<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to section 13 or 15 (d)
Of the Securities Exchange Act of 1934
Date of Report (Date of earliest
Event reported) : July 1, 1999
BINGHAM FINANCIAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Michigan 0-23381 38-3313951
(State of Incorporation) (Commission File Number) (I.R.S. Employer Identification No.)
</TABLE>
260 East Brown Street, Suite 200, Birmingham, MI 48009
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (248) 644-5470
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 1, 1999, pursuant to a Reorganization Agreement dated as of June 30,
1999 (the "Reorganization Agreement") Bingham Financial Services Corporation
("Bingham") acquired all of the issued and outstanding stock of Hartger &
Willard Mortgage Associates, Inc. ("Hartger & Willard") from DMR Financial
Services, Inc. ("DMRFS"), an affiliate of Detroit Mortgage and Realty Company
("DMR"). Pursuant to the terms of the Reorganization Agreement, 66,667 shares of
Bingham common stock, without par value, were issued to DMRFS.
In connection with the acquisition of Hartger & Willard, Bingham loaned
$1,500,000 to DMRFS pursuant to a Promissory Note dated July 31, 1999. The loan
was guaranteed by DMR and secured by the pledge of the 66,667 shares of Bingham
common stock DMRFS received in the acquisition. Bingham, DMR and DMRFS have
negotiated for the surrender of the pledged shares in full payment of the
principal amount of the loan. When finally documented, the effect will be that
Bingham has acquired the Hartger & Willard shares for $1,500,000 in cash.
The description of the acquisition and the loan included herein does not purport
to be complete and is qualified in its entirety by reference to the exhibits
hereto.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet has been
prepared based upon the historical consolidated balance sheets of Bingham
Financial Services Corporation ("Bingham") and Hartger & Willard Mortgage
Associates, Inc. ("H&W") as of June 30, 1999 as if the acquisition had occurred
as of June 30, 1999. The following unaudited pro forma condensed consolidated
statements of income for the nine months ended June 30, 1999 and the twelve
months ended December 31, 1998 give effect to the acquisition as if it had
occurred as of October 1, 1998 and October 1, 1997, respectively.
The unaudited pro forma financial information should be read in conjunction with
the accompanying Notes To Unaudited Pro Forma Condensed Consolidated Financial
Information as they are an integral part of the pro forma consolidated financial
statements. The unaudited pro forma condensed consolidated income statements are
not necessarily indicative of the actual results of operations that would have
been reported if the events described above had occurred as of the beginning of
each period presented, nor do such statements purport to indicate the results of
future operations. In the opinion of management, all adjustments necessary to
present fairly such unaudited pro forma condensed consolidated financial
statements have been made.
<PAGE> 4
BINGHAM FINANCIAL SERVICES CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS AS ADJUSTED
BINGHAM HARTGAR & FOR FOR
FINANCIAL WILLARD ACQUISITION ACQUISITION
------------ ------------ ------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents $ 632 $ 25 $ - $ 657
Restricted cash 3,940 - - 3,940
Loans receivable held for sale, net 71,277 - - 71,277
Mortgage servicing rights, net - - 1,075 B 1,075
Property and equipment, net 880 66 - 946
Goodwill 634 1,064 (888)C 810
Other assets 4,958 481 (195)D 5,244
-------- -------- -------- --------
Total assets $ 82,321 $ 1,636 $ (8) $ 83,949
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Advances by mortgagors $ 3,921 $ - $ - $ 3,921
Accounts payable and accrued expenses 239 (13) 16 D 242
Advances under repurchase agreements 36,287 - - 36,287
Subordinated debt, net of debt discount of $452 3,548 3,548
Note payable 11,022 - 1,625 A 12,647
-------- -------- -------- --------
Total liabilities 55,017 (13) 1,641 56,645
-------- -------- -------- --------
Minority Interest
234 - - 234
-------- -------- -------- --------
Stockholders' equity
Common Stock, no par value, 10,000,000 shares
authorized; 2,422,154 issued and outstanding 25,634 - - 25,634
Common Stock, par value $1 per share, authorized -
50,000 shares, issued and outstanding 100 shares - - -
Paid-in capital 572 1,493 (1,493)A 572
Retained earnings (deficit) 864 156 (156)A 864
-------- -------- -------- --------
Total stockholders equity 27,070 1,649 (1,649) 27,070
-------- -------- -------- --------
Total liabilities and stockholders' equity $ 82,321 $ 1,636 $ (8) $ 83,949
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
BINGHAM FINANCIAL SERVICES CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
BINGHAM HARTGAR & PRO FORMA BINGHAM
FINANCIAL WILLARD ADJUSTMENTS FINANCIAL
------------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Interest income on loans $ 7,256 $ - $ - $ 7,256
Mortgage placement and servicing fees 1,441 1,471 - 2,912
Gain on sale of loans 4,089 - - 4,089
Other income 150 218 - 368
-------- ------- ------- --------
Total revenues 12,936 1,689 - 14,625
-------- ------- ------- --------
COSTS AND EXPENSES
Interest expense 5,494 132 75 E 5,701
Provision for credit losses 232 - - 232
Amortization of servicing rights - - 121 F 121
General and administrative 2,719 827 - 3,546
Other operating expenses 2,205 391 7 G 2,603
-------- ------- ------- --------
Total costs and expenses 10,650 1,350 203 12,203
-------- ------- ------- --------
Income (loss) before income taxes 2,286 339 (203) 2,422
Provision for income taxes 737 124 (69) 792
-------- ------- ------- --------
Net income (loss) $ 1,549 $ 215 $ (134) $ 1,630
======== ======== ======= ========
Weighted average common shares outstanding:
Basic H 1,773
========
Diluted H 1,991
========
Earnings per share:
Basic H 0.92
========
Diluted H 0.82
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 6
BINGHAM FINANCIAL SERVICES CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
----------------------------- PRO FORMA
9/30/98 12/31/98 AS ADJUSTED
BINGHAM HARTGAR & PRO FORMA BINGHAM
FINANCIAL WILLARD ADJUSTMENTS FINANCIAL
------------ ------------ ---------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Interest income on loans $ 3,296 $ - $ - $ 3,296
Mortgage placement and servicing fees 1,361 1,539 - 2,900
Gain on sale of servicing rights 618 - - 618
Gain on sale of loans 738 - - 738
Other income 128 394 - 522
-------- -------- ------- --------
Total revenues 6,141 1,933 - 8,074
-------- -------- ------- --------
COSTS AND EXPENSES
Interest expense 1,933 199 100 E 2,232
Provision for credit losses 147 - - 147
Provision for unrealized hedge loss 2,400 - - 2,400
Amortization of servicing rights - - 161 F 161
General and administrative 1,250 1,105 - 2,355
Other operating expenses 1,204 357 9 G 1,570
-------- -------- ------- --------
Total costs and expenses 6,934 1,661 270 8,865
-------- -------- ------- --------
Income (loss) before income taxes (793) 272 (270) (791)
Provision for income taxes (219) 98 (92) (213)
-------- -------- ------- --------
Net income (loss) $ (574) $ 174 $ (178) $ (578)
======== ======== ======= ========
Weighted average common shares outstanding:
H 1,261
========
Basic
Loss per share:
Basic and diluted H (0.46)
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 7
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
On July 1, 1999 the Company acquired 100% of the outstanding stock of Hartger &
Willard Mortgage Associates, Inc. ("H&W") from its parent company DMR Financial
Services, Inc. ("DMR") for 66,667 shares of the Company's common stock. In
connection with the transaction Bingham also made a loan of $1.5 million to DMR.
The loan is collateralized by the 66,667 shares of Bingham's common stock.
Bingham and DMR have negotiated for the surrender of the pledged shares in full
payment of the principal amount of the loan. When concluded, the effect of this
will be that Bingham will have acquired the H&W shares for $1.5 million in cash.
H&W is engaged in the business of the origination and servicing of commercial
mortgages and real estate lending. Loans originated by the Company primarily
consist of fixed rate loans collateralized by mortgages on commercial property.
All loans originated by the Company are sold to permanent investors.
Balance Sheet
The excess of purchase price and liabilities assumed over the estimated fair
value of net assets acquired for the acquisition has been allocated to tangible
and intangible assets based on Bingham's estimate of the fair market value of
the net assets acquired. The allocations of the excess of purchase price may
change upon final analysis of the fair market value of the net assets acquired
and final determination of the costs incurred in the acquisition.
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Estimated fair value of net assets acquired $ 1,449
Allocation of the purchase price in excess of the acquired assets:
Goodwill 176
---------
Total Purchase $ 1,625
=========
</TABLE>
The accompanying unaudited pro forma consolidated balance sheet has been
prepared as if the acquisition had been completed as of June 30, 1999 and
includes the following adjustments:
(A) A pro forma adjustment has been made to:
Increase borrowings by $1.6 million for the cashed used to purchase the
outstanding stock of H&W; and
Eliminate historical equity balances.
(B) A pro forma adjustment has been made to increase the value of mortgage
servicing rights by $1.1 million to fair market value.
(C) A pro forma adjustment has been made to eliminate H&W's historical goodwill
of $1.1 million and record goodwill related to the acquisition of $176,000.
<PAGE> 8
(D)A pro forma adjustment has been made to eliminate miscellaneous receivables
at H&W.
