the
date of this Prospectus plus the number of shares such person has the right
to acquire within 60 days of the date of this Prospectus into the total
number of outstanding shares of the Company as of the date of this
Prospectus plus the total number of shares that any person has the right to
acquire within 60 days of the date of this Prospectus.
(3) This table assumes no exercise of the Underwriters' over-allotment option
granted by the Selling Stockholder. If the over-allotment option is
exercised in full, (i) the number of shares being offered by the Selling
Stockholder would be 1,495,000 shares, (ii) the number of shares owned by
the Selling Stockholder after the Offering would be 3,775,245 and (iii) the
percentage of class owned by the Selling Stockholder after the Offering
would be 27.6%.
17
<PAGE> 19
Thomas J. Hammond has served as Chairman of the Board of Directors and
Chief Executive Officer of the Company since its formation in 1993 and served as
its President from 1993 to January 1997. He has served as Chairman of the Board
of Directors and Chief Executive Officer of the Bank since the Bank's formation
in 1987 and served as President of the Bank from 1987 to September 1995. Mr.
Hammond has over 29 years of experience in the mortgage lending industry.
18
<PAGE> 20
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each of the underwriters (the "Underwriters")
named below has severally agreed to purchase, and the Selling Stockholder has
agreed to sell to such Underwriter, the number of shares of Common Stock set
forth opposite the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF UNDERWRITER OF SHARES
------------------- ---------
<S> <C>
McDonald Investments Inc. ..................................
Roney Capital Markets, a division of First Chicago Capital
Markets, Inc. ............................................
Friedman, Billings, Ramsey & Co., Inc. .....................
---------
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby if any such shares are taken.
The Underwriters propose to offer part of the shares directly to the public
at the public offering price set forth on the cover page of this Prospectus and
part of the shares to certain dealers at a price which represents a concession
not in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other dealers. After the initial offering of
shares to the public, the public offering price and such concessions may be
changed by the Underwriters.
The Selling Stockholder has granted to the Underwriters an option,
exercisable at any time during the 30-day period from the date of this
Prospectus, to purchase up to an aggregate of 195,000 additional shares of
Common Stock at the public offering price set forth on the cover page hereof
less underwriting discounts and commissions. The Underwriters may exercise such
option to purchase additional shares solely for the purpose of covering
over-allotments, if any, incurred in connection with the sale of the Common
Stock offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase a number of
additional shares proportionate to such Underwriter's initial amount reflected
in the preceding table.
The Selling Stockholder as well as Janet G. Hammond and Mark T. Hammond
have each agreed that they will not, without the prior written consent of
McDonald Investments Inc., for a period of 180 days after the date of this
Prospectus, offer, sell or contract to sell, or otherwise dispose of (or enter
into any transaction which is designed to, or might reasonably be expected to,
result in the disposition (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise) by the Selling Stockholder or
any affiliate of the Selling Stockholder or any person in privity with the
Selling Stockholder or any affiliate of the Selling Stockholder), directly or
indirectly, or announce the offering of, any other shares of Common Stock or any
securities convertible into, or exchangeable for, shares of Common Stock, or
sell or grant options, rights or warrants with respect to any shares of Common
Stock, otherwise than in accordance with the Underwriting Agreement or as
contemplated in this Prospectus.
The Company, the Selling Stockholder and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids for and purchase of the Common Stock so long as
19
<PAGE> 21
the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market in order
to cover syndicate short positions. Penalty bids permit the Underwriters to
reclaim a selling concession from a syndicate member when the Common Stock
originally sold by such syndicate member is purchased in a stabilizing
transaction or syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Common Stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq or otherwise and, if commenced, may be discontinued at
any time.
TRANSFER AGENT
The Company's transfer agent is Registrar and Transfer Company, Cranford,
New Jersey.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Kutak Rock, 1101 Connecticut Avenue, N.W., Washington, D.C.
20036-4374. Certain legal matters relating to Michigan law will be passed upon
for the Company by Albert J. Gladner, Esq., Senior Vice President and General
Counsel of the Bank. Certain legal matters will be passed upon for the
Underwriters by Honigman Miller Schwartz and Cohn, 2290 First National Building,
660 Woodward Avenue, Detroit, Michigan 48226-3583.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 have been so incorporated in reliance on the report of Grant
Thornton LLP, independent certified public accountants, given on the authority
of said firm as experts in auditing and accounting.
20
<PAGE> 22
- ------------------------------------------------------
- ------------------------------------------------------
- - WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION THAT DIFFERS FROM
THE INFORMATION IN THIS PROSPECTUS. IF YOU RECEIVE ANY DIFFERENT INFORMATION,
YOU SHOULD NOT RELY ON IT.
- - THE DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT FLAGSTAR BANCORP, INC. IS OPERATING UNDER THE SAME CONDITIONS
THAT IT WAS OPERATING UNDER WHEN THIS PROSPECTUS WAS WRITTEN. DO NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AT ANY TIME PAST
THE DATE INDICATED.
- - THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES.
- - THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF
AN OFFER TO BUY, THE SECURITIES TO WHICH IT RELATES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Find More Information;
Incorporation by Reference......... 3
Special Note of Caution Regarding
Forward-Looking Statements......... 3
Prospectus Summary................... 5
The Offering......................... 7
Risk Factors......................... 8
Selected Consolidated Financial Data
(Unaudited)........................ 14
Business............................. 15
Market Price and Dividend
Information........................ 17
Selling Stockholder.................. 17
Underwriting......................... 19
Transfer Agent....................... 20
Legal Matters........................ 20
Experts.............................. 20
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,300,000 SHARES
[FLAGSTAR BANCORP LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MCDONALD INVESTMENTS INC.
RONEY CAPITAL MARKETS
A DIVISION OF FIRST CHICAGO CAPITAL MARKETS, INC.
FRIEDMAN, BILLINGS,
RAMSEY & CO., INC.
Subject to Completion
Dated January , 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 23
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
the sale and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All such expenses are to be paid by the
Registrant:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 11,500
NASD filing fee............................................. 4,000
Blue Sky filing fees and expenses........................... 5,000
Accounting fees and expenses................................ 30,000
Legal fees and expenses..................................... 90,000
Printing, postage and mailing............................... 15,000
Stock transfer agent fees and certificates.................. 5,000
Other....................................................... 9,500
--------
Total..................................................... $170,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Flagstar's Restated Articles of Incorporation contain a provision,
authorized by the Michigan Business Corporation Act ("MBCA"), designed to
eliminate in certain circumstances the personal liability of directors for
monetary damages to Flagstar or its stockholders for breach of their fiduciary
duty as directors. This provision, however, does not limit the liability of any
director who breached his or her duty of loyalty to the Company or its
stockholders, failed to act in good faith, obtained an improper personal benefit
or paid a dividend or approved a stock repurchase or redemption that was
prohibited under Michigan law. This provision will not limit or eliminate the
rights of the Company or any stockholder to seek an injunction or any other
nonmonetary relief in the event of a breach of a director's duty of care. In
addition, this provision applies only to claims against a director arising out
of his or her role as a director and does not relieve a director from liability
unrelated to his fiduciary duty of care or from a violation of statutory law
such as certain liabilities imposed on a director under the federal securities
laws.
The Company's Restated Articles of Incorporation and Restated Bylaws also
provide that the Company shall indemnify all directors and officers of the
Company to the full extent permitted by the MBCA. Under the provisions of the
MBCA, any director or officer who, in his or her capacity as such, is made or
threatened to be made a party to any suit or proceeding, may be indemnified if
the Board determines such director or officer acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Company or its stockholders.
Officers and directors are covered within specified monetary limits by
insurance against certain losses arising from claims made by reason of their
being directors or officers of the Company or of the Company's subsidiaries and
the Company's officers and directors are indemnified against such losses by
reason of their being or having been directors or officers of another
corporation, partnership, joint venture, trust or other enterprise at the
Company's or its subsidiaries' request.
II-1
<PAGE> 24
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following is a list of exhibits filed as part of this Registration
Statement and also serves as the Exhibit Schedules:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1.1 Form of Engagement Letter
1.2 Form of Underwriting Agreement
1.3 Form of Custody Agreement
4 Form of Stock Certificate(a)
5 Opinion of Kutak Rock regarding legality of securities being
registered
21 Subsidiaries of the Registrant(b)
23.1 Consent of Grant Thornton LLP
23.2 Consent of Kutak Rock (contained in Exhibit 5)
23.3 Consent of Albert J. Gladner, Esq.
24 Powers of Attorney (see the signature page of this
Registration Statement)
</TABLE>
- -------------------------
(a) Incorporated by reference to the Company's Registration Statement on Form
S-1, File No. 333-21621, as filed on February 12, 1997 and thereafter
amended.
(b) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted form the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement related 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 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 section 15(d) of the
Securities Exchange Act of 1934 (and, when applicable, each filing of an
employee benefit plan's annual report pursuant to section 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 hereof.
Insofar as indemnification for liabilities arising under the Securities Act
for 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 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 Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 25
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 Bloomfield Hills, State
of Michigan, on the 16th day of December, 1998.
FLAGSTAR BANCORP, INC.
By: /s/ THOMAS J. HAMMOND
------------------------------------
Thomas J. Hammond
Chairman and Chief Executive Officer
(Duly Authorized Representative)
Each person whose signature appears below hereby appoints Thomas J. Hammond
his or her true and lawful attorney-in-fact, with power to act and with full
power of substitution, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to the Registration Statement and file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agents, or their substitutes,
may lawfully cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1933, this
Registration Statement has been signed by the following persons (including a
majority of the Board of Directors of the Registrant) in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ THOMAS J. HAMMOND Chairman of the Board and Chief December 16, 1998
- --------------------------------------------- Executive Officer (Principal
Thomas J. Hammond Executive Officer)
/s/ MARK T. HAMMOND Vice Chairman of the Board and December 16, 1998
- --------------------------------------------- President
Mark T. Hammond
/s/ MICHAEL W. CARRIE Executive Vice President, Chief December 16, 1998
- --------------------------------------------- Financial Officer and
Michael W. Carrie Treasurer (Principal Financial
and Accounting Officer)
/s/ JOAN H. ANDERSON Director and Executive Vice December 16, 1998
- --------------------------------------------- President
Joan H. Anderson
/s/ JAMES D. COLEMAN Director December 16, 1998
- ---------------------------------------------
James D. Coleman
/s/ JAMES D. ISBISTER Director December 16, 1998
- ---------------------------------------------
James D. Isbister
</TABLE>
II-3
<PAGE> 26
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD S. ELSEA Director December 16, 1998
- ---------------------------------------------
Richard S. Elsea
/s/ JOHN R. KERSTEN Director December 16, 1998
- ---------------------------------------------
John R. Kersten
/s/ C. MICHAEL KOJAIAN Director December 16, 1998
- ---------------------------------------------
C. Michael Kojaian
</TABLE>
II-4
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1.1 Form of Engagement Letter...................................
1.2 Form of Underwriting Agreement..............................
1.3 Form of Custody Agreement...................................
4 Form of Stock Certificate(a)................................
5 Opinion of Kutak Rock regarding legality of securities being
registered..................................................
21 Subsidiaries of the Registrant(b)...........................
23.1 Consent of Grant Thorton LLP................................
23.2 Consent of Kutak Rock (contained in Exhibit 5)..............
23.3 Consent of Albert J. Gladner, Esq. .........................
24 Powers of Attorney (see the signature page of this
Registration Statement).....................................
</TABLE>
- -------------------------
(a) Incorporated by reference to the Company's Registration Statement on Form
S-1, File No. 333-21621, as filed on February 12, 1997 and thereafter
amended.
(b) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
<PAGE> 1
EXHIBIT 1.1
[Letterhead of McDonald Investments Inc.]
December 14, 1998
PERSONAL & CONFIDENTIAL
- -----------------------
Board of Directors
Flagstar Bancorp, Inc.
2600 Telegraph Road
Bloomfield Hills, MI 48302
Attention: Mr. Thomas J. Hammond
Chairman of the Board and Chief Executive Officer
Ladies and Gentlemen:
This letter is intended to set forth the current intentions of Flagstar
Bancorp, Inc. (the "Company") and McDonald Investments Inc., Roney Capital
Markets and Friedman, Billings, Ramsey & Co. Inc. (the "Underwriters")
concerning a proposed public offering of 1,300,000 shares of the Company's
common stock (the "Common Stock"). It is currently anticipated that the Common
Stock sold in the offering will consist entirely of shares offered by Thomas J.
Hammond (the "Selling Shareholder").
The Underwriters are prepared to proceed immediately in arranging for
this offering wherein they would act as managing underwriters to purchase the
Common Stock from the Selling Shareholder on a firm commitment basis, based upon
the following understandings:
1. The gross underwriting spread will be 5.00%.
2. The Selling Shareholder will provide to the Underwriters an
over-allotment option for a specified number of shares of
Common Stock (up to 15% of the size of the offering) on the
same terms as the other Common Stock publicly offered. These
shares will be purchased by the Underwriters only to cover the
Underwriters' over-allotments, if any, in connection with the
offering. The over-allotment option will extend for a period
of 30 days following the effective date of the Registration
Statement.
<PAGE> 2
Flagstar Bancorp, Inc.
December 14, 1998
Page 2
3. The Company or the Selling Shareholder will pay all expenses
in connection with the preparation and filing of the
Registration Statement and Prospectus, including the printing
and delivery of such number of copies of the Prospectus as the
Underwriters shall deem necessary, the Company's own legal and
accounting fees and expenses, Blue Sky fees and expenses
(including only those fees and expenses of the Underwriters'
counsel performed on behalf of the Company for legal work
pertaining to qualification of the offering under applicable
Blue Sky laws), SEC and NASD filing fees, fees of the transfer
agent and registrar, and the cost of supplying Common Stock
certificates. In addition, the Company will bear the travel
and lodging expenses of its management during information
meetings with potential investors.
4. In the event that the Company or the Selling Shareholder
determines not to proceed with the offering for any reason, or
if the Underwriters determine not to proceed with the offering
due to the Company's inability to achieve the financial
objectives set forth in paragraph 7 herein, or if the
Underwriters determine not to proceed with the offering based
on the requirements in paragraph 8 not being satisfied, the
Company or the Selling Shareholder will promptly reimburse the
Underwriters for all expenses incurred by the Underwriters, up
to a maximum of $75,000, all of which shall be for actual,
reasonable out-of-pocket expenses, including legal fees and
expenses. The provisions of this Paragraph 4 shall be binding
upon the Company's successors and assigns.
5. Except as provided in Paragraph 4, the Underwriters will be
responsible for any expense incurred on its behalf, including
the fees and expenses (except for Blue Sky fees and expenses)
of its counsel.
6. The Company will use its best efforts to file the Registration
Statement with the SEC as soon as reasonably possible after
the execution of this letter.
7. The Underwriters' intention to proceed as described above is
based upon their understanding that at the time the
Registration Statement is declared effective by the SEC, the
Company expects, based upon factors known at that time, that
it will have earnings per share for the year ending December
31, 1998, and the quarter ending March 31, 1999 of at least
$2.65 and $0.60, respectively.
<PAGE> 3
Flagstar Bancorp, Inc.