STATEMENT OF OPERATIONS
The accompanying unaudited pro forma consolidated statements of operations for
the nine months ended June 30, 1999 presents the results of operations as if the
acquisition had been consummated on October 1, 1998. The unaudited pro forma
consolidated statements of operations for the twelve months ended December 31,
1998 presents the results of operations as if the acquisition had been
consummated on October 1, 1997. Bingham's year-end was September 30, 1998 and
the unaudited pro forma consolidated statement of operations includes their
results of operations for the twelve months ended September 30, 1998 and H&W's
year-end was December 31, 1998 and the unaudited pro forma consolidated
statement of operations includes their results of operations for the twelve
months ended December 31, 1998.
The accompanying unaudited pro forma consolidated statement of operations for
the nine months ended June 30, 1999 and for the twelve months ended September
30, 1998 for Bingham and the twelve months ended December 31, 1998 for H&W have
been prepared by combining historical results of operations and include the
following adjustments:
(E) Adjustments for the nine months ended June 30, 1999 and the twelve months
ended December 31, 1998 have been made to increase interest expense on the
increased borrowings related to the acquisition by $75,000 and $100,000
respectively.
(F) Adjustments for the nine months ended June 30, 1999 and the twelve months
ended December 31, 1998 have been made to increase amortization of mortgage
servicing rights by $121,000 and $161,000 respectively.
(G) Adjustments for the nine months ended June 30, 1999 and the twelve months
ended December 31, 1998 have been made to increase amortization of goodwill
related to the acquisition.
(H) Pro forma basic earnings per share is computed by dividing pro forma net
income by the pro forma weighted average common shares outstanding. Pro
forma diluted earnings per share is computed by dividing pro forma net
income by the weighted average common shares outstanding plus the diluted
share of contingently issuable shares and stock options.
<PAGE> 9
HARTGER & WILLARD MORTGAGE ASSOCIATES, INC.
(A Wholly-owned Subsidiary of Detroit Mortgage and Realty Company)
Financial Statements and Schedules
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE> 10
HARTGER & WILLARD MORTGAGE ASSOCIATES, INC.
(A Wholly-owned Subsidiary of Detroit Mortgage and Realty Company)
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 1
Balance Sheets 2
Statements of Income 3
Statements of Changes in Shareholder's Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6
SCHEDULE
I Computation of Adjusted Net Worth to Determine Compliance with the
U.S. Department of Housing and Urban Development (HUD) Net Worth
Requirements 10
Independent Auditors' Report on Compliance with Specific Requirements Applicable
to Major HUD Programs 11
Independent Auditors' Report on Internal Control 14
General Information on Independent Public Accountants 16
</TABLE>
<PAGE> 11
KPMG
Suite 1200
150 West Jefferson
Detroit, M1 48226-4429
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Hartger & Willard Mortgage Associates, Inc.:
We have audited the accompanying balance sheets of Hartger & Willard Mortgage
Associates, Inc. (a wholly-owned subsidiary of Detroit Mortgage and Realty
Company) (the Company) as of December 31, 1998 and 1997, and the related
statements of income, changes in shareholder's equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hartger & Willard Mortgage
Associates, Inc. as of December 31, 1998 and 1997, and the results of its
operation and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
In accordance with Government Auditing Standards, we have also issued a report
on our consideration of the Company's internal control over financial reporting
and a report on its compliance with specific requirements applicable to major
IFIUD programs, all of which were dated March 5, 1999.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information contained in schedule I
is presented for purposes of additional analysis and is not a required part of
the basic financial statements. This information has been subjected to the
auditing procedures applied in our audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
March 5, 1999
KPMG LLP
<PAGE> 12
HARTGER & WILLARD MORTGAGE ASSOCIATES, INC.
(A Wholly-owned Subsidiary of Detroit Mortgage and Realty Company)
Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
Assets 1998 1997
---- ----
<S> <C> <C>
Cash $ 318,856 99,600
Certificate of deposit 277,517 250,000
Premises and equipment:
Furniture and equipment 355,818 428,835
Less: Accumulated depreciation and amortization (279,244) (348,785)
----------- ---------
Total premises and equipment, net 76,574 80,050
Accrued placement fees receivable 261,450 65,000
Accrued interest receivable 3,165 11,473
Other assets 10,526 16,814
----------- ---------
$ 948,088 522,937
=========== =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Accrued expenses and other liabilities $ 340,652 89,048
----------- ---------
Total liabilities 340,652 89,048
Shareholder's equity:
Common stock, $1 par value; authorized 50,000 shares, issued
and outstanding 100 shares in 1998 and 1997 100 100
Paid-in capital 409,429 409,429
Retained earnings 197,907 24,360
----------- ---------
Total shareholder's equity 607,436 433,889
----------- ---------
Commitments and contingencies
$ 948,088 522,937
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 13
HARTGER & WELLARD MORTGAGE ASSOCIATES, INC.
(A Wholly-owned Subsidiary of Detroit Mortgage and Realty Company)
Statements of Income
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Income:
Interest and dividends $ 314,338 75,878
Loan placement fees 1,114,925 767,862
Fees on loans serviced 424,463 459,602
Other 79,327 154,416
------------- ----------
Total income 1,933,053 1,457,758
Expenses:
Compensation and other employee benefits 1,010,901 974,904
Interest 199,217 42,527
Professional fees 93,962 20,740
Printing, stationery, and telephone 71,390 63,486
Depreciation and amortization 24,774 30,703
Maintenance of equipment 48,643 52,970
Occupancy 120,096 124,629
Contributions, dues, and subscriptions 12,313 22,927
Other 80,150 80,915
------------- ----------
Total expenses 1,661,446 1,413,801
------------- ----------
Income before income tax provision. 271,607 43,957
Income taxes 98,060 19,597
------------- ----------
Net income $ 173,547 24,360
============= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 14
HARTGER & WILLARD MORTGAGE ASSOCIATES, INC.
(A Wholly-owned Subsidiary of Detroit Mortgage and Realty Company)
Statements of Changes in Shareholder's Equity
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ------- -------- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $ 1,000 41,807 2,343,533 2,386,340
Distribution of equity to former owner - (41,807) (2,343,533) (2,385,3 40)
Capital contribution - 408,529 408,529
Adjustment to common stock (900) 900 - -
Net income - - 24,360 24,360
---------- -------- ----------- ------------
Balance at December 31, 1997 100 409,429 24,360 433,889
Net income - - 173,547 173,547
---------- -------- ----------- ------------
Balance at December 31, 1998 $ 100 409,429 197,907 607,436
========== ======== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 15
HARTGER & WILLARD MORTGAGE ASSOCIATES, INC.
(A Wholly-owned Subsidiary of Detroit Mortgage and Realty Company)
Statements of Cash Flows
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 173,547 24,360
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in prepaid expenses 136 -
Increase in accrued receivables (193,462) (11,473)
Depreciation and amortization 24,774 30,703
Increase in accrued expenses and other liabilities 251,604 -
--------- -----------
Net cash provided by operating activities 256,599 43,590
--------- -----------
Cash flows from investing activities:
Proceeds from sale of loans - 5,800,000
Purchase of certificates of deposit (16,045) (250,000)
Purchases of furniture and equipment (21,298) (132,952)
--------- -----------
Net cash provided by (used in) investing activities (37,343) 5,417,048
Cash flows from financing activities:
Payments on notes payable to former owner - (5,800,000)
Dividends paid to former owner - (2,386,340)
Capital contribution
- 408,529
--------- -----------
Net cash used in financing activities - (7,777,811)
--------- -----------
Net increase (decrease) in cash 219,256 (2,317,173)
Cash, beginning of year 99,600 2,416,773
--------- -----------
Cash, end of year $ 318,856 99,600
========= ===========
Supplemental disclosure of cash flow information:
Interest paid in cash 198,744 18,929
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 16
HARTGER & WILLARD MORTGAGE ASSOCIATES, INC.
(A Wholly-owned Subsidiary of Detroit Mortgage and Realty Company)
Notes to Financial Statements
December 31, 1998 and 1997
NATURE OF OPERATIONS
Hartger & Willard Mortgage Associates, Inc. (the Company) services loans on
behalf of investors and provides mortgage banking services to commercial
customers located primarily in the Midwest. The Company is a wholly-owned
subsidiary of Detroit Mortgage and Realty Company (the Parent).
(1) Summary of Significant Accounting Policies
The Company prepares its financial statements in conformity with
generally accepted accounting principles, which require the use of
estimates made by management to determine amounts reported in the
accompanying financial statements. Certain estimates used by management
are particularly susceptible to significant changes in the economic
environment, particularly estimates of accrued placement fees. These
estimates, as well as the related amounts reported in financial
statements, are sensitive to near-term changes in the factors used to
determine them. A significant change in any one of those factors could
result in the determination of amounts different than those reported in
the financial statements.
(a) Purchase Accounting Adjustments
Detroit Mortgage and Realty Company purchased the Company on January
1, 1997 for approximately $1.3 million. As a result of the purchase,
the Parent recorded goodwill of approximately $1.2 million and, for
each of the years ended December 31, 1997 and 1998, amortized $78,000
of goodwill relating to this transaction. The goodwill and related
amortization will remain on the Parent's books and not be "pushed
down" to the Company.
The Company files a consolidated Federal income tax return with the
Parent. The Company's provision for income taxes is based upon a
tax-sharing agreement with the Parent. Taxes are recorded in
substantially the same manner as if the Company filed income tax
returns on a separate-company basis.
(b) Premises and Equipment
The furniture and equipment are stated at cost. Depreciation and
amortization are provided over the estimated useful lives of the
assets using the straight-line method. As of December 31, 1998, the
Company leases all premises on which it resides.
(c) Loan Placement Fees
Loan placement fees are recognized when earned, which generally
occurs upon the completion of the transaction.
6 (Continued)
<PAGE> 17
HARTGER & WELLARD MORTGAGE ASSOCIATES, INC.
(A Wholly-owned Subsidiary of Detroit Mortgage and Realty Company)
Notes to Financial Statements
December 31, 1998 and 1997
(d) Fees on Loans Serviced
Fees on loans serviced represent fees earned for servicing real
estate mortgage loans owned by institutional investors. The fees are
generally calculated on the outstanding principal balances of the
loans serviced. In conformity with the industry practice, the fees
are recorded as income when the monthly mortgage payments are
received from the borrower. Loan servicing costs are charged to
expense as incurred.
(e) Income Taxes
Income taxes are accounted for using the asset and liability method
of accounting. Under this method, deferred tax assets and liabilities
are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using the enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be reversed.
(2) OTHER ASSETS
Other assets for the year ended December 31, 1998 consist of the
following:
Security deposit $ 5,588
Prepaid expenses 1,935
Other 3,003
----------
$ 10,526
==========
(3) EMPLOYEE BENEFIT PLAN
Benefits are provided to employees of the Company under the terms of the
Parent's employee benefit plans. Benefits include a defined contribution
retirement plan (401(k)) that is available to substantially all employees
of the Company under the terms of the Parent's plan. Expenses relating to
this plan were approximately $10,000 for both 1998 and 1997.
(4) INCOME TAXES
Income tax expense for the years ended December 31, 1998 and 1997 is
comprised of the following:
1998 1997
-------- --------
Current Federal income tax expense $ 97,827 19,352
Local income tax expense 233 245
-------- --------
$ 98,060 19,597
======== ========
7 (Continued)
<PAGE> 18
HARTGER & WILLARD MORTGAGE ASSOCIATES, INC.
(A Wholly-owned Subsidiary of Detroit Mortgage and Realty Company)
Notes to Financial Statements
December 31, 1998 and 1997
Income tax expense differed from the amount computed by applying the U.S.
Federal income tax rate of 34% to pretax income as a result of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Computed "expected" tax expense $ 92,346 14,945
Increase (reduction) in tax resulting from:
Nondeductible expenses 4,450 3,937
Local income tax, net of federal tax benefit 154 162
Other,net 1,110 553
----------- ----------
$ 98,060 19,597
=========== ==========
</TABLE>
At December 31, 1998, there were no deferred tax assets or deferred
liabilities.
(5) Leases
The Company leases certain office facilities and vehicles under leases
having remaining noncancelable lease terms of one year or less. Future
minimum payments under the aforementioned leases at December 31, 1998
are:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Bloomfield Hills office $ 47,058 49,019 49,197 51,158 4,278
Grand Rapids office 60,780 62,604 64,464 66,400 22,352
------- ------- ------- ------ ------
Total future minimum
payments $ 107,838 111,623 113,661 117,558 26,630
======= ======= ======= ======= ======
</TABLE>
Total rental expense for 1998 amounted to approximately $117,503, which
includes rental expense incurred for a lease with month-to-month payment
terms in addition to the rental expense related to the above-mentioned
leases.
Included as a reduction of the Company's occupancy expense is building
rental income of approximately $4,346 and $16,800 for the years ended
December 31, 1998 and 1997, respectively.
(6) Commitments with Off-Balance-Sheet Risk
In the normal course of business, the Company is a Program Plus
Seller/Servicer for the Federal Home Loan Mortgage Corporation (Freddie
Mac). Under this program, the Company issues commitments to provide
mortgage loans to borrowers, based on commitments containing identical
terms and conditions from Freddie Mac to the Company. The Company does
not fund its loan until all conditions of the Freddie Mac commitment have
been satisfied. Once the loan is funded, the Company assigns its loan
documents to Freddie Mac, and Freddie Mac reimburses the Company, usually
within 30 days of the initial Company loan funding date.
8 (Continued)
<PAGE> 19
HARTGER & WILLARD MORTGAGE ASSOCIATES, INC.
(A Wholly-owned Subsidiary of Detroit Mortgage and Realty Company)
Notes to Financial Statements
December 31, 1998 and 1997
To fund its Freddie Mac loans, the Company either has used its own
capital or borrowed funds from the Parent at the rate of interest that
the Parent pays to its bank (LIBOR plus 2.25%).
The risk to the Company is that Freddie Mac would not purchase the loan
from the Company and the Company would then have to provide credit on a
long-term basis to the borrower. In management's view, this risk is very
minimal because of Freddie Mac's extensive review and approval of the
loan transactions and documents prior to the Company's loan funding.
As of December 31, 1998, the Company had no outstanding commitments to
fund mortgage loans and no amounts due to the Parent.
(7) TRANSACTIONS WITH RELATED PARTIES
The Company was assigned servicing rights on a note receivable from the
PM Investment Group, a related party. The note was assigned on December
31, 1997, and as of December 31, 1998, servicing income of $51,222 was
recognized as revenue. The Company also paid $199,217 and $12,429 of
interest expense to its parent and received $4,346 and $2,275 in rental
income from a subsidiary of the Parent for the years ended December 31,
1998 and 1997, respectively.
(8) SERVICING PORTFOLIO
Information regarding the servicing portfolio is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ -------------
<S> <C> <C>
Total principal balance of loans being serviced $ 435,585,600 433,256,000
Number of loans being serviced 140 148
Funds held in trust for investors 2,591,300 1,988,000
============= =============
</TABLE>
Funds held in trust for investors represent monies collected from
borrowers primarily for payment of real estate taxes and insurance
premiums applicable to mortgage loans being serviced. These funds are not
included in the Company's financial statements.
9
<PAGE> 20
SCHEDULE I
HARTGER & WILLARD MORTGAGE ASSOCIATES, INC.
(A Wholly-owned Subsidiary of Detroit Mortgage and Realty Company)
Computation of Adjusted Net Worth to Determine Compliance
with the U.S. Department of Housing and Urban Development (HUD)
Net Worth Requirements
<TABLE>
<S> <C>
Servicing portfolio as of December 31, 1998 $ 435,585,600
Add:
Origination -
Purchased from loan correspondent -
- ------------
Subtotal 435,585,600
Less:
Servicing retained -
Loan correspondent - purchase retained -
Total $ 435,585,600
============
Net worth required $ 1,000,000
============
Shareholder's equity at December 31, 1998 607,436
Less - unacceptable assets -
------------
Adjusted net worth for HUD requirement purposes at December 31, 1998 $ 607,436
============
Adjusted net worth below amount required $ (392,564)
============
See accompanying independent auditors' report.
</TABLE> 10
<PAGE> 21
KPMG
Suite 1200
150 West Jefferson
Detroit, M1 48226-4429
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH
SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS
The Board of Directors
Hartger & Willard Mortgage Associates, Inc.:
We have audited the financial statements of Hartger & Willard Mortgage
Associates, Inc. (a Michigan corporation and wholly-owned subsidiary of Detroit
Mortgage and Realty Company) (the Company) as of and for the year ended December
31, 1998, and have issued our report thereon dated March 5, 1999. In addition,
we have audited the Company's compliance with the specific program requirements
governing Loan Servicing, Escrow Accounts, Federal Financial and Activity
Reports, and Mortgagee Approval Requirements that are applicable to the HUD
Approved Title 11 Nonsupervised Mortgagees and Loan Correspondents program for
the year ended December 31, 1998. The management of the Company is responsible
for compliance with those requirements. Our responsibility is to express an
opinion on the Company's compliance with those requirements based on our audit.
We conducted our audit of compliance in accordance with generally accepted
auditing standards; Government Auditing Standards, issued by the Comptroller
General of the United States; and the Consolidated Audit Guide for Audits of HUD
Programs (the Guide), issued by the U.S. Department of Housing and Urban
Development, Office of the Inspector General, in August 1997. Those standards
and the Guide require that we plan and perform the audit to obtain reasonable
assurance about whether material noncompliance with the requirements referred to
above occurred. An audit includes examining, on a test basis, evidence about the
Company's compliance with those requirements and performing such other
procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion. Our audit does not provide a
legal determination of the Company's compliance with those requirements.
As further described in the accompanying Schedule of Findings, the results of
our audit procedures disclosed that the Company did not comply with the
Mortgagee Approval Requirements. In our opinion, the Company's compliance with
the Mortgagee Approval Requirements is necessary for the Company to comply with
the requirements applicable to the HUD Approved Title 11 Nonsupervised
Mortgagees and Loan Correspondents program.
In our opinion, except for those instances of noncompliance with the
requirements applicable to HUD Approved Title 11 Nonsupervised Mortgagees and
Loan Correspondents referred to in the fourth paragraph of this report, Hartger
& Willard Mortgage Associates, Inc. complied, in all material respects, with the
requirements referred to above that are applicable to each of its major
HUD-assisted programs for the year ended December 31, 1998.
This report is intended solely for the information and use of the board of
directors, management, and the U.S. Department of Housing and Urban Development,
and is not intended to be, and should not be, used by anyone other than these
specified parties
March 5, 1999
KPMG LLP
<PAGE> 22
HARTGER & WILLARD MORTGAGE ASSOCIATES, INC.
(A Wholly-owned Subsidiary of Detroit Mortgage and Realty Company)
Schedule of Findings
MORTGAGEE APPROVAL REQUIREMENTS
FINDING NO. I
KPMG noted that Hartger & Willard Mortgage Associates, Inc. was out of
compliance with the net worth requirement at December 31, 1998.
MANAGEMENT'S RESPONSE
The Company is aware of the noncompliance with the net worth requirement at
December 31, 1998 and will not originate any HUD loans until such time as it
comes into compliance.