December 14, 1998
Page 3
8. In addition, the Underwriters' intention is conditioned on the
preparation of a Registration Statement satisfactory to the
Underwriters and their counsel; the satisfactory completion of
their due diligence investigation of the Company; satisfactory
comfort from the Company's independent accountants; and the
absence of any material adverse change in the condition,
affairs or prospects of the Company at all times before the
completion of the offering.
9. Thomas J. Hammond, Janet G. Hammond and Mark T. Hammond will
agree not to offer, sell, contract to sell, grant any option
to purchase or otherwise dispose of any Common Stock, or any
securities convertible into or exchangeable for Common Stock,
for a period of 180 days after the offering without the
written consent of McDonald Investments Inc., which consent
shall not be unreasonably withheld. The 180 day restriction
would not apply to a decision by the Company's Board of
Directors to sell 100% of the Company's Common Stock.
Except for the numbered paragraphs 3, 4, and 5 above, which constitute
binding agreements between the Company, the Selling Shareholder and the
Underwriters with respect to the subject matter thereof, this letter is not
intended to be a binding agreement, and neither the Company, the Selling
Shareholder nor the Underwriters will be obligated unless and until each party
has executed the final underwriting agreement, and in such event, the parties'
respective obligations will arise only under such final underwriting agreement.
This letter is, however, an expression made in good faith of the current
intentions of the parties hereto.
<PAGE> 4
Flagstar Bancorp, Inc.
December 14, 1998
Page 4
If the foregoing is in accordance with your understanding, please
indicate your acceptance on the enclosed copy and return it to us.
Very truly yours,
MCDONALD INVESTMENTS INC.
/s/ Charles R. Crowley
-------------------------------
Charles R. Crowley
Managing Director
RONEY CAPITAL MARKETS
/s/ John C. Donnelly
-------------------------------
John C. Donnelly
Managing Director
FRIEDMAN, BILLINGS, RAMSEY & CO. INC.
/s/ J.Rock Tonkle
-------------------------------
J.Rock Tonkle
Managing Director
The undersigned hereby acknowledges
that the foregoing correctly sets forth
the understanding between the Company,
the Selling Shareholder and the Underwriters.
By: /s/ Thomas J. Hammond
-------------------------------
Thomas J. Hammond
Chairman of the Board and Chief Executive Officer
<PAGE> 1
EXHIBIT 1.2
FLAGSTAR BANCORP, INC.
1,495,000 Shares of Common Stock(1)
UNDERWRITING AGREEMENT
January _____, 1999
McDONALD INVESTMENTS, INC.
RONEY CAPITAL MARKETS
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
As Representatives of the Several Underwriters
named in Schedule A hereto
c/o McDONALD INVESTMENTS, INC.
McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114-2603
Gentlemen:
Flagstar Bancorp, Inc. (the "Company"), and Thomas J. Hammond (the
"Selling Stockholder") hereby confirm their agreement with you as follows:
1. Underwriters and Representatives. The term "Underwriters," as used
herein, will mean and refer collectively to you and the other Underwriters named
in Schedule A annexed hereto, and the term "Representative" will refer to you in
your capacity as a representative of the Underwriters for the offering of the
Common Stock, $0.01 par value, of the Company (the "Common Stock") referred to
herein. Except as may be expressly set forth below, any reference to you in this
Agreement shall be solely in your capacity as a Representative.
2. Stock Offered. The Selling Stockholder proposes to sell to the
several Underwriters as set forth on Schedule A an aggregate of 1,300,000 shares
of authorized, issued and outstanding Common Stock. Such 1,300,000 shares of
Common Stock proposed to be sold by the Selling Stockholder are hereinafter
referred to as the "Firm Shares." In addition, the Selling Stockholder proposes
to grant to the Underwriters an Option (as hereinafter defined) to purchase up
to an additional 195,000 shares of authorized, issued and outstanding Common
Stock (the "Option Shares") on the terms and for the purposes set forth in
Section 5(b) hereof. The Firm Shares and the Option Shares are hereinafter
sometimes together called the "Shares", and the Shares are more fully described
in the Registration Statement and Prospectus (as hereinafter defined).
3. Representations and Warranties of the Company. The Company
represents and warrants to the Underwriters that:
(a) The Company has prepared a Registration Statement on Form S-3 (File
No. 333-_______) relating to the Shares, including a Preliminary Prospectus (as
hereinafter defined), in
__________________________
(1) Includes an option to purchase from the Selling Stockholder up to 165,000
shares of Common Stock, solely to cover over-allotments.
<PAGE> 2
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the rules, regulations and instructions (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder and has filed such Registration Statement with the Commission. The
Company complies with the conditions for the use of Form S-3. One or more
amendments to such Registration Statement, including, in each case, a revised
Preliminary Prospectus, have been so prepared and filed. If such Registration
Statement has not become effective as of the execution and delivery of this
Agreement, and the filing of a further amendment (the "Final Amendment") to such
Registration Statement is necessary to permit such Registration Statement to
become effective, such amendment will be filed promptly by the Company with the
Commission. If such Registration Statement has become effective and any
post-effective amendment has been filed with the Commission prior to the
execution and delivery of this Agreement, the most recent post-effective
amendment has been declared effective by the Commission. If such Registration
Statement has become effective and the Prospectus included as part of the
Registration Statement at the time it became effective omitted information
permitted to be omitted by Rule 430A of the Rules and Regulations ("Rule 430A
Information"), a final Prospectus (the "Rule 430A Prospectus") containing all
required Rule 430A Information will promptly be filed by the Company pursuant to
Rule 424(b) of the Rules and Regulations.
The term "Preliminary Prospectus" as used herein means any form of
prospectus (as referred to in Rule 430 of the Rules and Regulations) with
respect to the Shares included, at any time, as part of such Registration
Statement or filed with the Commission, pursuant to Rule 424(a) of the Rules and
Regulations, prior to such Registration Statement being declared effective. The
Registration Statement referred to in this Section 3(a), as amended at the time
that it becomes or became effective, or, if applicable, as amended at the time
the most recent post-effective amendment to such Registration Statement filed
with the Commission prior to the execution and delivery of this Agreement became
effective, including financial statements and all exhibits and other information
(whether filed or incorporated by reference) deemed to be part thereof at such
time pursuant to Rule 430A of the Rules and Regulations is herein called the
"Registration Statement." The final Prospectus relating to the Shares in the
form first filed with the Commission pursuant to Rule 424(b)(1) or (4) of the
Rules and Regulations or, if no such filing is required, the form of final
prospectus included in the Registration Statement at the Effective Date (as
hereafter defined) is herein called the "Prospectus." The date on which the
Registration Statement becomes effective is hereinafter called the "Effective
Date." As used herein, the terms "Registration Statement", "Prospectus" and
"Preliminary Prospectus" shall include in each case the documents, if any,
incorporated by reference therein.
(b) When the Registration Statement becomes effective, and at all
subsequent times to and including the Closing Time (as hereinafter defined) and
at the Option Exercise Time (as hereinafter defined), or for such longer period
as the Prospectus may be required by the Act or the Rules and Regulations or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the rules
and regulations promulgated thereunder to be delivered in connection with sales
of the Shares by the Underwriters or a dealer, the Registration Statement and
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto; provided,
however, that no amendment or supplement to the Registration Statement or the
Prospectus shall be made without prior consultation with you) will comply with
the requirements of the Act and the Rules and Regulations, will contain all
2
<PAGE> 3
statements required to be stated therein in accordance with the Act and the
Rules and Regulations, will not contain an untrue statement of a material fact
and will not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this subsection (b) do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon and made in conformity with written information furnished to the Company
through or on behalf of an Underwriter specifically for inclusion therein.
(c) The Commission has not issued an order preventing or suspending the
use of any Preliminary Prospectus with respect to the Shares and has not
instituted or, to the Company's knowledge, threatened to institute any
proceedings with respect to such an order. Each Preliminary Prospectus, when
filed with the Commission, conformed in all material respects with the
requirements of the Act and the Rules and Regulations and, as of its date, did
not include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the
representations and warranties in this sentence do not apply to statements or
omissions in each such Preliminary Prospectus based upon and made in conformity
with written information furnished to the Company through or on behalf of an
Underwriter specifically for inclusion therein.
(d) The documents incorporated by reference into the Preliminary
Prospectus, the Prospectus or the Registration Statement heretofore filed, when
they were filed (or, if any amendment with respect to any such document was
filed, when such document was filed), conformed in all material respects with
the requirements of the Exchange Act and the rules and regulations promulgated
thereunder, any additional documents so filed will, when they are filed, conform
in all material respects with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder; no such document when it was filed (or,
if an amendment with respect to any such document was filed, when such amendment
was filed), contained an untrue statement of material fact or omitted to state a
material fact required to be stated therein, or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and no additional document so filed, when it is filed will contain
an untrue statement of material fact or omit to state a material fact required
to be stated therein, or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(e) The Company is, and at the Closing Time and at the Option Exercise
Time will be, a corporation duly organized, validly existing and in good
standing under the laws of the State of Michigan. The Company has, and at the
Closing Time and at the Option Exercise Time will have, the power and authority
(corporate, governmental, regulatory and otherwise) and has or will have all
necessary approvals, orders, licenses, certificates, permits and other
governmental authorizations (collectively, the "Authorizations") to own or lease
all of the assets owned or leased by it and to conduct its business as described
in the Registration Statement and the Prospectus, except where the failure to
have any Authorization would not have a material adverse effect on the condition
(financial or otherwise), assets, business, properties, prospects or results of
operations of the Company and its Subsidiaries, taken as a whole (a "Material
Adverse Effect"). The Company is, and at the Closing Time and at the Option
Exercise Time will be,
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<PAGE> 4
duly licensed or qualified to do business and in good standing as a foreign
corporation in all jurisdictions (i) in which the nature of the activities
conducted by the Company requires such qualification and (ii) in which the
Company owns or leases real property, except where the failure to be so licensed
or qualified would not have a Material Adverse Effect. The Restated Articles of
Incorporation of the Company comply in all material respects with applicable
law. A complete and correct copy of the Restated Articles of Incorporation of
the Company, as amended and as currently in effect, has been delivered or made
available to you or your counsel, and no changes therein will be made subsequent
to the date hereof and prior to the expiration of the Option. Flagstar Bank, FSB
(the "Bank"), Douglas Insurance Agency, Inc. ("DIA"), FSSB Real Estate
Development Corporation ("REDC"), Mortgage Video Network, Inc. ("Video") and
First Security Investment Group, Inc. ("Investment") (each a "Subsidiary" and
collectively, the "Subsidiaries") are the only direct subsidiaries of the
Company. Each of the Subsidiaries is wholly-owned by the Company.
(f) The Bank is, and at the Closing Time and at the Option Exercise
Time will be, a federally chartered stock savings bank duly organized, validly
existing and in good standing under the federal Home Owners' Loan Act. The
deposit accounts of the Bank are insured up to applicable limits by the Saving
Association Insurance Fund ("SAIF"), which is administered by the Federal
Deposit Insurance Corporation (the "FDIC"), and no proceedings for the
termination or revocation of such insurance are pending or, to the knowledge of
the Company or the Bank, threatened. The Bank has, and at the Closing Time and
at the Option Exercise Time will have, the power and authority (corporate,
governmental, regulatory and otherwise) and has or will have all necessary
Authorizations to own or lease all of the assets owned or leased by it and to
conduct its business as described or incorporated by reference in the
Registration Statement and the Prospectus, except where the failure to have any
Authorization would not have a Material Adverse Effect. The Bank is, and at the
Closing Time and at the Option Exercise Time will be, duly licensed or qualified
to do business and in good standing as a foreign corporation in all
jurisdictions (i) in which the nature of the activities conducted by the Bank
requires such qualification and (ii) in which the Bank owns or leases real
property, except where the failure to be so licensed or qualified would not have
a Material Adverse Effect. The Federal Stock Savings Bank Charter ("Bank
Charter") of the Bank comply in all material respects with applicable law. A
complete and correct copy of the Bank Charter, as amended and as currently in
effect, has been delivered or made available to you or your counsel, and no
changes therein will be made subsequent to the date hereof and prior to the
expiration of the Option.
(g) Each of the other Subsidiaries is, and at the Closing Time and at
the Option Exercise Time will be, a corporation duly organized, validly existing
and in good standing under the laws of the State of Michigan. Each such
Subsidiary has, and at the Closing Time and at the Option Exercise Time will
have, the power and authority (corporate, governmental, regulatory and
otherwise) and has or will have all necessary Authorizations to own or lease all
of the assets owned or leased by it and to conduct its business as described in
the Registration Statement and the Prospectus, except where the failure to have
any Authorization would not have a Material Adverse Effect. Each such Subsidiary
is, and at the Closing Time and at the Option Exercise Time will be, duly
licensed or qualified to do business and in good standing as a foreign
corporation in all jurisdictions (i) in which the nature of the activities
conducted by such Subsidiary requires such qualification and (ii) in which such
Subsidiary owns or leases real property, except where the failure to be so
licensed or qualified would not have a Material
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<PAGE> 5
Adverse Effect. The Articles of Incorporation of each Subsidiary comply in all
material respects with applicable law. A complete and correct copy of the
Articles of Incorporation of each Subsidiary, as amended and as currently in
effect, has been delivered or made available to you or your counsel, and no
changes therein will be made subsequent to the date hereof and prior to the
expiration of the Option.
(h) This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Company and constitutes a valid and binding
obligation of the Company enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles, except as rights to indemnity and contribution
hereunder may be limited by applicable law. This Agreement and the resolutions
of the Board of Directors authorizing the same will be maintained continuously
as an official record of the Company consistent with the provisions of 12 U.S.C.
ss. 1823(e).
(i) At the Closing Time and at the Option Exercise Time, the Company
will be authorized to issue only 40,000,000 shares of Common Stock, and at the
Closing Time and the Option Exercise Time will have issued and outstanding,
fully paid and nonassessable, ___________ shares of Common Stock. At the Closing
Time and at the Option Exercise Time, the Company will have authorized and
reserved for issuance pursuant to the exercise of options and warrants only
__________ shares of Common Stock, pursuant to the Company's _________________
(the "Stock Option Plan"), without giving effect to the exercise after the date
hereof of any such options or warrants. Subsequent to the date hereof and prior
to the Closing Time and the Option Exercise Time, the Company will not issue any
securities. Except as contemplated by this Agreement and as set forth or
incorporated by reference in the Registration Statement and the Prospectus, the
Company does not have outstanding, and at the Closing Time and at the Option
Exercise Time the Company will not have outstanding, any options to purchase, or
any rights or warrants to subscribe for, or any securities or obligations
convertible into, or any contracts or commitments to issue or sell shares of
capital stock or any warrants, convertible securities or obligations.
(j) The consolidated financial statements of the Company (including the
notes thereto) filed with and as part of the Registration Statement and the
Prospectus, or incorporated by reference therein, fairly present the financial
position of the Company as of the dates thereof and the consolidated results of
operations, cash flows and stockholders' equity of the Company for the periods
indicated, have been prepared in conformity with generally accepted accounting
principles applied on a basis consistent with prior periods (except as otherwise
described in the notes thereto), and comply as to form in all material respects
with any applicable accounting requirements of the Commission and the FDIC.