13
<PAGE> 23
KPMG
Suite 1200
150 West Jefferson
Detroit, M1 48226-4429
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL
To the Board of Directors
Hartger & Willard Mortgage Associates, Inc.:
We have audited the financial statements of Hartger & Willard Mortgage
Associates, Inc. (a Michigan corporation and wholly-owned subsidiary of Detroit
Mortgage and Realty Company) (the Company) as of and for the year ended December
31, 1998, and have issued our report thereon dated March 5, 1999. We have also
audited the Company's compliance with requirements applicable to HUD-assisted
programs and have issued our report thereon dated March 5, 1999.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States, and the Consolidated Audit Guidefor Audits of HUD Programs (the
"Guide"), issued by the U.S. Department of Housing and Urban Development, Office
of the Inspector General, in August 1997. Those standards and the Guide require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement and about whether the
Company complied with laws and regulations, noncompliance with which would be
material to a HUD-assisted program.
In planning and performing our audit, we obtained an understanding of the design
of relevant internal controls and whether they had been placed in operation, and
we assessed control risk in order to determine our audit procedures for the
purpose of expressing our opinions on the Company's financial statements and on
its compliance with specific requirements applicable to its major HUD-assisted
programs and to report on internal controls in accordance with the provisions of
the Guide and not to provide assurance on internal control.
The management of the Company is responsible for establishing and maintaining
internal controls. In fulfilling this responsibility, estimates and judgments by
management are required to assess the expected benefits and related costs of
internal controls. The objectives of internal controls are to provide management
with reasonable, but not absolute, assurance that assets are safeguarded against
loss from unauthorized use or disposition and that transactions are executed in
accordance with management's authorization and recorded properly to permit the
preparation of financial statements in accordance with generally accepted
accounting principles, and that HUD-assisted programs are managed in compliance
with applicable laws and regulations. Because of inherent limitations in
internal controls, errors, fraud, or instances of noncompliance may occur and
not be detected. Also, projection of any evaluation of internal controls to
future periods is subject to the risk that procedures may become inadequate
because of changes in conditions or that the effectiveness of the design and
operation of policies and procedures may deteriorate.
We performed tests of controls, as required by the Guide, to evaluate the
effectiveness of the design and operation of internal controls that we
considered relevant to preventing or detecting material noncompliance with
specific requirements applicable to the Company's HUD-assisted programs. Our
procedures were less in scope than would be necessary to render an opinion on
internal controls. Accordingly, we do not express such an opinion.
Our consideration of internal controls would not necessarily disclose all
matters in the internal controls that might be material weaknesses under
standards established by the American Institute of Certified Public Accountants.
A material weakness is a significant deficiency in which the design or operation
of one or more of the internal controls does not reduce
<PAGE> 24
to a relatively low level the risk that errors or fraud in amounts that would be
material in relation to the financial statements being audited or that
noncompliance with laws and regulations that would be material to a HUD-assisted
program may occur and not be detected within a timely period by employees in the
normal course of performing their assigned functions. We noted no matters
involving internal controls that we consider to be material weaknesses as
defined above.
This report is intended solely for the information of the board of directors and
management of the Company and the U.S. Department of Housing and Urban
Development (HUD), and is not intended to be, and should not be, used by anyone
other than these specified parties.
March 5, 1999
KPMG LLP
15
<PAGE> 25
HARTGER & WELLARD MORTGAGE ASSOCIATES, INC.
(A Wholly-owned Subsidiary of Detroit Mortgage and Realty Company)
General Information on Independent Public Accountants
Detroit Office:
KPMG LLP
150 West Jefferson, Suite 1200
Detroit, Michigan 48226
Engagement Partner: Richard Hopper
Telephone Number: (313) 983-0408
Federal Employer I.D. Number: 13-5565207
16
<PAGE> 26
ITEM 7 c. EXHIBITS.
2.1 Reorganization Agreement dated as of June 30, 1999 by and among
Bingham Financial Services Corporation, a Michigan corporation, DMR
Financial Services, Inc., a Michigan corporation, Hartger & Willard
Mortgage Associates, Inc., a Michigan corporation and Detroit
Mortgage & Realty Company, a Michigan corporation. Omitted from such
exhibit, as filed, are the remaining exhibits referenced in such
agreement. The Registrant will furnish supplementally a copy of any
such exhibits to the Commission upon request.
2.2 Lockup Agreement executed as of July 2, 1999 by DMR Financial
Services, Inc. in favor of Bingham Financial Services Corporation.
2.3 Shareholders Agreement dated as of July 2, 1999 by and among Bingham
Financial Services Corporation, certain "Shareholders/Directors",
DMR Financial Services, Inc. and Detroit Mortgage and Realty
Company.
2.4 Promissory Note dated as of July 31, 1999 executed by DMR Financial
Services, Inc. in favor of Bingham Financial Services Corporation.
2.5 Guaranty dated as of June 30, 1999 executed by Detroit Mortgage and
Realty Company in favor of Bingham Financial Services Corporation.
2.6 Pledge Agreement dated as of June 30, 1999 by and between Bingham
Financial Services Corporation and DMR Financial Services, Inc.
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BINGHAM FINANCIAL SERVICES CORPORATION
/s/ Ronald A. Klein
-------------------------------
Name: Ronald A. Klein
Title: President and Chief Executive Officer
Dated: September 15, 1999
<PAGE> 28
INDEX TO EXHIBITS
Exhibit DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
2.1 Reorganization Agreement Previously filed
dated as of June 30, 1999
2.2 Lockup Agreement executed Previously filed
as of July 2, 1999
2.3 Shareholders Agreement Previously filed
dated as of July 2, 1999
2.4 Promissory Note dated as of Filed herewith
July 31, 1999
2.5 Guaranty dated as of Filed herewith
June 30, 1999
2.6 Pledge Agreement dated as of Filed herewith
June 30, 1999
<PAGE> 1
EXHIBIT 2.4
PROMISSORY NOTE
$1,500,000 July 31, 1999
On July 31, 1999, for value received, the undersigned promises to pay
to the order of BINGHAM FINANCIAL SERVICES CORPORATION ("Bingham") at its
offices located at 260 East Brown Street, Suite 200, Birmingham, Michigan 48009
the sum of ONE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($1,500,000.00)
with interest from the date of this Note at a per annum rate equal to the prime
rate of Comerica Bank ("Bank") from time to time in effect plus three quarters
of one percent (0.75%) per annum until maturity, whether by acceleration or
otherwise, or until an Event of Default, as defined below, and after that at a
default rate equal to the rate of interest otherwise prevailing under this Note
plus 3% per annum (but in no event in excess of the maximum rate permitted by
law). The Bank's "prime rate" is that annual rate of interest so designated by
the Bank and which is changed by the Bank from time to time. Interest rate
changes will be effective for interest computation purposes as and when the
Bank's prime rate changes. Interest shall be calculated for the actual number of
days the principal is outstanding on the basis of a 360-day year. Accrued
interest on this Note shall be payable on the Maturity Date when all amounts
outstanding under this Note shall be due and payable in full.
The initial indebtedness ("Loan") evidenced by this Note and any and
all modifications, renewals or extensions of it, however evidenced, and all
costs of collecting same ("Liabilities") are secured by those assets of the
undersigned described in a certain Pledge Agreement of even date ("Pledge
Agreement") and by all property of the undersigned from time to time in the
possession of Bingham (collectively "Collateral"). The Liabilities are
guaranteed by Detroit Mortgage and Realty Company ("Guarantor") pursuant to a
Guaranty of even date ("Guaranty").
If the undersigned or Guarantor (a) fails to pay any of the Liabilities
when due, by maturity, acceleration or otherwise; or (b) fails to comply with
any of the terms or provisions of any agreement between the undersigned or
Guarantor and Bingham; or (c) becomes insolvent or the subject of a voluntary or
involuntary proceeding in bankruptcy, or a reorganization, arrangement or
creditor composition proceeding, ceases doing business as a going concern, or is
the subject of a dissolution, merger or consolidation; or (d) if any warranty or
representation made by the undersigned in connection with this Note or any of
the Liabilities shall be discovered to be untrue or incomplete in any material
respect; or (e) if there is any termination, notice of termination, material
breach or Event of Default of or under the Guaranty or the Pledge Agreement; or
(f) if there is any material failure by the undersigned or Guarantor to pay when
due any of its other indebtedness (other than to Bingham or Comerica Bank) or in
the observance or performance of any material term, covenant or condition in any
document evidencing, securing or relating to such indebtedness; or (g) if
Bingham reasonably deems itself insecure believing that the prospect of payment
of this Note or any of the Liabilities is impaired or shall fear deterioration,
removal or waste of any assets of the undersigned or Guarantor; or (h) if there
is filed or issued a levy or writ of attachment or garnishment or other like
judicial process upon the Collateral, then Bingham, upon the occurrence of any
of these events (each an "Event of Default"), may at its option and without
prior notice to the undersigned, declare
<PAGE> 2
any or all of the Liabilities to be immediately due and payable (notwithstanding
any provisions contained in the evidence of it to the contrary), sell or
liquidate all or any portion of the Collateral, set off against the Liabilities
any amounts owing by Bingham to the undersigned, charge interest at the default
rate provided in this Note and exercise any one or more of the rights and
remedies granted to Bingham by any agreement with the undersigned or given to it
under applicable law. All payments under this Note shall be in immediately
available United States funds, without setoff or counterclaim.
This Note shall bind the undersigned, and the undersigned's successors and
assigns. The undersigned waives presentment, demand, protest, notice of
dishonor, notice of demand or intent to demand, notice of acceleration or intent
to accelerate, and all other notices, and agrees that no extension or indulgence
to the undersigned or release, substitution or nonenforcement of any security,
or release or substitution of the undersigned or Guarantor, whether with or
without notice, shall affect the obligations of the undersigned. The undersigned
waives all defenses or right to discharge available under Section 3-606 of the
Uniform Commercial Code and waives all other suretyship defenses or right to
discharge. The undersigned agrees that Bingham has the right to sell or assign
any interest in the Liabilities, and that, in connection with this right, but
without limiting its ability to make other disclosures to the full extent
allowable, Bingham may disclose all documents and information which Bingham now
or later has relating to the undersigned or the Liabilities.
To induce Bingham to extend the Loan evidenced by this Note, the
undersigned agrees to reimburse Bingham for reasonable legal fees and expenses,
not to exceed $35,000, incurred by Bingham in connection with the negotiation
and drafting of the documents contemplated by both the Loan and the H&W
Reorganization Agreement, as defined in the Pledge Agreement.
In addition, the undersigned agrees to reimburse Bingham, the holder or
owner of this Note for any and all costs and expenses (including without limit,
court costs, legal expenses and reasonable attorney fees, whether or not the
suit is instituted and, if suit is instituted, whether at the trial court level,
appellate level, in a bankruptcy or administrative proceeding or otherwise)
incurred in collecting or attempting to collect this Note or incurred in any
other matter or proceeding relating to this Note.
The undersigned acknowledges and agrees that there are no contrary
agreements, oral or written, establishing a term of this Note and agrees that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of Bingham expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. If any provision of this Note is unenforceable in whole or part for any
reason, the remaining provisions shall continue to be effective. THIS NOTE SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
MICHIGAN.
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED 25%, OR THE HIGHEST
APPLICABLE USURY CEILING,WHICHEVER IS LESS.
THE UNDERSIGNED AND BINGHAM ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY
IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE
<PAGE> 3
OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY,
AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF
LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED
TO, THIS NOTE OR THE LIABILITIES.
DMR FINANCIAL SERVICES, INC.
a Michigan corporation
By: /s/ Mark C. Stevens
------------------------------------
Its: President and CEO
------------------------------------
<PAGE> 1
EXHIBIT 2.5
GUARANTY
The undersigned, for value received, unconditionally and absolutely
guarantees to BINGHAM FINANCIAL SERVICES CORPORATION ("Bingham"), a Michigan
corporation of 260 East Brown Street, Suite 200, Birmingham, Michigan 48009 and
to Bingham's successors and assigns, payment when due, whether by stated
maturity, demand, acceleration or otherwise, of all existing and future
Indebtedness, as defined below, to Bingham of DMR FINANCIAL SERVICES, INC., a
Michigan corporation whose address is 33045 Hamilton Court West, Farmington
Hills, MI 48334 and also of any successor in interest, including without limit
any debtor-in-possession or trustee in bankruptcy which succeeds to the
interests of this party or person (jointly and severally the "Borrower").
"Indebtedness", as used herein, shall mean (a) any and all direct
indebtedness of the Borrower to Bingham under a certain Promissory Note of even
date in the original principal amount of $1,500,000; (b) any and all
indebtedness, obligations or liabilities for which the Borrower would otherwise
be liable to Bingham thereunder were it not for the invalidity, irregularity or
unenforceability of them by reason of any bankruptcy,insolvency or other law or
order of any kind, or for any other reason, including without limit liability
for interest and attorney fees on, or in connection with, any of the
Indebtedness from and after the filing by or against the Borrower of a
Bankruptcy petition; (c) any and all amendments, modifications, renewals and/or
extensions of any of the above, including without limit amendments,
modifications, renewals and/or extensions which are evidenced by new or
additional instruments,documents or agreements; and (d) all costs of collecting
Indebtedness, including without limit reasonable attorney fees.
The undersigned waives notice of acceptance of this Guaranty and
presentment, demand, protest, notice of protest, dishonor, notice of dishonor,
notice of default, notice of intent to accelerate or demand payment of any
Indebtedness, and diligence in collecting any indebtedness, and agrees that
Bingham may modify the terms of any Indebtedness, compromise, extend, increase,
accelerate, renew or forbear to enforce payment of any or all Indebtedness, all
without notice to the undersigned and without affecting in any manner the
unconditional obligation of the undersigned under this Guaranty. The undersigned
further waives any and all other notices to which the undersigned might
otherwise be entitled. The undersigned acknowledges and agrees that the
liabilities created by this Guaranty are direct and are not conditioned upon
pursuit by Bingham of any remedy Bingham may have against the Borrower or any
other person or any security. No invalidity, irregularity or unenforceability of
any part or all of the Indebtedness or any documents evidencing the same, by
reason of any bankruptcy, insolvency or other law or order of any kind or for
any other reason, and no defense or setoff available at any time to the
Borrower, shall impair, affect or be a defense or setoff to the obligations of
the undersigned under this Guaranty.
The undersigned delivers this Guaranty based solely on the
undersigned's independent investigation of the financial condition of the
Borrower and is not relying on any information furnished by Bingham. The
undersigned assumes full responsibility for obtaining any further information
concerning the Borrower's financial condition, the status of the Indebtedness or
any other matter which the undersigned may deem necessary or appropriate from
time to time.
<PAGE> 2
The undersigned waives any duty on the part of Bingham, and agrees that
it is not relying upon nor expecting Bingham to disclose to the undersigned any
fact now or later known by Bingham, whether relating to the operations or
condition of the Borrower, the existence, liabilities or financial condition of
any co-guarantor of the Indebtedness, the occurrence of any default with respect
to the Indebtedness, or otherwise, notwithstanding any effect these facts may
have upon the undersigned's risk under this Guaranty or the undersigned's rights
against the Borrower. The undersigned knowingly accepts the full range of risk
encompassed in this Guaranty.
The undersigned represents and warrants that: (a) Bingham has made no
representation to the undersigned as to the creditworthiness of the Borrower;
and (b) the undersigned has established adequate means of obtaining from the
Borrower on a continuing basis financial and other information pertaining to the
Borrower's financial condition. The undersigned agrees to keep adequately
informed of an facts, events or circumstances which might in any way affect the
risks of the undersigned under this Guaranty.
The undersigned grants to Bingham the right of setoff as to any and all
property of the undersigned now or later in the possession of Bingham. The
undersigned subordinates any claim of any nature that the undersigned now or
later has against the Borrower to and in favor of all Indebtedness and agrees
not to accept payment or satisfaction of any claim that the undersigned now or
later may have against the Borrower without the prior written consent of
Bingham. Should any payment, distribution, security, or proceeds, be received by
the undersigned upon or with respect to any claim that the undersigned now or
may later have against the Borrower, the undersigned shall immediately deliver
the same to Bingham in the form received (except for endorsement or assignment
by the undersigned where required by Bingham) for application on the
Indebtedness, whether matured or unmatured, and until delivered the same shall
be held in trust by the undersigned as the property of Bingham.
The undersigned agrees that no security now or later held by Bingham
for the payment of any Indebtedness, whether from the Borrower, any guarantor,
or otherwise, and whether in the nature of a security interest, pledge, lien,
assignment, setoff, suretyship, guaranty, indemnity, insurance or otherwise,
shall affect in any manner the unconditional obligation of the undersigned under
this Guaranty, and Bingham, in its sole discretion, without notice to the
undersigned, may release, exchange, enforce and otherwise deal with any security
without affecting in any manner the unconditional obligation of the undersigned
under this Guaranty. The undersigned acknowledges and agrees that Bingham has no
obligation to acquire or perfect any lien on or security interest in any assets,
whether realty or personalty, to secure payment of the Indebtedness, and the
undersigned is not relying upon any assets in which Bingham has or may have a
lien or security interest for payment of the Indebtedness.
The undersigned acknowledges that the effectiveness of this Guaranty is
not conditioned on any or all of the indebtedness being guaranteed by anyone
else.
Until the Indebtedness is irrevocably paid in full, the undersigned
waives any and all rights to be subrogated to the position of Bingham or to have
the benefit of any lien, security interest or other guaranty now or later held
by Bingham for the Indebtedness or to enforce any remedy which Bingham now or
later has against the Borrower or any other person. Until the Indebtedness is
irrevocably paid in full, the undersigned shall have no right of reimbursement,
<PAGE> 3
indemnity, contribution or other right of recourse to or with respect to the
Borrower or any other person. The undersigned agrees to indemnify and hold
harmless Bingham from and against any and all claims, actions, damages, costs
and expenses, including without limit reasonable attorneys' fees, incurred by
Bingham in connection with the undersigned's exercise of any right of
subrogation, contribution, indemnification or recourse with respect to this
Guaranty. Bingham has no duty to enforce or protect any rights which the
undersigned may have against the Borrower or any other person and the
undersigned assumes full responsibility for enforcing and protecting these
rights.