Grant Thornton, LLP (the "Company's Accountants"), who have audited and reported
on such consolidated financial statements, is a firm of independent certified
public accountants within the meaning of the Code of Professional Conduct of the
American Institute of Certified Public Accountants, as required by the Act and
the Rules and Regulations. The financial information and data set forth in the
Prospectus are fairly presented and were prepared on a basis consistent with
such financial statements or the books and records of the Company, as the case
may be. No financial statements or schedules are required to be included in the
Registration Statement or the Prospectus which are not included therein.
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<PAGE> 6
(k) The financial and statistical information and data set forth in the
Prospectus under the captions "THE COMPANY," "SELECTED CONSOLIDATED FINANCIAL
DATA," "RISK FACTORS," "MARKET PRICE AND DIVIDEND INFORMATION," and "SELLING
STOCKHOLDER" are true and correct in all material respects and, as to the
financial information, are prepared on a basis consistent with the audited
consolidated financial statements of the Company.
(1) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus and at all times prior to the
expiration of the Option, except as set forth in or contemplated by the
Registration Statement and the Prospectus, (i) the Company has and will have
conducted its business in substantially the same manner as on March 31, 1998;
(ii) the Company has not incurred and will not have incurred any material
liabilities or obligations, direct or contingent, or entered into any material
transactions not in the ordinary course of business; (iii) [the Company has not
paid or declared and will not pay or declare any dividends or other
distributions on its capital stock;] and (iv) there has not been and will not
have been any change in the capitalization of the Company or any other change
which would have a Material Adverse Effect.
(m) There are no actions, suits or proceedings at law or in equity
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries or any of their respective assets or any of their
respective officers or directors before or by any federal, state, county or
local court, commission, regulatory body, arbitration panel, administrative
agency or other governmental body, domestic or foreign, wherein an unfavorable
ruling, decision or finding could have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is involved in any labor dispute nor, to the
Company's knowledge, is any such dispute threatened, which dispute could have a
Material Adverse Effect.
(n) Neither the Company nor the Bank is in violation of any rule or
regulation of the Commission, the Office of Thrift Supervision (the "OTS") or
the FDIC, which would materially and adversely affect the condition (financial
or otherwise), operations, business, assets or properties of the Company and the
Bank, taken as a whole. Neither the Company nor the Bank is subject to any
directive from the OTS or the FDIC to make any change in the method of
conducting its business or affairs, and the Company and the Bank have conducted
their business in compliance with all applicable statutes and regulations
(including, without limitation, all regulations, decisions, directives and
orders of the OTS and the FDIC), except where the failure to so comply would not
have a Material Adverse Effect. Except as set forth or incorporated by reference
in the Prospectus, there is not pending or, to the knowledge of the Company or
the Bank, threatened any litigation, charge, investigation, action, suit or
proceeding before or by any court, regulatory authority or governmental agency
or body which, individually or in the aggregate, would affect the performance of
the terms and conditions of this Agreement or the consummation of the
transactions contemplated hereby or which, individually or in the aggregate,
would have a Material Adverse Effect.
(o) There has been no material adverse change in the condition
(financial or otherwise), assets, business, properties, prospects or results of
operations of the Company and its Subsidiaries, taken as a whole, since the
latest date as of which such condition is set forth or
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<PAGE> 7
incorporated by reference in the Prospectus, except as referred to therein. The
capitalization, assets, properties and business of the Company and the Bank
conform in all material respects to the descriptions thereof contained or
incorporated by reference in the Prospectus as of the date specified. Subsequent
to the respective dates as of which information is given in the Prospectus,
except as otherwise may be indicated therein, neither the Company nor the Bank
has issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, except borrowings in the ordinary course of
business, or entered into any other transaction not in the ordinary course of
business, which is material in light of the businesses and properties of the
Company and the Bank, taken as a whole. Neither the Company nor any of its
Subsidiaries has any material contingent liabilities of any kind, except as set
forth or incorporated by reference in the Prospectus.
(p) Except as set forth or incorporated by reference in the Prospectus,
no material default (or event which, with notice or lapse of time, or both,
would constitute a material default) exists on the part of either the Company or
the Bank or, to their knowledge, on the part of any other party, in the due
performance and observance of any term, covenant or condition of any agreement
to which the Company or the Bank is a party and which is material to the
condition (financial or otherwise) of the Company and the Bank, taken as a
whole. Such agreements are in full force and effect, and no other party to any
such agreement has instituted or, to the knowledge of the Company or the Bank,
threatened any action or proceeding wherein the Company or the Bank is or would
be alleged to be in default thereunder, under circumstances where such action or
proceeding, if determined adversely to the Company or the Bank, would have a
Material Adverse Effect.
(q) Neither the Company nor the Bank is in violation of its respective
Articles of Incorporation or Bank Charter, as the case may be, in each case as
amended as of the date hereof, or is in default, in any material respect, in the
performance of any material obligations, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness by which it is
bound. The execution, delivery and fulfillment of the terms of this Agreement
and the consummation of the transactions contemplated hereby do not and will not
(i) violate or conflict with the Articles of Incorporation of the Company or the
Bank Charter of the Bank, (ii) violate, conflict with or constitute a breach of,
or default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, any agreement, indenture or other instrument to
which the Company or the Bank is a party, (iii) result in a breach or violation
of any of the terms and provisions of, or constitute a default (or give rise to
a state of facts which, with notice or lapse of time, or both, would constitute
a default) under or result in the creation or imposition of any lien, charge or
encumbrance upon the assets or properties of the Company or the Bank, pursuant
to any indenture, mortgage, deed of trust, voting trust agreement, loan
agreement, letter of credit agreement, bond, debenture, note agreement or other
evidence of indebtedness, lease, contract or other agreement or instrument to
which the Company or the Bank is a party or by which the Company, the Bank or
any of their respective properties are bound, or (iv) violate or conflict with
any governmental license or permit or any law, administrative regulation or
authorization, approval, court decree, injunction or order; except such
breaches, violations or defaults as would not have a Material Adverse Effect.
(r) The Company and its Subsidiaries have, and at the Closing Time and
at the Option Exercise Time will have, complied in all material respects, except
as described or
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<PAGE> 8
incorporated by reference in the Prospectus, with all laws, regulations,
ordinances and orders relating to public health, safety or the environment
(including without limitation all laws, regulations, ordinances and orders
relating to releases, discharges, emissions or disposals to air, water, land or
groundwater, to the withdrawal or use of groundwater, to the use, handling or
disposal of polychlorinated biphenyls, asbestos or urea formaldehyde, to the
treatment, storage, disposal or management of hazardous substances, pollutants
or contaminants, or to exposure to toxic, hazardous or other controlled,
prohibited or regulated substances), the violation of which would or might have
a Material Adverse Effect on the consummation of the transactions contemplated
by this Agreement. In addition, and irrespective of such compliance, neither the
Company nor any of its Subsidiaries is subject to any liability for
environmental remediation or clean-up, including any liability or class of
liability of the lessee under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or the Resource Conservation
and Recovery Act of 1976, as amended, which liability would or might have a
Material Adverse Effect on the consummation of the transactions contemplated by
this Agreement.
(s) The Company (i) keeps books, records and accounts that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company and the Bank, and (ii) maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance with management's
general or specific authorization, (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (C) access to
assets is permitted only in accordance with management's general or specific
authorization and (D) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. Neither the Company nor any of its Subsidiaries has
made any payment to any state, federal or foreign governmental officer or
official or other person charged with similar public or quasi-public duties
(other than payments required or permitted by the laws of the United States or
any jurisdiction thereof).
(t) The outstanding Common Stock has been duly authorized and validly
issued, and is fully paid and nonassessable and not subject to preemptive
rights. The holders of Common Stock will not be subject to personal liability
for the obligations of the Company solely by reason of being such holders. The
Common Stock and the Shares conform, and when the Registration Statement becomes
effective and, at the Closing Time and at the Option Exercise Time, will
conform, to all statements with regard thereto contained or incorporated by
reference in the Registration Statement and the Prospectus.
(u) All of the issued and outstanding shares of capital stock of the
Bank have been duly authorized and validly issued, are fully paid and
non-assessable and are owned by the Company, free and clear of any liens,
charges, encumbrances or restrictions, except as set forth or incorporated by
reference in the Prospectus. Except for shares of capital stock of the Bank and
the other Subsidiaries, the Company does not own, and at the Closing Time and at
the Option Exercise Time will not own, any shares of capital stock or any other
equity securities of any corporation or have any equity interest in any firm,
partnership or other entity.
(v) No consent, approval, authorization or order of any court or
governmental agency
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<PAGE> 9
or body is required for the consummation by the Company of the transactions
contemplated by this Agreement, except such as may be required under the Act,
the Exchange Act or under state securities or Blue Sky laws or except such as
have been obtained.
(w) The Company and the Bank have good and marketable title to all
properties and assets described in the Prospectus or any document incorporated
by reference in the Prospectus as owned by them, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described in or
referred to in the Prospectus or any document incorporated by reference in the
Prospectus or such as would not have a Material Adverse Effect. The Company and
the Bank have valid, subsisting and enforceable leases for the properties
reflected in the Prospectus or any document incorporated by reference in the
Prospectus as leased by them, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, moratorium, reorganization or
other laws affecting creditors' rights generally.
(x) There is no document or contract of a character required to be
described in the Prospectus or to be filed as an exhibit to the Registration
Statement which is not described or filed as required. No statement,
representation, warranty or covenant made by the Company in this Agreement or in
any certificate or document required by this Agreement to be delivered to you
is, was when made or, as of the Closing Time and the Option Exercise Time, will
be, inaccurate, untrue or incorrect. No transaction has occurred between or
among the Company or any Subsidiary and any of their respective officers,
directors or stockholders or any affiliate of any such officer, director or
stockholder that is required by the Act or the Rules and Regulations to be
described in, and is not described in, the Registration Statement, the
Prospectus or the documents incorporated by reference therein.
(y) The Company and its Subsidiaries own or possess all patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets,
applications and other unpatented or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and trade names
(collectively, "Proprietary Rights") used in or necessary for the conduct of the
business of the Company as now conducted and as proposed to be conducted as
described in the Prospectus or the documents incorporated by reference in the
Prospectus, except where the failure to own such Proprietary Rights would not
have a Material Adverse Effect. The Company and its Subsidiaries have the right
to use all Proprietary Rights used in or necessary for the conduct of their
respective businesses without infringing the rights of any person or violating
the terms of any licensing or other agreement to which the Company or any
Subsidiary is a party and, to the Company's knowledge, no person is infringing
upon any of the Proprietary Rights, except where the infringement of or lack of
a right to use such Proprietary Rights would not have a Material Adverse Effect.
Except as disclosed in the Prospectus or the documents incorporated by reference
into the Prospectus, no charges, claims or litigation have been asserted or, to
the Company's knowledge, threatened against the Company or any Subsidiary
contesting the right of the Company or any Subsidiary to use, or the validity
of, any of the Proprietary Rights or challenging or questioning the validity or
effectiveness of any license or agreement pertaining thereto or asserting the
misuse thereof, and, to the Company's knowledge, no valid basis exists for the
assertion of any such charge, claim or litigation. All licenses and other
agreements to which the Company or any Subsidiary is a party relating to
Proprietary Rights are in full force and effect and constitute valid, binding
and enforceable obligations of the Company or such Subsidiary and, to the
Company's knowledge, the other
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<PAGE> 10
parties thereto, subject in each case to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles, as
the case may be, and there have not been and there currently are not any
defaults (or any event which, with notice or lapse of time, or both, would
constitute a default) by the Company or any Subsidiary under any license or
other agreement affecting Proprietary Rights used in or necessary for the
conduct of the business of the Company or any Subsidiary, except for defaults,
if any, which would not have a Material Adverse Effect. The validity,
continuation and effectiveness of all licenses and other agreements relating to
the Proprietary Rights and the current terms thereof will not be affected by the
transactions contemplated by this Agreement.
(z) Neither the Company nor any Subsidiary is conducting or intends to
conduct its business in a manner in which it would become an "investment
company" as defined in Section 3(a) of the Investment Company Act of 1940, as
amended.
(aa) All issuances and sales by the Company of its securities prior to
the date hereof were either (i) registered under the Act, or (ii) exempt from
registration under the Act, and all such issuances and sales complied in all
respects with the provisions of all applicable federal and state securities
laws. Except as set forth in or contemplated by the Prospectus, no holder of any
securities of the Company has the right to require registration of any Common
Stock or other securities of the Company because of the filing or effectiveness
of the Registration Statement.
(bb) Neither the Company nor any of its officers or directors or
affiliates (as defined in the Rules and Regulations) has taken or will take,
directly or indirectly, any action designed to stabilize or manipulate the price
of any security of the Company or any action which has constituted or which
might reasonably be expected to cause or result in stabilization or manipulation
of the price of any security of the Company, to facilitate the sale or resale of
any of the Shares.
(cc) The Company and the Bank have not, and at the Closing Time and at
the Option Exercise Time will not have, incurred any liability for financial
advisory, finder's or brokerage fees or agent's commissions in connection with
the offer and sale of the Shares, this Agreement or the transactions hereby
contemplated.
(dd) For each of the past ten years, the Company and the Bank have
timely filed all federal, state, local and foreign income, employment,
withholding, franchise and other tax returns required to be filed through the
date hereof and have paid all taxes shown as due thereon or made adequate
reserves for similar future tax liabilities. Except as disclosed or incorporated
by reference in the Prospectus, no tax deficiency has been, nor does the Company
have any knowledge of any tax deficiency which might be, asserted against the
Company or the Bank by any taxing authorities, which would have a Material
Adverse Effect.
(ee) All contracts and other documents required to be filed as exhibits
to the Registration Statement have been filed with the Commission.
(ff) Neither the Company nor the Bank has engaged in any transaction in
connection with which the Company or the Bank could be subject to either a civil
penalty assessed pursuant
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<PAGE> 11
to Section 502(i) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or a tax imposed by Section 4975 of the Internal Revenue Code
of 1986, as amended (the "Code"). No material liability to the Pension Benefit
Guaranty Corporation has been, or is expected by the Company or the Bank to be,
incurred by the Company or the Bank with respect to any pension plan subject to
ERISA (a "Pension Plan"). There has been no "reportable event" within the
meaning of Section 4043(b) of ERISA with respect to any Pension Plan and no
event or condition which presents a material risk of the termination of any
Pension Plan by the Pension Benefit Guaranty Corporation. Full payment has been
made of all amounts which the Bank is required, under the terms of any Pension
Plan, to have paid as contributions to such Pension Plan as of the date hereof,
and no "accumulated funding deficiency," as defined in Section 302 of ERISA and
Section 412 of the Code, whether or not waived, exists with respect to any
Pension Plan.
(gg) The Company and the Bank are in compliance in all material
respects with applicable financial record-keeping and reporting requirements of
the Currency and Foreign Transactions Reporting Act of 1970, as amended, and the
regulations and rules promulgated thereunder.
(hh) To the knowledge of the Company and the Bank, (i) neither the
Company, the Bank nor any of the employees of the Company or the Bank has made
any payment of funds of the Company or the Bank as a loan for the purchase of
the Shares or made any payment of funds prohibited by law, and (ii) no funds
have been set aside to be used for any payment prohibited by law.