Notwithstanding any provision of the preceding paragraph or anything
else in this Guaranty to the contrary, if any of the undersigned is or becomes
an "insider" or "affiliate" (as defined in Section 101 of the Federal Bankruptcy
Code, as it may be amended) with respect to the Borrower, then that undersigned
irrevocably and absolutely waives any and all rights of subrogation,
contribution, indemnification, recourse, reimbursement and any similar rights
against the Borrower (or any other guarantor) with respect to this Guaranty,
whether such rights arise under an express or implied contract or by operation
of law. It is the intention of the parties that the undersigned shall not be (or
be deemed to be) a "creditor" (as defined in Section 101 of the Federal
Bankruptcy Code, as it may be amended) of the Borrower (or any other guarantor)
by reason of the existence of this Guaranty in the event that the Borrower
becomes a debtor in any proceeding under the Federal Bankruptcy Code. This
waiver is given to induce Bingham to enter into certain written contracts with
the Borrower included in the Indebtedness. The undersigned warrants and agrees
that none of Bingham's rights, remedies or interests shall be directly or
indirectly impaired because of any of the undersigned's status as an "insider"
or "affiliate" of the Borrower, and the undersigned shall take any action, and
shall execute any document, which Bingham may request in order to effectuate
this warranty to Bingham.
If any Indebtedness is guaranteed by two or more guarantors, the
obligation of the undersigned shall be several and also joint, each with all and
also each with any one or more of the others, and may be enforced at the option
of Bingham against each severally, any two or more jointly, or some severally
and some jointly. Bingham, in its sole discretion, may release any one or more
of the guarantors for any consideration which it deems adequate, and may fail or
elect not to prove a claim against the estate of any bankrupt, insolvency,
incompetent or deceased guarantor; and after that, without notice to any other
guarantor, Bingham may extend or renew any or all Indebtedness and may permit
the Borrower to incur additional Indebtedness, without affecting in any manner
the unconditional obligation of the remaining guarantors. This action by Bingham
shall not, however, be deemed to affect any right to contribution which may
exist among the guarantors.
Notwithstanding any prior termination, surrender or discharge of this
Guaranty (or of any lien, pledge or security interest securing this Guaranty) in
whole or in part, the effectiveness of this Guaranty, and of all liens, pledges
and security interests securing this Guaranty, shall automatically continue or
be reinstated, as the case may be, in the event that any payment received or
credit given by Bingham in respect of the Indebtedness is returned, disgorged or
rescinded as a preference, impermissible setoff, fraudulent conveyance,
diversion of trust funds, or otherwise under any applicable state or federal
law, including, without limitation, laws pertaining to bankruptcy or insolvency,
in which case this Guaranty, and all liens, pledges and security interests
securing this Guaranty, shall be enforceable against the undersigned as if the
<PAGE> 4
returned, disgorged or rescinded payment or credit had not been received or
given by Bingham, and whether or not Bingham relied upon this payment or credit
or changed its position as a consequence of it.
The undersigned waives any right to require Bingham to: (a) proceed
against any person, including without limit the Borrower; (b) proceed against or
exhaust any security held from the Borrower or any other person; (c) give notice
of the terms, time and place of any public or private sale of personal property
security held from the Borrower or any other person, or otherwise comply with
the provisions of Section 9-504 of the Michigan or other applicable Uniform
Commercial Code; (d) pursue any other remedy in Bingham's power; or (e) make any
presentments or demands for performance, or give any notices of nonperformance,
protests, notices of protest, or notices of dishonor in connection with any
obligations or evidences of Indebtedness held by Bingham as security, in
connection with any other obligations or evidences of indebtedness which
constitute in whole or in part Indebtedness.
The undersigned authorizes Bingham, either before or after termination
of this Guaranty, without notice to or demand on the undersigned and without
affecting the undersigned's liability under this Guaranty, from time to time to:
(a) apply any security and direct the order or manner of sale of it, including
without limit, a non-judicial sale permitted by the terms of the controlling
security agreement, mortgage or deed of trust, as Bingham in its discretion may
determine; (b) release or substitute any one or more of the endorsers or any
other guarantors of the Indebtedness; and (c) apply payments received by Bingham
from the Borrower to any indebtedness of the Borrower to Bingham, in such order
as Bingham shall determine in its sole discretion, whether or not this
indebtedness is covered by this Guaranty, and the undersigned waives any
provision of law regarding application of payments which specifies otherwise.
Bingham may without notice assign this Guaranty in whole or in part. Upon
Bingham's request, the undersigned agrees to provide to Bingham copies of the
undersigned's financial statements.
The undersigned waives any defense based upon or arising by reason of
(a) any disability or other defense of the Borrower or any other person; (b) the
cessation or limitation from any cause whatsoever, other than final and
irrevocable payment in full, of the Indebtedness; (c) any lack of authority of
any officer, director, partner, agent or any other person acting or purporting
to act on behalf of the Borrower which is a corporation, partnership or other
type of entity, or any defect in the formation of the Borrower; (d) the
application by the Borrower of the proceeds of any Indebtedness for purposes
other than the purposes represented by the Borrower to Bingham or intended or
understood by Bingham or the undersigned; (e) any act or omission by Bingham
which directly or indirectly results in or aids the discharge of the Borrower or
any Indebtedness by operation of law or otherwise; or (f) any modification of
the Indebtedness, in any form whatsoever including without limit any
modification made after effective termination, and including without limit the
renewal, extension, acceleration or other change in time for payment of the
Indebtedness, or other change in the terms of any Indebtedness, including
without limit increase or decrease of the interest rate. The undersigned waives
any defense the undersigned may have based upon any election of remedies by
Bingham which destroys the undersigned's subrogation rights or the undersigned's
right to proceed against the Borrower for reimbursement, including without limit
any loss of rights the undersigned may suffer by reason of any rights, powers or
remedies of the Borrower in connection with any anti-deficiency, valuation laws
or any other laws limiting,
<PAGE> 5
qualifying or discharging any Indebtedness.
The undersigned acknowledges that Bingham has the right to sell,
assign, transfer, negotiate, or grant participations in all or any part of the
Indebtedness and any related obligations, including without limit this Guaranty.
In connection with that right, Bingham may disclose any documents and
information which Bingham now or later acquire relating to the undersigned and
this Guaranty, whether furnished by the Borrower, the undersigned or otherwise.
The undersigned further agrees that Bingham may disclose these documents and
information to the Borrower.
The undersigned unconditionally and irrevocably waives each and every
defense and setoff of any nature which, under principles of guaranty or
otherwise, would operate to impair or diminish in any way the obligation of the
undersigned under this Guaranty, and acknowledges that each such waiver is by
this reference incorporated into each security agreement, collateral assignment,
pledge and/or other document from the undersigned now or later securing this
Guaranty and/or the Indebtedness, and acknowledges that as of the date of this
Guaranty no such defense or setoff exists. The undersigned acknowledges that the
effectiveness of this Guaranty is subject to no conditions of any kind.
The undersigned warrants and agrees that each of the waivers set forth
above are made with the undersigned's full knowledge of their significance and
consequences, and that under the circumstances, the waivers are reasonable and
not contrary to public policy or law. If any of these waivers are determined to
be contrary to any applicable law or public policy, these waivers shall be
effective only to the extent permitted by law.
This Guaranty constitutes the entire agreement of the undersigned and
Bingham with respect to the subject matter of this Guaranty. No waiver, consent,
modification or change of the terms of this Guaranty shall bind any of the
undersigned or Bingham unless in writing and signed by the waiving party or an
authorized officer of the waiving party, and then this waiver, consent,
modification or change shall be effective only in the specific instance and for
the specific purpose given. This Guaranty shall inure to the benefit of Bingham
and its successors and assigns. This Guaranty shall be binding on the
undersigned and the undersigned's successors and assigns including, without
limit, any debtor in possession or trustee in bankruptcy for any of the
undersigned. The undersigned has (have) knowingly and voluntarily entered into
this Guaranty in good faith for the purpose of inducing Bingham to extend credit
or make other financial accommodations to the Borrower, and the undersigned
acknowledges that the terms of this Guaranty are reasonable. If any provision of
this Guaranty is unenforceable in whole or in part for any reason, the remaining
provisions shall continue to be effective. THIS GUARANTY SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN.
THE UNDERSIGNED AND BINGHAM ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS
<PAGE> 6
GUARANTY OR THE INDEBTEDNESS.
IN WITNESS WHEREOF, the undersigned has (have) signed this Guaranty on June 30,
1999.
GUARANTOR:
DETROIT MORTGAGE AND REALTY
COMPANY
By: /s/ Daniel D. Armistead
------------------------
Its: Chairman
----------
<PAGE> 1
EXHIBIT 2.6
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is made and entered into as of June 30, 1999 (this
"Agreement") by and between DMR FINANCIAL SERVICES, INC., a Michigan corporation
("DMRFS"), and BINGHAM FINANCIAL SERVICES CORPORATION, a Michigan corporation
("Bingham").
WHEREAS, DMRFS, Bingham, DETROIT MORTGAGE AND REALTY COMPANY, a Michigan
corporation ("DMR") and HARTGER & WILLARD MORTGAGE ASSOCIATES, Inc., a Michigan
corporation ("H&W") have executed a certain Reorganization Agreement of even
date ("H&W Reorganization Agreement") pursuant to which Bingham has delivered
66,667 shares of Bingham common stock, without par value ("Bingham Common
Stock") to DMRFS; and
WHEREAS, DMRFS has separately requested that Bingham make a loan ("Loan") to DMR
in the amount of $1,500,000 as evidenced by a Promissory Note of even date
herewith ("Note"); and
WHEREAS, as a condition of making the Loan to DMRFS, Bingham has required that
DMR guaranty the Note pursuant to a Guaranty of even date ("Guaranty") and DMRFS
grant Bingham a security interest in the Bingham Common Stock. The Note, the
Guaranty, this Agreement and all other documents executed in connection
therewith are collectively referred to as the "Loan Documents".