(ii) The Company and the Bank have not relied upon the Underwriters or
their legal counsel or other advisors for any legal, tax or accounting advice in
connection with the transactions contemplated by this Agreement.
4. Representations and Warranties of the Selling Stockholder. The
Selling Stockholder represents and warrants to the Underwriters and, except as
to matters covered in subsection (e), to the Company that:
(a) The Selling Stockholder has, and at the Closing Time and the Option
Exercise Time, as the case may be, will have, good and marketable title to the
Shares proposed to be sold by the Selling Stockholder hereunder on such date and
full right, power and authority to enter into this Agreement and to sell,
assign, transfer and deliver the Shares being sold hereunder, free and clear of
all voting trust and/or buy-sell arrangements, liens, encumbrances, equities,
claims, restrictions and community property rights, other than those created by
this Agreement for the benefit of the Underwriters. Upon delivery of and payment
for such Shares hereunder, the Underwriters will acquire good and marketable
title thereto, free and clear of all voting trust and/or buy-sell arrangements,
liens, encumbrances, equities, claims, restrictions and community property
rights.
(b) The Selling Stockholder has not taken and will not take, directly
or indirectly, any action designed to or which might be reasonably expected to
cause or result in, under the Exchange Act or otherwise, stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Shares.
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<PAGE> 12
(c) Each Preliminary Prospectus, insofar as it relates to the Selling
Stockholder and, to the knowledge of the Selling Stockholder in all other
respects, as of its date, has not included, and will not include, any untrue
statement of a material fact and has not omitted or will not omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. When the Registration Statement becomes effective, and at
all times subsequent thereto, neither the Registration Statement nor the
Prospectus, nor any amendment thereof or supplement thereto, as it relates to
the Selling Stockholder, and, to the knowledge of the Selling Stockholder in all
other respects, included or will include any untrue statement of a material fact
or omitted or will omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the immediately preceding clause shall not have any effect if information
has been given by the Selling Stockholder to the Company and the Underwriters in
writing which would eliminate or remedy any such untrue statement or omission;
and provided, further, however, that the representations and warranties in this
subsection (c) do not apply to statements or omissions in the Preliminary
Prospectus, the Registration Statement or the Prospectus based upon and made in
conformity with written information furnished to the Company through or on
behalf of the Underwriters specifically for inclusion therein.
(d) The Selling Stockholder will not sell, contract to sell or
otherwise dispose of any Common Stock or any securities convertible into Common
Stock for a period of ______ days after the Effective Date without the prior
written consent of the Underwriters.
(e) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Internal Revenue Code of 1986, as
amended, with respect to the transactions herein contemplated, the Selling
Stockholder agrees to deliver to you, prior to or at the Closing Time, a
properly completed and executed United States Treasury Department Form W-8 or
W-9 (or other applicable form of statement specified by Treasury Department
regulations in lieu thereof).
5. Purchase, Sale and Delivery of the Shares; Closing Distribution.
(a) (i) On the basis of the representations and warranties set forth in
this Agreement and subject to the terms and conditions herein set
forth, the Selling Stockholder, agrees to sell to the Underwriters
1,300,000 Firm Shares, and the Underwriters, severally and not jointly,
agree to purchase such 1,300,000 Firm Shares from the Selling
Stockholder, at and for a price of $________ per Share (the "Purchase
Price"), only in those jurisdictions and in such amounts where due
qualification and/or registration has been effected or an exemption
from such qualification and/or registration is available under the
applicable securities or Blue Sky laws of such jurisdiction. This
agreement to purchase Shares only covers the initial sale of the Shares
by the Underwriters and not any subsequent sale of such Shares in any
trading market which may develop after the public offering.
(ii) Delivery of the Firm Shares shall be made to the
Representatives at the offices of Honigman Miller Schwartz and Cohn,
2290 First National Building, Detroit, Michigan 48226, or such other
location as you and the Selling Stockholder shall agree,
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<PAGE> 13
against payment by you of the aggregate Purchase Price therefor by
delivery of certified or bank cashier's checks payable in next day
funds to the order of the Selling Stockholder for the Shares sold by
him, at 10:00 a.m., Detroit time, on ____________, 1999, or on such
other business day (Saturdays, Sundays and legal holidays in the City
of Detroit not being considered business days for the purposes of this
Agreement) not later than the fourth full business day following the
date of this Agreement as you shall determine and advise the Company
by at least two full business days' notice in writing, which time and
date are herein called the "Closing Time." Delivery of the Firm Shares
shall be made in registered form in such name or names and in such
denominations as you shall request by at least two full business days'
notice in writing. The cost of original issue tax stamps and transfer
stamps, if any, in connection with the issuance and delivery or sale
of the Firm Shares by the Selling Stockholder to the Underwriters
shall be borne by the Selling Stockholder. The Selling Stockholder
will pay and save harmless each Underwriter, or its nominees, and any
subsequent holder of the Firm Shares, from any and all liabilities
with respect to or resulting from any failure or delay in paying
federal or state stamp and other transfer taxes, if any, which may be
payable or determined to be payable in connection with the sale by the
Selling Stockholder to such Underwriter of the Firm Shares or any
portion thereof.
(iii) The Selling Stockholder will make the certificates for
the Firm Shares available to you for examination at such offices as you
shall designate, not later than 2:00 p.m., on the business day
preceding the Closing Time.
(iv) The obligations of each Underwriter to purchase and pay
for the Firm Shares shall be subject to compliance as of such date with
all the conditions specified in Section 9 hereof and to the absence of
any termination of this Agreement pursuant to Section 12.
(b) (i) The Selling Stockholder hereby grants to the Underwriters an
option (the "Option") to purchase from the Selling Stockholder up to
195,000 Option Shares, at and for a price for each Option Share equal
to the Purchase Price; provided, however, that the Option may be
exercised only for the purpose of covering any over-allotments which
may be made by you in connection with the distribution and sale of the
Firm Shares.
(ii) The Option is exercisable by you in whole or in part at
any time on or before 12:00 noon, Detroit time, on the day prior to the
Closing Time, and at any time thereafter during the period ending 30
days after the date of the Prospectus, by giving notice to the Company
in the manner provided in Section 13 hereof, setting forth the number
of Option Shares as to which the Option is being exercised, the name or
names in which the certificates for such Option Shares are to be
registered, the denominations of such certificates and the date of
delivery of such Option Shares, which date, if not the Closing Time,
shall not be less than two nor more than five business days after such
notice.
(iii) Upon the exercise of the Option, the Selling Stockholder
shall sell to the Underwriters the number of Option Shares specified in
the notice exercising the Option, and the Underwriters, on the basis of
the representations and warranties of the Selling
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<PAGE> 14
Stockholder contained herein and in each certificate and document
contemplated under this Agreement to be delivered to you, but subject
to the terms and conditions of this Agreement, severally and not
jointly, shall purchase from the Selling Stockholder the number of
Option Shares specified in such notice.
(iv) Delivery of the Option Shares with respect to which the
Option shall have been exercised shall be made to the Representatives
at the offices of Honigman Miller Schwartz and Cohn, 2290 First
National Building, Detroit, Michigan 48226 or such other location as
you and the Selling Stockholder shall agree, against payment by you, as
Underwriters, of the aggregate Purchase Price therefor to the Selling
Stockholder by certified or bank cashier's check or checks payable in
next-day funds to the order of the Selling Stockholder in the amount to
which the Selling Stockholder is entitled, at 10:00 a.m., Detroit time,
on the date and in the place designated in the notice given by you as
above provided for, unless some other place, time and date is mutually
agreed upon (such time and date being herein called the "Option
Exercise Time"). The cost of original issue tax stamps or transfer
stamps, if any, in connection with each issuance and delivery of the
Option Shares by the Selling Stockholder to the Underwriters shall be
borne by the Selling Stockholder. The Selling Stockholder will pay and
save harmless each Underwriter, or its nominees, and any subsequent
holder of Option Shares, from any and all liabilities with respect to
or resulting from any failure or delay in paying federal and state
stamp taxes, if any, which may be payable or determined to be payable
as a result of the sale by the Selling Stockholder to such Underwriters
of the Option Shares or any portion thereof.
(v) The Selling Stockholder will make the certificates for the
Option Shares to be purchased at the Option Exercise Time available to
you for examination at such offices as you shall designate, not later
than 2:00 p.m., on the business day next preceding such Option Exercise
Time.
(vi) The obligation of each Underwriter to purchase and pay
for the Option Shares at the Option Exercise Time shall be subject to
compliance as of such date with all the conditions specified in Section
9 hereof and to the absence of any termination of this Agreement
pursuant to Section 12 hereof.
(c) Subject to the terms and conditions hereof, the Underwriters agree
that (i) they will offer the Shares to the public as set forth in the Prospectus
as soon after the Registration Statement becomes effective as may be
practicable, (ii) they will offer and sell the Shares to the public only in
those jurisdictions and in such amounts where due qualification and/or
registration has been effected or an exemption from such qualification and/or
registration is available under the applicable securities or Blue Sky laws of
such jurisdiction, and (iii) the Shares will be offered and sold only in those
jurisdictions where broker/dealer licensing has been obtained or where there is
an exemption from such licensing. This agreement to offer Shares to the public
only covers the initial sale of the Shares by the Underwriters and not any
subsequent sale of such Shares in any trading market which may develop after the
public offering.
6. Registration Statement and Prospectus.
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<PAGE> 15
(a) The Company will deliver to you, without charge, two fully signed
copies of the Registration Statement and of each amendment thereto (including
all financial statements, exhibits and documents incorporated by reference) and
the number of conformed copies of the Registration Statement and of each
amendment thereto (including all financial statements and documents incorporated
by reference, but excluding exhibits) as you may reasonably request.
(b) The Company has delivered to the Underwriters and to each of the
dealers selected by you in connection with the distribution of the Shares (a
"Selected Dealer" and, collectively, "Selected Dealers"), without charge, as
many copies as you have requested of each Preliminary Prospectus heretofore
filed with the Commission and will deliver to the Underwriters and to any
Selected Dealer, without charge, on the Effective Date, and thereafter from time
to time during the period in which the Prospectus is required by law to be
delivered in connection with sales of Shares by an Underwriter or a dealer, as
many copies of the Prospectus and any documents incorporated by reference (and,
in the event of any amendment of or supplement to the Prospectus, of such
amended or supplemented Prospectus) as you may reasonably request.
(c) The Company has authorized the Underwriters to use and to make
available for use by prospective dealers the Preliminary Prospectuses and
authorizes the Underwriters, all Selected Dealers and all dealers to whom any of
such Shares may be sold by the Underwriters or by any Selected Dealer to use the
Prospectus, as from time to time amended or supplemented, in connection with the
sale of the Shares in accordance with the applicable provisions of the Act, the
applicable Rules and Regulations and applicable state law until completion of
the public offering of the Shares and for such longer period as you may request
if the Prospectus is required to be delivered in connection with sales of the
Shares by an Underwriter or a dealer.
7. Covenants of the Company. The Company covenants and agrees with the
Underwriters that:
(a) After the execution and delivery of this Agreement, the Company
will not at any time, whether before or after the Effective Date, file any
amendment of or supplement to the Registration Statement or the Prospectus of
which you shall not previously have been advised and furnished with a copy, or
which you or Honigman Miller Schwartz and Cohn ("Counsel for the Underwriters")
shall not have approved (which approval shall not be unreasonably withheld or
delayed) or which is not in compliance with the Act or the Rules and
Regulations.
(b) If the Registration Statement has not become effective, the Company
will promptly file the Final Amendment with the Commission and will use its best
efforts to cause the Registration Statement to become effective. If the
Registration Statement has become effective, the Company will file the Rule 430A
Prospectus or other Prospectus with the Commission as promptly as practicable,
but in no event later than is permitted by Rule 424(b). The Company will
promptly advise you (i) when the Registration Statement or any post-effective
amendment thereto shall hereafter become effective, or any amendments or
supplements to the Prospectus or any document which shall be incorporated by
reference into the Prospectus shall have been filed with the Commission; (ii) of
the nature and substance of any request of the Commission or any state or other
regulatory body for any amendment or supplement of the Registration Statement or
the Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop
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<PAGE> 16
order suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any Preliminary Prospectus or prohibiting
the offer or sale of any of the Shares or of the initiation of any proceedings
for such purpose; (iv) of any receipt by the Company of any notification with
respect to the suspension of qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; and (v) of the happening of any event during the periods in which the
Prospectus is to be used in conjunction with the offer or sale of Shares which
makes any statement made in the Registration Statement or the Prospectus untrue
in any material respect or which requires the making of any changes in the
Registration Statement or the Prospectus in order to make the statements therein
not misleading. The Company will use its best efforts to prevent the issuance of
any stop order or any order preventing or suspending the use of the Registration
Statement or Prospectus and, if such order is issued, to obtain the lifting
thereof as promptly as possible.
(c) The Company will prepare and file with the Commission, upon your
request, any such amendments of or supplements to the Registration Statement or
the Prospectus, in form satisfactory to Kutak Rock ("Counsel for the Company"),
as, in the opinion of Counsel for the Underwriters, may be necessary or
advisable in connection with the distribution of the Shares or any change in the
price at which, or the terms upon which, the Shares may be offered by you and
will use its best efforts to cause the same to become effective as promptly as
possible.
(d) The Company will comply with the Act, the Rules and Regulations and
the Exchange Act, and the rules and regulations thereunder, so as to permit the
continuance of sales of and dealings in the Shares under the Act and the
Exchange Act. If at any time when a prospectus is required to be delivered under
the Act an event shall have occurred as a result of which it is necessary to
amend or supplement the Prospectus in order to make the statements therein not
untrue or not misleading in any material respect or to make the Prospectus
comply with the Act and the Rules and Regulations, the Company will notify you
promptly thereof and will, subject to the provisions of Section 7(a) hereof,
file with the Commission an amendment or supplement which will correct such
statement in accordance with the requirements of the Act and shall furnish to
the Underwriters a reasonable number of copies of an amendment or amendments or
of a supplement or supplements to the Prospectus (in form and substance
reasonably satisfactory to Counsel for the Company and Counsel for the
Underwriters) which shall amend or supplement the Prospectus so that, as amended
or supplemented, the Prospectus will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser of the Shares, not misleading. The
Company will not file or use any amendment or supplement to the Registration
Statement or the Prospectus of which the Underwriters have not first been
furnished a copy or as to which the Underwriters shall reasonably object after
having been furnished such copy. For the purposes of this subsection (d), the
Company shall furnish such information with respect to itself as the
Underwriters from time to time reasonably may request.
(e) The Company will comply with all of the provisions of any
undertakings contained in the Registration Statement.
(f) The Company will take all reasonable actions to furnish to whomever
you direct, when and as requested by you, all necessary documents, exhibits,
information, applications,
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<PAGE> 17
instruments and papers as may be required or, in the opinion of Counsel for the
Underwriters, desirable in order to permit or facilitate the sale of the Shares.
The Company will use its best efforts to qualify or register the Shares for sale
under the so called Blue Sky laws of such jurisdictions as you shall request, to
make such applications, file such documents and furnish such information as may
be required for such purpose and to comply with such laws so as to continue such
qualification in effect so long as required for the purposes of the distribution
of the Shares; provided, however, that the Company shall not be required to
qualify as a foreign corporation in any jurisdiction, and provided further that
the Company shall not be required to file a consent to service of process in any
jurisdiction in any action other than one arising out of the offering or sale of
the Shares.
(g) During the period of two years commencing on the Effective Date,
the Company will furnish to the Underwriters, in such quantity as the
Underwriters may reasonably request, (i) within 90 days after the end of each
fiscal year of the Company, either (A) a consolidated balance sheet of the
Company and its then consolidated subsidiaries, and a separate balance sheet of
each subsidiary of the Company, the accounts of which are not included in such
consolidated balance sheet, as of the end of such fiscal year, and consolidated
statements of operations, cash flows and changes in stockholders' equity of the
Company and its then consolidated subsidiaries, and separate statements of
operations, cash flows and changes in stockholders' equity of each of the
subsidiaries of the Company, the accounts of which are not included in such
consolidated statements, for the fiscal year then ended, all in reasonable
detail, prepared in accordance with generally accepted accounting principles,
consistently applied, and all certified by independent accountants (within the
meaning of the Act and the Rules and Regulations), or (B) the Company's Form
10-K (or Form 10-KSB) for such fiscal year as filed with the Commission in
accordance with the Exchange Act; (ii) within 45 days after the end of each of
the first three fiscal quarters of each fiscal year, either (A) similar balance
sheets as of the end of such fiscal quarter and similar statements of
operations, cash flows and changes in stockholders' equity for the fiscal
quarter then ended, all in reasonable detail, and all certified by the Company's
principal financial officer or the Company's principal accounting officer as
having been prepared in accordance with generally accepted accounting
principles, consistently applied, or (B) the Company's Form 10-Q (or Form
10-QSB) for such fiscal quarter as filed with the Commission in accordance with
the Exchange Act; (iii) as soon as available, each report and each proxy or
information statement furnished to or filed with the Commission, any securities
exchange or the National Association of Securities Dealers, Inc. (the "NASD")
and each report and financial statement furnished to the Company's stockholders
generally; and (iv) any material reports filed by the Company in connection with
the quotation of its Common Stock on The Nasdaq Stock Market or any listing on
any stock exchange.
(h) Counsel for the Company, the Company's Accountants, the Selling
Stockholder and the officers of the Company will respectively furnish the
opinions, the letters and the certificates referred to in subsections (e), (f),
(g), (h), (i) and (j) of Section 9 hereof, and, in the event that the Company
shall file any amendment to the Registration Statement relating to the offering
of the Shares or any amendment or supplement to the Prospectus relating to the
offering of the Shares subsequent to the Effective Date, whether pursuant to
subsection (c) of this Section 7 or otherwise, such counsel, such accountants,
such stockholder and such officers will, at the time of such filing or at such
subsequent time as you shall specify, respectively furnish to you such opinions,
letters and certificates, each dated the date of its delivery, of the same
nature as
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<PAGE> 18
the opinions, letters and certificates referred to in subsections (e),
(f), (g), (h), (i) and (j) of Section 9 hereof, as you may reasonably request.
(i) Prior to the expiration of the Option, the Company will not issue,
directly or indirectly, without first consulting with you and Counsel for the
Underwriters, any press release or other communication or hold any press
conference with respect to the Company or its activities or the offering
contemplated hereby.
(j) Except as described in the Prospectus or as contemplated by this
Agreement, the Company and the Selling Stockholder shall not, without your prior
written consent, sell, contract to sell or otherwise dispose of any Common
Stock, or any securities convertible into Common Stock, for a period of ____
days after the Effective Date, other than the grant of options pursuant to the
Stock Option Plan. In connection with the execution of this Agreement, the
Company shall deliver to you the written agreement of each of the directors or
executive officers of the Company other than the Selling Stockholder and of the
Selling Stockholder to the effect that such person shall not, without your prior
written consent, for a period of 180 days after the Effective Date, offer, sell,
contract to sell, or grant any option to purchase or otherwise dispose of any
Common Stock or any securities convertible into or exchangeable for Common
Stock.
(k) The Company will not at any time, directly or indirectly, take any
action designed to, which will constitute or which might reasonably be expected
to cause or result in the stabilization of the price of the Shares to facilitate
the sale or resale of the Shares.
(1) After the Closing Time and the Option Exercise Time, the Company
and the Bank will be and remain in compliance with the financial record-keeping
requirements and internal accounting control requirements of Section 13(b)(2) of
the Exchange Act.
(m) The Company and the Bank will take such actions and furnish such
information as reasonably requested by the Underwriters in order for the
Underwriters to ensure compliance with the NASD's "Interpretation Relating to
Free-Riding and Withholding."
(n) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the Company
will make generally available to its securities holders and deliver to you an
earnings statement (which need not be audited) covering a period of at least 12
months beginning not earlier than the Effective Date, which shall satisfy the
provisions of Section 11(a) of the Act and/or Rule 158 promulgated under the
Act.
8. Expenses. The Company will pay and bear all costs, fees, taxes and
expenses incident to the performance of its obligations and the obligations of
the Selling Stockholder under this Agreement including, but not limited to: (a)
costs incident to the preparation, printing and filing under the Act of each
Preliminary Prospectus, the Prospectus, the Registration Statement and any
amendments thereto, supplements thereof and exhibits thereto; (b) the costs of
printing and distributing to the Underwriters and any Selected Dealers copies of
any Preliminary Prospectus, the Prospectus, the Registration Statement and any
amendment thereto or supplement thereof required by this Agreement or the Act;
(c) the costs of preparing, printing, mailing, delivering, filing and
distributing preliminary and final Blue Sky memoranda, Underwriter's
Questionnaires and Powers of Attorney, the Selected Dealer Agreement, this
Agreement and all
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<PAGE> 19
documents related thereto; (d) the filing fees of the Commission; (e) the costs
of qualification or registration of the Shares in the jurisdictions referred to
in Section 7(f) hereof, including the legal fees and expenses of Counsel for the
Underwriters in connection therewith, not to exceed $10,000, and all filing fees
in connection therewith; (f) the cost of preparation of all filings with the
NASD and all filing fees in connection therewith; (g) fees and expenses of
Counsel for the Company, the Company's Accountants and the Company's
consultants; (h) fees and expenses of the Company's registrar and transfer
agent, including the cost of supplying share certificates representing Common
Stock; and (i) all costs and expenses incurred or to be incurred by the Company
in connection with the transactions contemplated by this Agreement. If the Firm
Shares are not sold to the Underwriters by reason of any failure, refusal or
inability on the part of the Selling Stockholder to perform any agreement on his
part to be performed hereunder or to fulfill any condition of the Underwriters'
obligations hereunder, or if you shall terminate this Agreement pursuant to
Section 12 hereof, the Company shall promptly reimburse you for all reasonable
expenses actually incurred by you in contemplation of the performance by the
Company and the Selling Stockholder of their respective obligations hereunder,
including but not limited to the fees and disbursements of Counsel for the
Underwriters, the Underwriters' reasonable printing and traveling expenses and
postage, telegraph, telecopy and telephone charges relating directly to the
offering contemplated by the Prospectus, and also including reasonable
advertising expenses of the Underwriters incurred after the Effective Date, up
to a maximum of $75,000.
9. Conditions of the Underwriters' Obligations. The Underwriters'
obligations hereunder to purchase and pay for the Shares are subject (as of the
date hereof, the Closing Time and the Option Exercise Time) to the accuracy of
and compliance with the representations and warranties of the Company herein and
in each certificate and document contemplated under this Agreement to be
delivered, to the performance by the Company of its covenants and agreements
hereunder and under each such certificate and document, and to the following
additional conditions:
(a)(i) The Registration Statement shall have become effective not later
than 5:00 p.m., Detroit time, on the date of this Agreement, or at such later
time or on such later date as you may agree to in writing; (ii) if required, the
Prospectus shall have been filed with the Commission pursuant to Rule 424(b)(1)
or (4) of the Rules and Regulations within the applicable time period prescribed
for such filing thereunder and in accordance with the provisions of Section 7(b)
hereof; (iii) at or prior to the Closing Time or the Option Exercise Time, as
the case may be, no stop order suspending the effectiveness of the Registration
Statement or the qualification or registration of the Shares under the Blue Sky
laws of any jurisdiction shall have been issued and no proceeding for that
purpose shall have been initiated or shall be threatened or contemplated by the
Commission or the authorities of any such jurisdiction; (iv) any request for
additional information on the part of the Commission or any such authorities
shall have been complied with to the satisfaction of the Commission or such
authorities and to the reasonable satisfaction of Counsel for the Underwriters;
(v) the NASD, upon review of the terms of the public offering of Shares, shall
not have objected to such offering, such terms, or the Underwriters'
participation in the same; and (vi) after the date hereof, no amendment or
supplement to the Registration Statement or the Prospectus shall have been filed
without your prior consent.
(b) You shall not have advised the Company that the Registration
Statement or the
19
<PAGE> 20
Prospectus or any amendment thereof or supplement thereto, in your reasonable
judgment after conferring with Counsel for the Underwriters, contains an untrue
statement of a fact which is material or omits to state a fact which is material
and is required to be stated therein or is necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(c) Between the time of the execution and delivery of this Agreement
and the Closing Time or the Option Exercise Time, as the case may be, there
shall be no litigation instituted against the Company, any Subsidiary, any of
their officers or directors or the Selling Stockholder, and between such dates
there shall be no proceeding instituted or threatened against the Company, any
Subsidiary, any of their officers or directors or the Selling Stockholder,
before or by any federal, state, county or local commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, in which
litigation or proceeding an unfavorable ruling, decision or finding would, in
the judgment of the Underwriters, have a Material Adverse Effect or would
materially and adversely affect the ability of the Company or the Selling
Stockholder to perform their obligations under this Agreement.
(d) Each of the representations and warranties of the Company and the
Selling Stockholder contained herein and in each certificate and document
contemplated under this Agreement to be delivered shall be true and correct at
the Closing Time and the Option Exercise Time as if made at the Closing Time or
the Option Exercise Time, as the case may be, and all covenants and agreements
contained herein, and in each such certificate and document, to be performed on
the part of the Company and all conditions contained herein and in each such
certificate and document to be fulfilled or complied with by the Company at or
prior to the Closing Time or the Option Exercise Time, as the case may be, shall
have been duly performed, fulfilled or complied with.
(e) At the Closing Time and the Option Exercise Time, Counsel for the
Company shall furnish to you an opinion, in form and substance reasonably
satisfactory to you and Counsel to the Underwriters, dated as of the date of its
delivery, to the effect that:
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Michigan.
The Company has the power and authority (corporate, governmental,
regulatory and otherwise) and has or will have all necessary
Authorizations to own or lease all of the assets owned or leased by it
and to conduct its business as described in the Registration Statement
and the Prospectus, except where the failure to have any Authorization
would not have a Material Adverse Effect. The Company is duly licensed
or qualified to do business and in good standing as a foreign
corporation in all jurisdictions (i) in which the nature of the
activities conducted by the Company requires such qualification and
(ii) in which the Company owns or leases real property, except where
the failure to be so licensed or qualified would not have a Material
Adverse Effect. The Subsidiaries are the only subsidiaries of the
Company.
(ii) The Bank is a bank duly organized, validly existing and
in good standing under the federal Home Owners' Loan Act. The deposit
accounts of the Bank are insured up to applicable limits under the SAIF
and, to the knowledge of such counsel, no
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<PAGE> 21
proceedings for the termination or revocation of such insurance are
pending or threatened. The Bank has the power and authority
(corporate, governmental, regulators, and otherwise) and has or will
have all necessary Authorizations to own or lease all of the assets
owned or leased by it and to conduct its business as described in the
Registration Statement and the Prospectus, except where the failure to
have any Authorization would not have a Material Adverse Effect. The
Bank is duly licensed or qualified to do business and in good standing
as a foreign corporation in all jurisdictions (i) in which the nature
of the activities conducted by the Bank requires such qualification
and (ii) in which the Bank owns or leases real property, except where
the failure to be so licensed or qualified would not have a Material
Adverse Effect.
(iii) The Company has the corporate power and authority to
enter into this Agreement and to consummate any other transaction
contemplated by this Agreement.
(iv) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company. This Agreement has been
duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of the Company, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles, except as
rights to indemnity and contribution hereunder may be limited by
applicable law.
(v) To the knowledge of such counsel and except as disclosed
in the Prospectus, neither the Company nor the Bank is in material
violation of any rule or regulation of the OTS or the FDIC which might
have a Material Adverse Effect. To the knowledge of such counsel,
neither the Company nor the Bank is subject to any written directive
from the OTS or the FDIC to make any material change in the method of
conducting its business or affairs. Except as set forth or incorporated
by reference in the Prospectus, to the knowledge of such counsel, there
is not pending or threatened any litigation, charge, investigation,
action, suit or other proceeding before or by any court, regulatory
authority or governmental agency or body which would affect the
performance of the terms and conditions of this Agreement or the
consummation of the transactions contemplated hereby or which would
have a Material Adverse Effect.
(vi) The authorized capital stock of the Company is as set
forth or incorporated by reference in the Prospectus. The issued and
outstanding Common Stock has been duly authorized and validly issued,
is fully paid and nonassessable, and has not been issued in violation
of any preemptive right.
(vii) The issued and outstanding shares of capital stock of
the Bank have been duly authorized and validly issued, are fully paid
and nonassessable and are owned by the Company free and clear of any
liens, charges, encumbrances or restrictions, except as set forth or
incorporated by reference in the Prospectus.
(viii) To such counsel's knowledge, no holders of Common Stock
or other securities of the Company have registration rights with
respect to securities of the
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<PAGE> 22
Company because of the filing or effectiveness of the Registration
Statement.
(ix) The terms and provisions of the Common Stock and the
Shares conform in all material respects to the description thereof
contained or incorporated by reference in the Registration Statement
and Prospectus, and the forms of certificates evidencing the Common
Stock and the Shares comply with the Michigan Business Corporation Act.
(x) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated did not and will
not (A) violate or conflict with the Articles of Incorporation of the
Company or the Bank Charter of the Bank, (B) violate, conflict with or
constitute a breach of, or a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under any
agreement, indenture or other instrument to which the Company or the
Bank is a party, (C) result in a breach or violation of any of the
terms and provisions of, or constitute a default (or give rise to a
state of facts which, with notice or lapse of time, or both, would
constitute a default) under or result in the creation or imposition of
any lien, charge or encumbrance upon the assets or properties of the
Company or the Bank, pursuant to any indenture, mortgage, deed of
trust, voting trust agreement, loan agreement, letter of credit
agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument known to
such counsel to which the Company or the Bank is a party or by which
the Company, the Bank or any of their respective properties are bound,
or (D) violate or conflict with any governmental license or permit
known to such counsel, or any law, administrative regulation or
authorization, or any approval, court decree, injunction or order known
to such counsel; except such breaches, violations or defaults as would
not have a Material Adverse Effect; provided, however, that no opinion
need be rendered concerning state securities or Blue Sky laws.
(xi) The Registration Statement has become effective under the
Act and (A) to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued, (B) no
proceedings for that purpose have been instituted or, to such counsel's
knowledge, are pending or threatened under the Act, and (C) all filings
required by Rule 424 and, if applicable, Rule 430A, of the Rules and
Regulations have been made.