NOW, THEREFORE, in consideration of the premises and to induce Bingham to extend
the Loan, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, DMRFS and Bingham hereby agree as
follows:
1. DEFINED TERMS. The term "Pledged Shares" shall be defined herein as the
Bingham Common Stock evidenced by certificate no. B-0152 and any additional
shares of stock or other property hereafter delivered to, or in the possession
or custody of, Bingham, together with all certificates, options, rights or other
distributions issued as an addition to, in substitution or exchange for, or on
account of, any such shares, and all proceeds of the foregoing, now or hereafter
owned or acquired by DMRFS. The terms "Liabilities" and "Event of Default" shall
have the meaning ascribed thereto in the Note.
2. PLEDGE. DMRFS hereby pledges, assigns, hypothecates, transfers and
delivers to Bingham, and grants to Bingham, a continuing first lien on and first
security interest in all of the Pledged Shares, as collateral security for (i)
the prompt and complete performance and payment of its obligations under the
Note, and (ii) the due and punctual payment and performance by DMRFS of its
obligations and liabilities under and arising out of this Pledge Agreement (all
of the foregoing referred to herein collectively as the "Liabilities"). All of
the stock certificates for the Pledged Shares together with stock powers duly
executed by DMRFS, have been delivered to Bingham. Bingham shall maintain
possession and custody of such stock certificates.
<PAGE> 2
3. INDUCING REPRESENTATIONS OF DMRFS. DMRFS represents and warrants to
Bingham, that:
(a) The Recitals set forth the identity and number of shares that are
included in the Pledged Shares as of the date hereof. DMRFS has good title to
the Pledged Shares and such shares are and will remain free and clear of all
pledges, liens, security interests and other encumbrances and restrictions
whatsoever, except the lien and security interest created by this Agreement;
(b) DMRFS has full power and authority to execute, deliver and perform
its obligations under this Pledge Agreement and to pledge the Pledged Shares
hereunder;
(c) This Agreement has been duly authorized, executed and delivered by
DMRFS and constitutes the legal, valid and binding obligation of DMRFS,
enforceable in accordance with its terms;
(d) There are no outstanding options, warrants or other agreements
with respect to the Pledged Shares (other than the H & W Reorganization
Agreement and a letter of even date from Bingham);
(e) No consent, approval or authorization of or designation or filing
with any authority on the part of DMRFS is required in connection with the
pledge and security interest granted under this Agreement;
(f) The execution, delivery and performance of this Agreement will not
violate any provision of (a) any applicable law or regulation or of any order,
judgment, writ, award or decree of any court, arbitrator or governmental
authority, domestic or foreign, (b) the Articles of Incorporation and Bylaws of
DMRFS,(c) any securities issued by the DMRFS, or (d) any mortgage, indenture,
lease, contract, or other agreement, instrument or undertaking to which DMRFS is
a party or which purports to be binding upon DMRFS or upon any of its assets,
and will not result in the creation or imposition of any lien, charge or
encumbrance on or security interest in any of the assets of DMRFS except as
contemplated by this Agreement; and
(g) The pledge, assignment and delivery of the Pledged Shares owned by
DMRFS pursuant to this Agreement creates a valid first lien on and a first
perfected security interest in such Pledged Shares and the proceeds thereof in
favor of Bingham, subject to no prior pledge, lien, mortgage, hypothecation,
security interest, charge, option or encumbrance or to any agreement purporting
to grant to any third party a security interest in the property or assets of
DMRFS which would include such Pledged Shares. DMRFS covenants and agrees that
it will defend Pledger's right, title and security interest in and to such
Pledged Shares and the proceeds thereof against the claims and demands of all
persons whosoever.
4. STOCK DIVIDENDS, DISTRIBUTIONS, ETC. If, while this Agreement is in
effect, DMRFS shall become entitled to receive or shall receive any stock
certificate (including, without limitation, any certificate representing a stock
or share dividend or a stock or share distribution in connection with any
reclassification, increase or reduction of capital, or issued in connection with
any reorganization), option or rights, whether as an addition to, in
substitution for, or in
<PAGE> 3
exchange for any of the Pledged Shares, or otherwise relating to the Pledged
Shares, DMRFS agrees to accept the same as Bingham's agent and to hold the same
in trust for Bingham, and to deliver the same forthwith to Bingham in the exact
form received, with the endorsement of DMRFS and, when necessary or appropriate,
undated stock powers or stock transfer forms duly executed in blank, to be held
by Bingham subject to the terms hereof, as additional collateral security for
the Liabilities. In case any dividend or distribution of any sort shall be made
on or in respect of any of the Pledged Shares, including any property
distributed upon or with respect to any of the Pledged Shares pursuant to a
dividend, to the recapitalization or reclassification of the capital of the
issuer thereof or pursuant to the reorganization thereof or for any other
reason, such dividends or distributions shall be delivered to Bingham to be held
by Bingham as additional collateral security for the Liabilities. All such
dividends or distributions in respect of the Pledged Shares which is received by
DMRFS shall, until paid or delivered to Bingham, be held by DMRFS in trust as
additional collateral security for the Liabilities.
5. ADMINISTRATION OF SECURITY. The following provisions shall govern
the administration of the Pledged Shares:
(a) So long as no Event of Default has occurred, DMRFS shall
be entitled (i) to vote or consent with respect to the Pledged Shares in any
manner not inconsistent with this Agreement, the H & W Reorganization Agreement
or the Loan Documents; and (ii) to receive cash dividends or other distributions
in the ordinary course made in respect of such Pledged Shares. DMRFS hereby
grants to Bingham or its nominee an irrevocable proxy to exercise all voting and
corporate rights relating to the Pledged Shares in any instance, which proxy
shall be effective immediately upon the occurrence of an Event of Default. After
the occurrence of an Event of Default and upon request of Bingham, DMRFS agrees
to deliver to Bingham such further evidence of such irrevocable proxy or such
further irrevocable proxies to vote the Pledged Shares as Bingham may request.
(b) Upon the occurrence and continuation of an Event of Default, in
the event that DMRFS as record and beneficial owner of the Pledged Shares shall
have received or shall have become entitled to receive, any cash dividends or
other distributions in the ordinary course, DMRFS shall deliver to Bingham, and
Bingham shall be entitled to receive and retain, all such cash or other
distributions as additional security hereunder or applied toward satisfaction of
the Liabilities.
(c) Subject to any sale or other disposition by Bingham of the
Pledged Shares or other property pursuant to this Agreement, the Pledged Shares
and any other property then held as part of such Pledged Shares in accordance
with the provisions of this Agreement shall be returned to DMRFS upon full
payment, satisfaction and termination of all of the Liabilities which shall
operate to terminate the lien and security interest hereby granted.
(d) Beyond the exercise of reasonable care to assure the safe
custody of the Pledged Shares while held hereunder, Bingham shall have no duty
or liability to preserve any rights pertaining to the Pledged Shares.
6. RIGHTS OF BINGHAM. Bingham shall not be liable for failure to collect
or realize upon the Liabilities or any collateral security or guarantee
therefor, or any part thereof, or for any
<PAGE> 4
delay in so doing, nor shall it be under any obligation to take any action
whatsoever with regard thereto. Any or all of the Pledged Shares held by Bingham
hereunder may, at any time be registered in the name of Bingham or its nominee,
and DMRFS hereby covenants that, upon Bingham's request, DMRFS will cause the
issuer transfer agent or registrar of the Pledged Shares to effect such
registration. If the foregoing shall be done prior to the occurrence of an Event
of Default, DMRFS shall nevertheless retain all voting rights with respect to
the Pledged Shares, and, for that purpose, Bingham shall execute and deliver all
necessary proxies (which proxies shall in any event expire automatically upon
the occurrence of an Event of Default). Immediately and without further notice,
upon the occurrence of an Event of Default, whether or not the Pledged Shares
shall have been registered in the name of Bingham or its nominee, Bingham, or
its nominee, may thereafter without notice exercise all voting and corporate
rights at any meeting with respect to the Pledged Shares and exercise any and
all rights of conversion, exchange, subscription or any other rights, privileges
or options pertaining to any of the Pledged Shares as if it were the absolute
owner thereof, including, without limitation, the right to exchange at its
discretion, any and all of the Pledged Shares upon the merger, consolidation,
reorganization, recapitalization or other readjustment with respect to the
Pledged Shares or upon the exercise of any right, privilege or option pertaining
to any of the Pledged Shares, and in connection therewith, to deposit and
deliver any and all of the Pledged Shares with any committee, depository,
transfer agent, registrar or other designated agency upon such terms and
conditions as Bingham may determine, all without liability except to account for
property actually received by Bingham, but Bingham shall have no duty to
exercise any of the aforesaid rights, privileges or options and shall not be
responsible for any failure to do so or delay in so doing.
7. REMEDIES. Upon the occurrence of an Event of Default, Bingham, without
demand of performance or other demand, advertisement or notice of any kind
(except the notice specified below of time and place of public or private sale)
to or upon DMRFS or any other person (all and each of which demands,
advertisements and/or notices are hereby expressly waived), may forthwith
collect, receive, appropriate and realize upon the Pledged Shares, or any part
thereof, and/or may forthwith sell, assign, give option or options to purchase,
contract to sell or otherwise dispose of and deliver said Pledged Shares, or any
part thereof, in one or more portions at public or private sale or sales or
dispositions, at any exchange, broker's board or at any of Bingham's offices or
elsewhere upon such terms and conditions as Bingham may deem advisable and at
such prices as Bingham may deem best, for any combination of cash or credit or
for future delivery without assumption of any credit risk, with the right to
Bingham upon any such sale or sales or dispositions, public or private, to
purchase the whole or any part of said Pledged Shares so sold, free of any right
or equity of redemption in DMRFS, which right or equity is hereby expressly
waived or released. Bingham shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the safekeeping or otherwise of any and all of the Pledged Shares or in any way
relating to the rights of Bingham hereunder, including reasonable attorney's
fees and legal expenses, to the payment, in whole or in part, of the Liabilities
in such order as Bingham may elect, and only after so paying over such net
proceeds and after the payment by Bingham of any other amount required by any
provision of law, including, without limitation, Section 9-504(1)(c) of the
Uniform Commercial Code, need Bingham account for the surplus, if any, to DMRFS.