(xii) Each of the Registration Statement and the Prospectus,
and each amendment or supplement thereto (other than the financial
statements, financial data and supporting schedules included in such
Registration Statement or Prospectus, as to which such counsel need
express no opinion), as of the Effective Date of the Registration
Statement, complied as to form with the requirements of the Act and the
applicable Rules and Regulations, and all written decisions and orders
of the Commission, as the case may be (except as to information with
respect to the Underwriters and except as to financial statements,
notes to financial statements, financial tables and other financial and
statistical data included therein, as to which no opinion need be
expressed). To the knowledge of such counsel, all documents and
exhibits required to be filed with the Registration Statement (in each
case as amended or supplemented, if so amended or supplemented) have
been so filed. The description in the Registration Statement of such
documents and exhibits is accurate in all material respects and
presents fairly the
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<PAGE> 23
information required to be shown. To the knowledge of such counsel,
there are no contracts or other documents of a character required to
be described in the Registration Statement or the Prospectus which are
not described therein. There are no statutes or regulations applicable
to the Company or any Subsidiary of a character required to be
disclosed in the Registration Statement or the Prospectus which have
not been so disclosed and properly described therein. To the knowledge
of such counsel, there are no certificates, permits or other
authorizations from governmental regulatory officials or bodies
required to be obtained or maintained by, or legal or governmental
proceedings, past, pending or threatened, against the Company or any
Subsidiary of a character required to be disclosed in the Registration
Statement or the Prospectus which have not been so disclosed and
properly described therein. The Company complies with the conditions
permitting its use of Form S-3.
(xiii) Each document filed pursuant to the Exchange Act and
incorporated by reference in the Prospectus, when so filed, complied as
to form, in all material respects, with the Exchange Act and the
applicable rules and regulations thereunder.
(xiv) The description of contracts or other documents in the
Registration Statement and the Prospectus are accurate in all material
respects and fairly present the information required by the Act or the
Rules and Regulations to be presented. To such counsel's knowledge,
there are no contracts or other documents of a character required to be
described or referred to in the Registration Statement or Prospectus or
to be filed as an exhibit to the Registration Statement that are not
described or referred to therein and filed as required.
(xv) No approval of any regulatory, supervisory or other
public authority is required in connection with the execution and
delivery of this Agreement, except (i) the declaration of effectiveness
of the Registration Statement and any required post-effective amendment
to the Registration Statement by the Commission, (ii) as may be
otherwise required under the securities laws of various jurisdictions,
and (iii) as may be required under the rules and regulations of the
NASD.
(xvi) The statements in the Prospectus under the captions
"RISK FACTORS -Restrictions on Future Acquisition of Company", and
"RISK FACTORS - Company's Exposure to Regulatory and Legislative
Changes and Civil Lawsuits" insofar as they refer to statements of law
or legal conclusions, have been prepared or reviewed by such counsel
and are correct in all material respects.
(xvii) Neither the Company nor any Subsidiary is an
"investment company" as defined in Section 3(a) of the Investment
Company Act and, if the Company and the Subsidiaries conduct their
respective businesses as set forth in the Registration Statement and
the Prospectus, none will become an "investment company" or be required
to register under the Investment Company Act.
(xviii) All issuances and sales by the Company of its
securities during the past three years were either (a) registered under
the Act or (b) exempt from registration under the Act and, to such
counsel's knowledge, otherwise complied in all respects with the
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<PAGE> 24
provisions of all applicable federal and state securities laws.
(xix) This Agreement has been duly authorized, executed and
delivered by or on behalf of the Stockholder. The performance of this
Agreement and the consummation of the transactions herein contemplated
by the Selling Stockholder will not result in a breach or violation of
any of the terms and provisions of, or constitute a default under, any
statute, any indenture, mortgage, deed of trust, note agreement or
other agreement or instrument to which the Selling Stockholder is known
by such counsel to be a party or to be bound or to which any of the
property of the Selling Stockholder is known by such counsel to be
subject, or violate any order, rule or regulation of any court or
governmental agency or body having effect on the date of such opinion
and known by such counsel as having jurisdiction over the Selling
Stockholder or any of his properties. To such counsel's knowledge, no
consent, approval, authorization or order of any court or governmental
agency or body is required for the consummation of the transactions
contemplated by this Agreement in connection with the sale of Shares
hereunder, except such as have been obtained under the Act and such as
may be required under applicable Blue Sky laws in connection with the
purchase and distribution of such Shares by the Underwriters and the
clearance of such offering with the NASD.
(xx) The Selling Stockholder has full right, power and
authority to enter into this Agreement and to sell, transfer and
deliver the Shares to be sold at the Closing Time by the Selling
Stockholder hereunder and, to the knowledge of such counsel, good title
to such Shares so sold, free and clear of all voting trust or buy-sell
arrangements, liens, encumbrances, equities, claims, restrictions and
community property rights whatsoever, has been transferred to the
Underwriter who has purchased such Shares hereunder.
(xxi) This Agreement is a legal, valid and binding agreement
of the Selling Stockholder, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles, except as
rights to indemnity and contribution hereunder may be limited by
applicable law.
(xxii) Such counsel has participated in the preparation of the
Registration Statement and the Prospectus, including review and
discussion of the contents thereof (including review and discussion of
the contents of all documents incorporated by reference therein), and
nothing has come to the attention of such counsel that has caused them
to believe that the Registration Statement (including the documents
incorporated by reference therein) at the time the Registration
Statement became effective, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or the
Prospectus, as of its date and as of the Closing Time or the Option
Exercise Time, as the case may be, or any supplement to the Prospectus,
as of its respective date, and as of the Closing Time or the Option
Exercise Time, as the case may be, contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading (it being understood that such
counsel need express no opinion with respect to the financial
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<PAGE> 25
statements and the notes thereto and the schedules and other financial
and statistical data included in the Registration Statement or the
Prospectus, or any document incorporated by reference therein).
In rendering the opinions and confirmations set forth above, such
counsel may rely (as to matters of fact) upon certificates of the Selling
Stockholder and responsible officers of the Company and of the transfer agent
and certificates of public officials, provided copies of such certificates are
delivered to the Underwriters. In such opinions, references to "knowledge,"
"conferences," "investigations" or "document review" may refer to the knowledge
(or knowledge based on certificates) of facts or other information of the
individual lawyers who were actively involved in the transactions contemplated
in this Agreement and in the preparation of the documents involved and the
opinion letters.
(f) Concurrently with the execution and delivery of this Agreement and
at the Closing Time and at the Option Exercise Time, the Company's accountants
shall have furnished to you a letter, dated as of the date of its delivery,
addressed to you and in form and substance reasonably satisfactory to you, to
the effect that:
(i) Such accountants are independent certified public
accountants with respect to the Company as required by the Act and the
Rules and Regulations.
(ii) In their opinion, the financial statements and schedules
and notes examined by them and included or incorporated by reference in
the Registration Statement and the Prospectus comply as to form in all
material respects with the applicable accounting requirements of the
Act and the Rules and Regulations with respect to registration
statements on Form S-3.
(iii) On the basis of inquiries and procedures conducted by
them, including a reading of the latest available unaudited interim
financial statements of the Company, inquiries of officials of the
Company and the Bank responsible for operational, financial and
accounting matters, a reading of the minute books of the Company and
the Bank, a reading of the latest available interim unaudited
consolidated financial statements of the Company and the Bank (with an
indication of the date thereof) and other specified procedures and
inquiries, nothing has come to their attention that caused them to
believe that (A) the historical amounts in "Selected Consolidated
Financial Data" included in the Registration Statement do not agree
with or are not derivable from corresponding amounts in the
consolidated financial statements from which such amounts were derived;
(B) the unaudited financial statements of the Company set forth or
incorporated by reference in the Registration Statement and the
Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with generally
accepted accounting principles applied on a basis consistent with that
of the audited financial statements; and (C) during the period October
1, 1998, to a specified date no more than five days prior to the date
thereof, in the case of the first letter, and not more than two
business days prior to the date thereof in the case of any subsequent
letters, there was any change in the capital stock or debt (other than
normal payments) of the Company and the Bank on a consolidated basis,
or any decrease in the stockholders' equity of the Company
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<PAGE> 26
and the Bank on a consolidated basis, each as compared with the
amounts shown in the balance sheet as of September 30, 1998, included
in the Registration Statement or incorporated by reference therein or
any decrease from September 30, 1998, to the specified date, on a
proportional basis with the corresponding period for the preceding
year, in revenues, net income and net income per share of the Company
and the Bank on a consolidated basis, except in all instances for
changes, decreases or increases which the Registration Statement and
the Prospectus disclose have occurred or may occur and except for such
other changes, decreases or increases which you shall in your sole
discretion accept.
(iv) In addition to their examination referred to in their
reports included in the Registration Statement and the Prospectus and
the inquiries and limited procedures referred to in clause (iii) above,
they have performed other procedures, not constituting an audit, with
respect to certain numerical data and financial information appearing
in the Registration Statement and the Prospectus, requested by you and
specified in such letter and have compared such data and information
with the accounting records of the Company and found them to be in
agreement.
(g) At the Closing Time and at the Option Exercise Time, there shall be
furnished to you, on behalf of the Company, a certificate, dated the date of its
delivery, signed by both the chief executive officer and the chief financial
officer of the Company, in form and substance reasonably satisfactory to you, to
the effect that:
(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and the documents
incorporated by reference therein and (A) to his knowledge, as of the
date of such certificate and as of the Effective Date, the statements
in the Registration Statement and the Prospectus and the documents
incorporated by reference therein are and were true and correct in all
material respects, and neither the Registration Statement nor the
Prospectus nor such document incorporated by reference omits to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading; (B) since the Effective Date, no event
has occurred of which he has knowledge and which was required by the
Act or the Rules and Regulations to be set forth in a supplement to or
amendment of the Prospectus but which has not been so set forth; and
(C) since the dates as of which and the periods for which information
is given in the Registration Statement and the Prospectus, there has
not been to his knowledge any change which would have a Material
Adverse Effect, other than changes which the Registration Statement and
the Prospectus specifically disclose have occurred or may occur
subsequent to the Effective Date.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such
purpose have been commenced or are, to the knowledge of each signer of
such certificate, threatened or contemplated by the Commission.
(iii) The Company has not received notice that any stop order
suspending the qualification by registration of any of the Shares under
the Blue Sky laws of any
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<PAGE> 27
jurisdiction has been issued, or that any proceedings for such purpose
have been commenced, and, to the knowledge of each signer of such
certificate, no such proceedings are threatened or contemplated by any
jurisdiction.
(iv) Each of the representations and warranties of the Company
contained in this Agreement and in each certificate and document
contemplated under this Agreement to be delivered to you was, when
originally made and is, at the time such certificate is dated, true and
correct.
(v) Each of the covenants required herein to be performed by
the Company on or prior to the date of such certificate has been duly,
timely and fully performed and each condition herein required to be
complied with by the Company on or prior to the date of such
certificate has been duly, timely and fully complied with by the
Company.
(h) The Company shall have furnished to you such certificates, in
addition to those specifically mentioned herein, as you may have reasonably
requested in a timely manner as to (i) the accuracy and completeness, at the
Closing Time and the Option Exercise Time, of any statement in the Registration
Statement or the Prospectus, (ii) the accuracy, at the Closing Time and the
Option Exercise Time, of the representations and warranties of the Company
herein and in each certificate and document contemplated under this Agreement to
be delivered to you, (iii) the performance by the Company of its obligations
hereunder and under each such certificate and document, and (iv) the fulfillment
of the conditions concurrent and precedent to your obligations hereunder.
(i) At the Closing Time, there shall be furnished to you certificates,
dated the date of their delivery, from and signed by the Selling Stockholder, in
form and substance reasonably satisfactory to you, to the effect that:
(i) Each of the representations and warranties of the Selling
Stockholder contained in this Agreement, and in each certificate and
document contemplated under this Agreement to be delivered to you, was,
when originally made, and is, at the time such certificate is dated,
true and correct.
(ii) Each of the covenants required herein to be performed by
the Selling Stockholder on or prior to the date of such certificate has
been duly, timely and fully performed, and each condition herein
required to be complied with by the Selling Stockholder on or prior to
the date of such certificate has been duly, timely and fully complied
with by the Selling Stockholder.
(j) The executive officers and directors of the Company and the Selling
Stockholder shall have entered into agreements with the Underwriters and the
Company to the effect that they will not sell, contract to sell or otherwise
dispose of any Common Stock or any securities convertible into Common Stock for
a period of _____ days after the Effective Date, except with the prior written
consent of the Company and the Underwriters.
(k) Except as contemplated by the Registration Statement and the
Prospectus, since the date hereof there shall not have been any change in the
capitalization of the Company or any
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<PAGE> 28
change which would have a Material Adverse Effect, arising for any
Reason whatsoever.
(1) All corporate proceedings and other legal matters relating to the
sale and transfer of the Shares, this Agreement, the Registration Statement, the
Prospectus and other related matters shall be reasonably satisfactory in all
material respects to Counsel for the Underwriters, who shall have furnished to
you, at the Closing Time and Option Exercise Time, such opinion, in form and
substance reasonably satisfactory to you, with respect to the sufficiency of the
aforementioned corporate proceedings and other legal matters as you may
reasonably require.
(m) Counsel for the Underwriters shall have been furnished such
documents as they reasonably may require for the purpose of enabling them to
review or pass upon the matters required by the Underwriters and for the purpose
of evidencing the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained, including, but not
limited to, resolutions of the Board of Directors of the Company regarding the
authorization of this Agreement and the transactions contemplated hereby.
(n) Prior to and at the Closing Time and the Option Exercise Time, in
the reasonable opinion of the Underwriters: (i) there shall have been no
material adverse change in the financial or other condition of the Company and
the Bank, taken as a whole, from that as of the latest date as of which such
condition is set forth or incorporated by reference in the Prospectus; (ii)
there shall have been no material transaction entered into by the Company or any
Subsidiary, from the latest date as of which the financial condition of the
Company or the Bank is set forth or incorporated by reference in the Prospectus,
other than transactions referred to or contemplated therein and transactions in
the ordinary course of business; (iii) neither the Company nor the Bank shall
have received from the OTS or FDIC any direction (oral or written) to make any
material change in the method of conducting their respective businesses which
would have a Material Adverse Effect; (iv) no action, suit or other proceeding,
at law or in equity, or before or by any federal or state commission, board or
other administrative agency, or before any arbitrator or arbitrators, shall be
pending or threatened against the Company or any Subsidiary or affecting any of
their respective assets wherein an unfavorable decision, ruling or finding would
have a Material Adverse Effect (provided that for this Section 9(n), the
Underwriters shall not regard any proceeding to be "threatened" unless a
potential party has manifested to the management of the Company or the Bank or
to Counsel for the Company a present intention to initiate a proceeding); and
(v) the Shares shall have been qualified or registered for offering and sale (or
exempt from such requirements) by the Company under the securities or Blue Sky
laws of each jurisdiction upon which the Underwriters and the Company shall have
agreed.
All of the opinions, letters, evidence and certificates mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to Counsel for the Underwriters. You reserve the right to waive any condition
hereinabove set forth. If any condition of the Underwriters' obligations
hereunder to be satisfied prior to the Closing Time or the Option Exercise Time
is not so satisfied, this Agreement may be terminated by you prior to the
Closing Time or the Option Exercise Time, as applicable, by notice in writing or
by telegram confirmed in writing to the Company.
10. Indemnification and Contribution.
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(a) The Company agrees to indemnify and hold harmless each of the
Underwriters and each person who controls any of the Underwriters within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities or actions, joint or
several (including any investigation, legal or other expense reasonably incurred
in connection with, and any amount paid in settlement of, any commenced or
threatened action, suit or proceeding or any claim asserted), to which any of
the Underwriters or any such controlling person may become subject under the
Act, the Exchange Act or otherwise, but only insofar as such losses, claims,
damages, liabilities or actions arise out of, or are based upon:
(i) any misrepresentation by the Company or the Selling
Stockholder in this Agreement, including, but not limited to, the
breach of, or any inaccuracy in, the representations and warranties of
the Company or the Selling Stockholder contained in this Agreement or
any certificate or other document contemplated by this Agreement or any
failure of the Company or the Selling Stockholder to perform their
obligations and covenants under this Agreement; or
(ii) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, any document incorporated by reference
therein or any amendment thereof or supplement thereto or in any
application or other document executed by the Company or the Selling
Stockholder based upon written information furnished by or on behalf of
the Company or the Selling Stockholder and filed in any jurisdiction in
order to register or qualify the Shares under the securities laws
thereof or filed with the Commission, or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the indemnity agreement contained in this Section 10(a)
shall not extend to any Underwriter in respect of any such losses,
claims, damages, liabilities or actions arising out of, or based upon,
any such untrue statement or alleged untrue statement or any such
omission or alleged omission, if such statement or omission was made in
reliance upon information furnished in writing to the Company through
you or on behalf of you specifically for use in connection with the
preparation of the Registration Statement, any Preliminary Prospectus
or the Prospectus or any amendment thereof or supplement thereto and,
provided further, that the indemnity agreement provided in this Section
10(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement
or alleged untrue statement of material fact or omission or alleged
omission to state therein a material fact purchased Shares, if a copy
of the Prospectus in which such untrue statement or alleged untrue
statement or omission or alleged omission was corrected has not been
sent or given to such person within the time required by the Act and
the Rules and Regulations thereunder, unless such failure is the result
of noncompliance by the Company with Section 6(a) hereof. The Company
agrees to pay any legal and other expenses for which it is liable under
this subsection (a) from time to time (but not more frequently than
monthly) within 30 days after its receipt of a bill therefor.
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<PAGE> 30
(b) The Selling Stockholder agrees, subject to the limitations set
forth in the following paragraph, to indemnify and hold harmless each of the
Underwriters and each person who controls any of the Underwriters within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities or actions, joint or
several (including any investigation, legal or other expense reasonably incurred
in connection with, and any amount paid in settlement of, any commenced or
threatened action, suit or proceeding or any claim asserted), to which any of
the Underwriters or any such controlling person may become subject under the
Act, the Exchange Act or otherwise, but only insofar as such losses, claims,
damages, liabilities or actions arise out of, or are based upon:
(i) any misrepresentation by the Company or the Selling
Stockholder in this Agreement, including, but not limited to, the
breach of, or any inaccuracy in, the representations and warranties of
the Company or the Selling Stockholder contained in this Agreement or
any certificate or other document contemplated by this Agreement or any
failure of the Company or the Selling Stockholder to perform their
obligations and covenants under this Agreement; or
(ii) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, any document incorporated by reference
therein or any amendment thereof or supplement thereto or in any
application or other document executed by the Company or the Selling
Stockholder based upon written information furnished by or on behalf of
the Company or the Selling Stockholder and filed in any jurisdiction in
order to register or qualify the Shares under the securities laws
thereof or filed with the Commission, or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the indemnity agreement contained in this Section 10(b)
shall not extend to any Underwriter in respect of any such losses,
claims, damages, liabilities or actions arising out of, or based upon,
any such untrue statement or alleged untrue statement or any such
omission or alleged omission, if such statement or omission was made in
reliance upon information furnished in writing to the Company through
you or on behalf of you specifically for use in connection with the
preparation of the Registration Statement, any Preliminary Prospectus
or the Prospectus or any amendment thereof or supplement thereto and,
provided further, that the indemnity agreement provided in this Section
10(b) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement
or alleged untrue statement of material fact or omission or alleged
omission to state therein a material fact purchased Shares, if a copy
of the Prospectus in which such untrue statement or alleged untrue
statement or omission or alleged omission was corrected has not been
sent or given to such person within the time required by the Act and
the Rules and Regulations thereunder, unless such failure is the result
of noncompliance by the Company with Section 6(a) hereof. The Selling
Stockholder agrees to pay any legal and other expenses for which they
are liable under this subsection (b) from time to time (but not more
frequently than monthly) within 30 days after their receipt of a bill
therefor.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold
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<PAGE> 31
harmless the Company, its directors, its officers who shall have signed
the Registration Statement, the Selling Stockholder and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act (i) to the same extent as the foregoing indemnity from the
Company and the Selling Stockholder to each Underwriter, but in each case to the
extent, and only to the extent, that any statement in or omission from or
alleged omission from the Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto was made in reliance upon
information furnished in writing to the Company by such Underwriter specifically
for use in connection with the preparation of the Registration Statement, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
and (ii) to the extent any such loss, claim, damage, liability or action arises
out of, or is based upon, a failure or alleged failure of such Underwriter to
deliver the Prospectus as required by applicable laws. Each Underwriter agrees,
severally and not jointly, to pay any legal and other expenses for which it is
liable under this subsection (c) from time to time (but not more frequently than
monthly) within 30 days after receipt of a bill therefor.
(d) If any action is brought against a person entitled to
indemnification pursuant to the foregoing subsection (a), (b) or (c) (an
"indemnified party") in respect of which indemnity may be sought against a
person granting indemnification (an "indemnifying party") pursuant to such
subsections, such indemnified party shall promptly notify such indemnifying
party in writing of the commencement thereof; provided, however, that the
omission so to notify the indemnifying party of any such action shall not
release the indemnifying party from any liability it may have to such
indemnified party otherwise than on account of the indemnity agreement contained
in subsection (a), (b) or (c) of this Section 10. In case any such action is
brought against an indemnified party and the indemnified party notifies an
indemnifying party of the commencement thereof, the indemnifying party against
which a claim is to be made will be entitled to participate therein at its own
expense and, to the extent that it may wish, to assume at its own expense the
defense thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that (i) if the defendants in any such action include both
the indemnified party and the indemnifying party, and the indemnified party
shall have reasonably concluded based upon the written advice of counsel that
there may be legal defenses available to it and/or other indemnified parties
which are different from or additional to those available to the indemnifying
party, the indemnified party shall have the right to select separate counsel
reasonably satisfactory to the indemnifying party to assume such legal defenses
and otherwise to participate in the defense of such action on behalf of such
indemnified party or parties; and (ii) in any event, the indemnified party shall
be entitled to have counsel chosen by such indemnified party participate in, but
not conduct, the defense. Upon receipt of notice from the indemnifying party to
such indemnified party of its election so to assume the defense of such action
and approval by the indemnified party of counsel, the indemnifying party will
not be liable to such indemnified party under this Section 10 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (A) the indemnified party shall have employed
such counsel in connection with the assumption of legal defenses in accordance
with proviso (i) to the next preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more than
one separate counsel); (B) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action; or (C) the indemnifying party has authorized in writing the employment
of counsel for the indemnified party at the expense of the indemnifying party.
An
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<PAGE> 32
indemnifying party shall not be liable for any settlement of any action or
proceeding effected without its written consent.
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in subsection (a),
(b) or (c) of this Section 10 is unavailable in accordance with its terms, the
Company and the Selling Stockholder and, subject to the limitations set forth
below, each of the Underwriters shall contribute to the aggregate losses,
claims, damages and liabilities, of the nature contemplated by said indemnity
agreement (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses suffered any contribution received by
such party from persons, other than any Underwriter, who may also be liable for
contribution, including persons who control the Company within the meaning of
the Act, officers of the Company who signed the Registration Statement,
directors of the Company and the Selling Stockholder) incurred by the Company,
the Selling Stockholder and the Underwriters, in such proportions as are
applicable to reflect the relative benefits received by the Company and the
Selling Stockholder, on the one hand, and the Underwriters, on the other hand,
from the offering of Shares; provided, however, that if such allocation is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) of this Section 10, then the relative fault
of the Company and the Selling Stockholder, on the one hand, and the
Underwriters, on the other hand, in connection with the statements or omissions
which resulted in such losses, claims, damages and liabilities and other
relevant equitable considerations will be considered together with such relative
benefits. The relative benefits received by the Company and the Selling
Stockholder, on the one hand, and the Underwriters, on the other hand, shall be
deemed to be in such proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Stockholder
bears to the total underwriting discount received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus and in the
notes thereto. The relative fault of the Company and the Selling Stockholder, on
the one hand, and of the Underwriters, on the other, shall be determined by
reference to, among other things, whether in the case of an untrue statement or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact, such statement or omission relates to information
supplied by the Company, the Selling Stockholder or by the Underwriters, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company, the Selling
Stockholder and the Underwriters agree that it would not be just and equitable
if contribution pursuant to this subsection (e) were determined by pro-rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in this subsection (e). The amount paid
or payable by the indemnified party as a result of the losses, claims, damages
or liabilities referred to above in this subsection (e) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending against or appearing as a
third party witness in any such action or claim. Notwithstanding the provisions
of this subsection (e), (i) no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
purchased by it were offered to the public exceeds the amount of any damages
which such Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission, and (ii) no
person guilty of fraudulent misrepresentation within the meaning of Section
11(f) of the Act shall be entitled to contribution
32
<PAGE> 33
from any person who is not guilty of such fraudulent misrepresentation. For
purposes of this subsection (e), each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as such Underwriter. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 10(e), notify such party or parties from whom contribution
may be sought, but the omission to so notify such party or parties shall not
relieve the party or parties from whom contribution may be sought or they may
have under this Section 10(e) or otherwise. No party shall be liable for
contribution for any settlement of any action or claim effected without its
written consent.
(f) The respective indemnity and contribution agreements by the
Underwriters, the Selling Stockholder and the Company contained in subsections
(a), (b), (c), (d) and (e) of this Section 10, and the respective covenants,
representations and warranties of the Company or the Selling Stockholder in
Sections 2, 3, 4, 5, 6, 7 and 8 hereof shall remain operative and in full force
and effect regardless of (i) any investigation made by any Underwriter, on its
behalf or by or on behalf of any person who controls such Underwriter, of the
Company or any controlling person of the Company, any director or officer of the
Company or the Selling Stockholder, (ii) acceptance of any of the Shares and
payment therefor, or (iii) with respect to Section 8 and this Section 10 only,
any termination of this Agreement, and shall survive the delivery of the Shares,
and any successor of any Underwriter or the Company, or of any person who
controls any Underwriter or the Company, or of the Selling Stockholder, as the
case may be, shall be entitled to the benefit of such respective indemnity and
contribution agreements. The respective indemnity and contribution agreements by
the Underwriters, the Company and the Selling Stockholder contained in
subsections (a), (b), (c) and (d) of this Section 10 shall be in addition to any
liability which the Underwriters, the Company and the Selling Stockholder may
otherwise have to the other.
11. Defaulting Underwriters.
(a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at the Closing Time or the
Option Exercise Time, as the case may be, the Representatives may in their
discretion arrange for the Representatives or another party or other parties to
purchase such Shares on the terms contained herein. If, within thirty-six hours
after such default by any Underwriter, the Representatives do not arrange for
the purchase of such Shares, then the Selling Stockholder shall be entitled to a
further period of thirty-six hours within which to procure another party or
other parties reasonably satisfactory to the Representatives to purchase such
Shares on such terms. In the event that, within the respective prescribed
periods, the Representatives notify the Selling Stockholder that they have so
arranged for the purchase of such Shares, or the Selling Stockholder has so
arranged for the purchase of such Shares, the Representatives or the Selling
Stockholder shall have the right to postpone either the Closing Time or the
Option Exercise Time, as the case may be, for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendment to the
Registration Statement or the Prospectus which in the opinion of the
Representatives may thereby be made necessary. The term "Underwriter" as used in
this Agreement shall include any person substituted under this Section
33
<PAGE> 34
with like effect as if such person had originally been a party to this Agreement
with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by the Representatives and
the Selling Stockholder as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed 10% of the
aggregate number of all the Shares to be purchased at either the Closing Time or
the Option Exercise Time, as the case may be, then the Selling Stockholder shall
have the right to require each non-defaulting Underwriter to purchase the number
of Shares which such Underwriter agreed to purchase hereunder at either the
Closing Time or the Option Exercise Time, as the case may be, and, in addition,
to require each non-defaulting Underwriter to purchase its pro rata share (based
on the number of Shares which such Underwriter agreed to purchase hereunder) of
the Shares of such defaulting Underwriter or Underwriters for which such
arrangements have not been made; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by the Representatives and
the Selling Stockholder as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds 10% of the aggregate
number of all the Shares to be purchased at either the Closing Time or the
Option Exercise Time, as the case may be, or if the Selling Stockholder does not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters at
either the Closing Time or the Option Exercise Time, as the case may be, then
this Agreement shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Selling Stockholder, except for the expenses
to be borne by the Selling Stockholder and the Underwriters as provided in
Section 8 hereof and the indemnity and contribution agreements in Section 10
hereof, but nothing herein shall relieve a defaulting Underwriter from liability
for its default.
12. Termination. This Agreement (except for the provisions of Sections
8 and 10 hereof) may be terminated by you, by notice to the Company on or after
the Effective Date and prior to the Closing Time or the Option Exercise Time, if
at any time during that period any of the following has occurred:
(a) Any of the conditions specified in Section 9 hereof shall not have
been fulfilled when and as required by this Agreement to be fulfilled or any of
the covenants, representations or warranties contained herein or in any
certificate or document contemplated under this Agreement to be delivered to you
shall not have been satisfied or fulfilled within the respective times herein
provided for, unless compliance therewith or performance or satisfaction thereof
shall have been expressly waived by you in writing;
(b) Except as disclosed in or contemplated by the Prospectus, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, any material adverse change or any development involving a
prospective material adverse change in or affecting the condition (financial or
otherwise), assets, business, properties, prospects or results of operations of
the Company and the Bank taken as a whole, whether or not arising in the
ordinary course of business;
34
<PAGE> 35
(c) Any outbreak of hostilities or escalation in existing hostilities
anywhere in the world or other national or international calamity or crisis or
change in economic or political conditions, if the effect of such outbreak,
escalation, calamity, crisis or change on the financial markets in the United
States would, in your reasonable judgment, make it impracticable to offer for
sale or to enforce contracts made by the Underwriters for the resale of the
Shares agreed to be purchased hereunder;
(d) Any general suspension of trading in securities on the New York
Stock Exchange, the American Stock Exchange or The Nasdaq Stock Market or any
general limitation on prices for such trading or any general restrictions on the
distribution of securities, all to such a degree as would, in your reasonable
judgment, materially adversely affect the market for the Shares; or
(e) A banking moratorium shall have been declared by federal, Michigan
or New York State authorities. In addition, you may terminate this Agreement by
giving notice of a material breach by the Company or the Selling Stockholder of
this Agreement at any time after this Agreement becomes effective. This
Agreement may also be terminated as provided in Section 9 and Section 12,
however, certain terminations of this Agreement require payments by the Selling
Stockholder to the Underwriters as provided in Section 8.
13. Notice. Except as otherwise expressly provided in this Agreement,
(a) whenever advice or a notice, objection, designation, request or report is
given or is required by the provisions of this Agreement to be given to the
Company, such advice, notice, objection, designation, request or report shall be
in writing or by telegraph confirmed in writing, addressed to the Company and
delivered to Flagstar Bancorp, Inc., 2600 Telegraph Road, Bloomfield Hills,
Michigan 48302-0953, Attention: President, with a copy to Kutak Rock, 1101
Connecticut Avenue, N.W., Suite 1000 Washington, DC 20036-4374, Attention:
Matthew G. Ash, Esq.; and (b) whenever advice or a notice, objection,
designation, request or report is given or is required by the provisions of this
Agreement to be given to the Selling Stockholder, such advice, notice,
objection, designation, request or report shall be in writing or by telegraph
confirmed in writing, addressed to Flagstar Bancorp, Inc., 2600 Telegraph Road,
Bloomfield Hills, Michigan 48302-0953, Attention: Thomas J. Hammond; and (c)
whenever advice or a notice, objection, designation, request or report is given
or is required by the provisions of this Agreement to be given to you, such
advice, notice, objection, designation, request or report shall be in writing,
addressed to McDonald Investments, Inc., McDonald Investment Center, 800
Superior Avenue, Cleveland, Ohio 44114-2603, Attention: Charles R. Crowley, with
a copy to Honigman Miller Schwartz and Cohn, 2290 First National Building,
Detroit, Michigan 48226, Attention: Donald J. Kunz, Esq. or at such other
address as a party hereto may give notice in accordance herewith.
14. Survival of agreements, Representations and Indemnities. The
respective indemnities and contribution agreements of the Company, the Selling
Stockholder and the Underwriters, the representation and warranties of the
Company and the Selling Stockholder and the agreements in Sections 8, 10 and 12
set forth in or made pursuant to this Agreement shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of the Underwriters or the Company, the
Selling Stockholder or any controlling person or indemnified party referred to
in Section 10 of this Agreement, and shall survive any termination of this
Agreement and/or the delivery of and
35
<PAGE> 36
payment for the Shares.
15. Miscellaneous.
(a) This Agreement is made solely for the benefit of the Underwriters,
the Company, the Company's directors, the Company's officers who shall have
signed the Registration Statement, the Selling Stockholder and any controlling
person referred to in Section __ hereof, and their respective successors and
assigns, and no other person, partnership, association or corporation shall
acquire or have any right under or by virtue of this Agreement. The term
"successor" or the term "successors and assigns" as used in this Agreement shall
not include any buyer, as such, of any of the Shares from any Underwriter.
(b) The information in the Prospectus under the caption "UNDERWRITING"
shall constitute the only information furnished in writing by or on behalf of
the Underwriters for use in connection with the preparation of the Registration
Statement as originally filed or in any amendment thereto, any Preliminary
Prospectus or the Prospectus, as the case may be.
(c) This Agreement shall supersede any agreement or understanding, oral
or in writing, express or implied, between the Company and you relating to the
sale of any of the Shares.
(d) No change, amendment or supplement to, or waiver of, this Agreement
or any term, provision or condition contained herein, shall be valid or of any
effect unless in writing and signed by the party against whom such is asserted.
(e) This Agreement shall be governed by and construed in accordance
with the laws of the State of Michigan applicable to contracts made and to be
performed therein without giving effect to the principles of conflicts of law
thereof.
(f) This Agreement may be signed in two or more counterparts with the
same effect as if the signatures to each counterpart were upon a single
instrument, and all such counterparts together shall be deemed an original of
this Agreement.
(g) In the event that any term, provision or covenant of this Agreement
or the application thereof to any circumstance or situation shall be invalid or
unenforceable, in whole or in part, the remainder hereof and the application of
such term, provision or covenant to any other circumstance or situation shall
not be affected thereby, and each term, provision or covenant of this Agreement
shall be valid and enforceable to the full extent permitted by law.
(h) This Agreement will inure solely to the benefit of and be binding
upon the parties hereto and the officers and directors and controlling persons
referred to in Section 10 hereof and their respective successors, assigns,
heirs, executors and administrators, and no other persons will have any right or
obligation hereunder.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed copies hereof, whereupon it
will be a binding agreement by and between the Company and you in accordance
with its term.
36
<PAGE> 37
Very truly yours,
FLAGSTAR BANCORP, INC.
By:____________________________
Mark T. Hammond, President
SELLING STOCKHOLDER:
_______________________________
Thomas J. Hammond
Accepted as of the date first above written:
McDONALD INVESTMENTS, INC.
Acting on behalf of itself and as Representative of the
several Underwriters named in Schedule A hereto.
By:________________________________________
Charles R. Crowley, Managing Director
37
<PAGE> 38
Schedule A
Shares of Common Stock to be Purchased by the Underwriters
Underwriter
- -----------
McDonald Investments, Inc.
Roney Capital Markets
Friedman, Billings, Ramsey & Co., Inc.
Total:
Number of Firm Shares 1,300,000
- ---------------------
38
<PAGE> 1
EXHIBIT 1.3
1,495,000 Shares
FLAGSTAR BANCORP, INC.
Common Stock
Custody Agreement for Thomas J. Hammond as Selling Shareholder
--------------------------------------------------------------
December , 1998
---
Registrar and Transfer Company
- ------------------------------
Cranford, New Jersey
----------
Attention:
Dear Sirs:
Reference is hereby made to the proposed public offering of Common
Stock par value $.01 per share (the "Common Stock"), of Flagstar Bancorp, Inc.,
a Michigan corporation (the "Company") in which, among other things, the
undersigned will sell a portion of his shares of Common Stock, to the several
underwriters (the "Underwriters") represented by McDonald Investments, Inc.,
Roney Capital Markets and Friedman, Billings, Ramsey & Co., Inc. (collectively,
the "Representatives").
There are delivered to you herewith as custodian, one or more
certificates (the "Certificates"), in negotiable form with signatures guaranteed
by a national bank or a member firm of the New York Stock Exchange, representing
the number of shares of Common Stock that the undersigned (the "Selling
Shareholder") wishes to sell (the "Offered Stock"), as set forth in the third
paragraph of this Custody Agreement. The Certificates are to be held by you as
custodian for the account of the Selling Shareholder and are to be disposed of
by you in accordance with this Custody Agreement.
The following Certificates for Common Stock are enclosed herewith:
Number of shares of
Common Stock to be
sold from
Number of shares of Certificates if less
Serial Number Common Stock than all shares
of represented by each represented thereby
Certificate Certificate are to be sold
- ------------- -------------------- ---------------------
<PAGE> 2
You are authorized and directed to hold the Certificates in your
custody and, on or immediately prior to the Closing Time (as defined in the
Underwriting Agreement) (i) to cause the number of shares of Common Stock which
are to be sold by the Selling Shareholder pursuant to the Underwriting Agreement
(the "Underwriting Agreement") among the Company, the Selling Shareholder and
the Underwriters, relating to a proposed public offering of shares of Common
Stock, to be transferred on the books of the Company into such names as the
Selling Shareholder shall have instructed you, (ii) to cause to be issued,
against surrender of the Certificates representing such shares, new certificates
for such shares of Common Stock registered in such names and in such
denominations as the Selling Shareholder shall have instructed you, (iii) to
purchase all stock transfer tax stamps necessary, if any, in connection with the
transfer of such shares, (iv) upon the instructions of the Selling Shareholder,
to deliver such new certificates of the Underwriters for the accounts of the
several Underwriters, as the case may be, pursuant to the Underwriting
Agreement, against payment therefor in accordance with the Underwriting
Agreement, and (v) to give receipt for such payment and to deposit the same to
your account as custodian ("Custodian Account"). The Selling Shareholder will
notify you, at least one full business day prior to the Closing Time, of the
names and denominations in which the new certificates are to be issued pursuant
to this paragraph.
Within one day after the Closing Time, you shall pay, in immediately
available funds, the amount in the Custodian Account to the Selling Shareholder
or to any representative duly authorized by the Selling Shareholder; provided,
however, that in connection with the payment of expenses for the Selling
Shareholder, you may either deduct payment for such expenses from the proceeds
in the Custodian Account before remitting such proceeds to the Selling
Shareholder, or you may bill the Selling Shareholder and the Selling Shareholder
agrees to pay you for such expenses. On or after the Closing Time, you shall
also, as instructed by the Selling Shareholder, return to the Selling
Shareholder new certificates representing the number of Shares of Common Stock,
if any, deposited herewith, which are in excess of the number of shares sold by
the Selling Shareholder pursuant to the Underwriting Agreement. The new
certificates representing such excess number of shares of Common Stock shall
bear such restrictive legends that were borne by the Certificates representing
the Common Stock delivered herewith.
If the sale of Common Stock contemplated by the Underwriting Agreement
shall not be completed prior to _______________, then, within three days after
receipt of written notice, you shall return to the Selling Shareholder the
Certificates deposited herewith.
The authority granted and conferred herein is subject to and in
consideration of the interests of the Company, the Underwriters and the Selling
Shareholder. Accordingly, the Certificates deposited herewith and this Custody
Agreement and your authority hereunder are subject to such interests, and this
Custody Agreement and your authority hereunder are irrevocable by the Selling
Shareholder and shall not be subject to termination by any acts of the Selling
Shareholder, or by operation of law (including the death or incapacity of the
Selling Shareholder) or by the occurrence of any other event, and, if, after the
execution hereof, any such event (including death or incapacity) shall occur
before the completion of the transactions contemplated by the Underwriting
Agreement and this Custody Agreement, then you are nevertheless authorized and
directed to deal with the Certificates deposited hereunder in
<PAGE> 3
accordance with the terms and conditions hereof, as if such event (including
death or incapacity) had not occurred, regardless of whether or not you shall
have received notice thereof.
Until payment of the purchase price for the shares of Common Stock to
be sold by the Selling Shareholder pursuant to the Underwriting Agreement has
been made to you in the amount and form provided in the Underwriting Agreement
by or for the account of the Underwriters, the Selling Shareholder shall remain
the owner of the shares of Common Stock represented by the Certificates
deposited herewith and shall have the right to vote such shares and to receive
all dividends and distributions thereon, if any.
You shall be entitled to act and rely upon any statement, request,
notice or instructions respecting this Custody Agreement given to you by the
Selling Shareholder.
It is understood that you assume no responsibility or liability to any
person other than to deal with the Certificates deposited herewith and the
proceeds from the sale of the shares of Common Stock represented thereby in
accordance with the provisions hereof, and the Selling Shareholder agrees to
indemnify you (including the reasonable fees and expenses of counsel) and to
hold you harmless with respect to anything done by you in good faith in
accordance with the foregoing instructions and agrees that you may consult with
counsel of your own choice (who may be counsel for the Company) and that you
shall have full and complete authorization and protection for any action taken
or suffered by you hereunder in good faith and in accordance with the opinion of
such counsel.
The Selling Shareholder represents, warrants and agrees that such
Selling Shareholder has all power, authority and legal capacity necessary to
execute and deliver this Custody Agreement and the Underwriting Agreement, to
perform such Selling Shareholder's obligations hereunder and thereunder,
including the sale of the Offered Stock, and the Underwriters will, upon
delivery and payment for such shares, receive good and marketable title to such
shares, free and clear of any and all liens, claims, encumbrances, restrictions,
preemptive rights, and any other claims of any third party.
This Custody Agreement is for the benefit of, and may be relied upon
by, the Selling Shareholder, the Company and its counsel, the Underwriters, and
their agents and counsel, and the Custodian. This Custody Agreement is binding
upon the Selling Shareholder and the Custodian and their respective successors
and assigns. Nothing in this Custody Agreement is intended or shall be construed
to give any person other than the persons mentioned in the preceding two
sentences any legal or equitable rights, remedy or claim under or in respect of
this Custody Agreement or any provision contained herein.
THIS CUSTODY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF MICHIGAN.
The Selling Shareholder will provide you with such evidence of the
Selling Shareholder's authority as you may reasonably request.
<PAGE> 4
Please acknowledge your acceptance of this Custody Agreement as
custodian and receipt of the Certificates deposited herewith by executing and
returning to the Selling Shareholder the enclosed copy of this Custody Agreement
with the attached Acknowledgement and Receipt completed and executed at the
following address:
---------------------
---------------------
---------------------
Attention:
-----------
Very truly yours,
-----------------------------
Thomas J. Hammond
Dated: December , 1998
---
<PAGE> 5
ACKNOWLEDGMENT AND RECEIPT
Registrar and Transfer Company, as custodian, acknowledges acceptance
of the duties of custodian under the foregoing Custody Agreement and receipt of
the Certificates referred to in the second paragraph of such Custody Agreement.
Dated: December , 1998
-----
Registrar and Transfer Company
By:
--------------------------------
Title:
------------------------
<PAGE> 1
EXHIBIT 5
[Letterhead of Kutak Rock]
December 16, 1998
Board of Directors
Flagstar Bancorp, Inc.
2600 Telegraph Road
Bloomfield Hills, Michigan 48302-0953
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
You have requested our opinion as special counsel to Flagstar Bancorp,
Inc. (the "Company") in connection with securities to be offered pursuant to the
Registration Statement on Form S-3 to be filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Registration
Statement"). The Registration Statement relates to the registration of 1,495,000
common shares of the Company (the "Stock") in connection with the proposed offer
and sale of such Stock by Thomas J. Hammond, Chairman of the Board and Chief
Executive Officer of the Company.
In rendering this opinion, we understand that the Stock will be offered
and sold in the manner described in the Prospectus, which is a part of the
Registration Statement. We have examined such records and documents and made
such examination as we have deemed relevant in connection with this opinion.
Based upon the foregoing, it is our opinion that the shares of Stock
have been, and when issued and sold as contemplated by the Registration
Statement, will be, legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm in the Prospectus under
the heading "Legal Matters."
Very truly yours,
/s/ Kutak Rock
<PAGE> 1
EXHIBIT 23(1)
ACCOUNTANTS' CONSENT
We have issued our report dated February 27, 1998 accompanying the
consolidated financial Statements of Flagstar Bancorp, Inc. appearing in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
which are incorporated by reference in this Registration Statement. We consent
to the incorporation by reference in the Registration Statement of the
aforementioned report and to the use of our name as it appears under the
caption "Experts."
/s/ Grant Thornton LLP
Detroit, Michigan
December 16, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF ALBERT J. GLADNER, ESQ.
I hereby consent to the reference to the undersigned under the heading
"Legal Matters" as set forth in the Prospectus that is contained in the
Registration Statement on Form S-3 filed by Flagstar Bancorp, Inc. with the
Securities and Exchange Commission.
/s/ Albert J. Gladner
- --------------------------
Albert J. Gladner, Esq.
December 15, 1998