Except as may otherwise be expressly required by applicable law, Bingham need
not give more than five (5) days notice of the time and place of any public sale
or the time after which a private sale may take place,
<PAGE> 5
which notice DMRFS hereby deems reasonable; provided, however, that Bingham, at
any time, without notice to DMRFS or any other party, may sell any shares of the
Pledged Shares for which a market exists at the market price for such Shares. No
notification need be given to DMRFS, if after the occurrence of an Event of
Default, DMRFS has signed a statement renouncing or modifying any right to
notification of sale or other intended disposition. In addition to the rights
and remedies granted to Bingham in this Agreement, Bingham shall have all the
rights and remedies of a secured party under the Uniform Commercial Code of the
State of Michigan ("UCC") and under any other applicable law. DMRFS further
agrees to waive and agrees not to assert any rights or privileges which DMRFS
may acquire under Section 9-112 of the UCC and DMRFS shall be liable for any
deficiency if the proceeds of the sale or other disposition of the Pledged
Shares are not sufficient to pay all of the Liabilities, including costs of
collection (including reasonable attorneys fees) to collect such deficiency and
any other costs and expenses of Bingham in connection with this Agreement.
8. SALE OF PLEDGED SHARES. (a) DMRFS recognizes that Bingham may be
unable to effect a public sale or disposition of any or all the Pledged Shares
by reason of certain prohibitions contained in the Securities Act of 1933, as
amended (the "Act"), and other applicable securities laws, but may be compelled
to resort to one or more private sales or dispositions thereof to a restricted
group of purchasers who will be obliged to agree, among other things, to acquire
such securities for their own account for investment and not with a view to the
distribution or resale thereof. DMRFS acknowledges and agrees that any such
private sale or disposition may result in prices and other terms (including the
terms of any securities or other property received in connection therewith) less
favorable to the seller than if such sale or disposition were a public sale or
disposition. Bingham shall be under no obligation to delay a sale or disposition
of any of the Pledged Shares to permit the issuer of the Pledged Shares to
register such securities (or trust certificates representing such securities)
for public sale under the Act, or under applicable state securities laws.
(b) DMRFS further agrees to do or cause to be done all such other
acts and things as may be reasonably necessary to make such sale or sales or
dispositions of any portion or all of the Pledged Shares valid and binding and
in compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales or dispositions, all at DMRFS's expense. DMRFS further
agrees that a breach of any of the covenants contained in this Section 8 will
cause irreparable injury to, that Bingham has no adequate remedy at law in
respect of such breach and, as a consequence, DMRFS agrees that each and every
covenant contained in this Section 8 shall be specifically enforceable against
DMRFS, and DMRFS hereby waives and agrees not to assert any defenses against an
action for specific performance of such covenants, except for a defense that no
Event of Default has occurred.
(c) DMRFS hereby agrees to indemnify and hold harmless Bingham,
its successors and assigns, and Bingham's officers, directors, employees and
agents, from and against any loss, liability, claim, damage and expense,
including, without limitation, attorneys fees (in this paragraph collectively
called the "Indemnified Liabilities"),under federal and state securities laws or
otherwise insofar as such loss, liability, claim, damage or expense (i) arises
out of or is based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement, prospectus or offering
memorandum or in any preliminary prospectus or
<PAGE> 6
preliminary offering memorandum or in any amendment or supplement to any thereof
or in any other writing prepared in connection with the offer, sale or resale of
all or any portion of the Pledged Shares unless such untrue statement of
material fact was provided by Bingham specifically for inclusion therein, or
(ii) arises out of or is based upon any omission or alleged omission to state
therein a material fact required to be stated or necessary to make the
statements therein not misleading, such indemnification to remain operative
regardless of any investigation made by or on behalf of Bingham or any successor
thereof. In connection with a public sale or other distribution, DMRFS will
provide customary indemnification to any underwriters, their respective
successors and assigns, their respective officers and directors and each person
or entity who controls any such underwriter (within the meaning of the Act). If
and to the extent that the foregoing undertakings in this paragraph (c) may be
unenforceable for any reason, DMRFS agrees to make maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The obligations of DMRFS under this paragraph
(c) shall survive any termination of this Agreement.
9. NO DISPOSITION, ETC. DMRFS agrees that DMRFS will not, without the
prior written consent of Bingham, sell, assign, transfer, exchange, or otherwise
dispose of, or grant any option with respect to, any of the Pledged Shares owned
by DMRFS, nor will DMRFS without such consent create, incur or permit to exist
any pledge, lien, mortgage, hypothecation, security interest, charge, option or
any other encumbrance with respect to any of the Pledged Shares owned by DMRFS,
or any interest therein, or any proceeds thereof, except for the lien and
security interest provided for by this Agreement. DMRFS agrees that DMRFS will
not, without the prior written consent of Bingham, vote to enable the issuer of
the Pledged Shares to issue any stock or other securities of any nature in
addition to or in exchange or substitution for, any of the Pledged Shares.
10. ATTORNEY-IN-FACT. DMRFS hereby irrevocably appoints Bingham as
DMRFS's attorney-in-fact, with full authority in the place and stead of DMRFS
and in the name of DMRFS or otherwise, from time to time in Bingham's
discretion, to take any action and to execute any instrument that Bingham deems
necessary or advisable to accomplish the purposes of this Agreement, including,
without limitation, to receive, endorse and collect all instruments made payable
to DMRFS representing any dividend, interest payment or other distribution in
respect of the Pledged Shares or any part thereof and to give full discharge for
the same, when and to the extent permitted by this Agreement.
11. FURTHER ASSURANCES. DMRFS agrees, upon the written request of Bingham,
to execute and deliver all such further instruments and documents and do all
such further acts and things as Bingham may reasonably request consistent with
the provisions hereof to effect the purposes of this Agreement and to give
Bingham the intended benefits hereof.
12. NO WAIVER; CUMULATIVE REMEDIES. Bingham shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder and no waiver by Bingham shall be valid unless in writing,
signed by Bingham, and then only to the extent therein set forth. A waiver by
Bingham of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which Bingham would otherwise have on
any further occasion. No failure to exercise, nor any delay in exercising on the
part of Bingham of any right, power or privilege hereunder, shall operate as a
waiver thereof; nor shall any single
<PAGE> 7
or partial exercise of any right, power or privilege hereunder, or under the
Loan Documents, preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
are cumulative and may be exercised singly or concurrently, and are not
exclusive of any rights or remedies provided by law.
13. SUCCESSORS AND ASSIGNS. This Agreement and all obligations of DMRFS
hereunder shall be binding upon the successors and assigns of DMRFS, and shall,
together with the rights and remedies of Bingham hereunder, inure to the benefit
of Bingham and its respective successors and assigns. Bingham shall have no
right to assign its rights or obligations hereunder without Lender's prior
written consent.
14. TERMINATION. This Agreement and the lien and security interest granted
hereunder shall terminate upon full and complete performance and satisfaction of
the Liabilities.
15. CHANGES IN WRITING. No amendment, modification, termination or waiver of
any provision of this Agreement or any election thereunder or consent to any
departure by DMRFS therefrom, shall in any event be effective without the
written concurrence of Bingham and DMRFS, and then only to the extent
specifically set forth in such writing. A writing in accordance with this
section shall not be effective with respect to any term or condition in the H &
W Reorganization Agreement unless such writing specifically references the
section of the H & W Reorganization Agreement that is intended to be so
affected.
16. HEADINGS. Section headings in this Agreement are included only for
convenience of reference and shall not constitute a part of this Agreement for
any other purpose or be given any substantive effect.
17. COUNTERPARTS. This Agreement may be executed in counterparts, all of
which together shall constitute one Agreement.
18. APPLICABLE LAW; SEVERABILITY. This Agreement has been executed and
delivered in Michigan, and this Agreement shall be construed in all respects in
accordance with, and governed by, all of the provisions of the code and by the
other internal laws (as opposed to conflicts of law provisions) of the State of
Michigan. Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
19. WAIVER OF JURY TRIAL. The parties hereto acknowledge and agree that
there may be a constitutional right to a jury trial in connection with any
claim, dispute or lawsuit arising between them, but that such right may be
waived. Accordingly, the parties agree that notwithstanding such constitutional
right, in this commercial matter the parties believe and agree that it shall be
in their best interest to waive such right, and, accordingly, hereby waive such
right to a jury trial, and further agree that the best forum for hearing any
claim, dispute or lawsuit, if any, arising in connection with this Agreement or
the relationship between DMRFS and Bingham, shall be a court of competent
jurisdiction sitting without a jury.
<PAGE> 8
20. WAIVERS VOLUNTARY. The waivers contained in this Agreement are freely,
knowingly and voluntarily given by each party, without any duress or coercion,
after each party has consulted with its counsel and has carefully and completely
read all of the terms and provisions of this Agreement, specifically including
the waivers contained in Section 19. Neither DMRFS nor Bingham shall be deemed
to have relinquished the waivers contained herein except by a writing signed by
the party to be charged with having relinquished any such waiver.
IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on
the date first above written.
DMR FINANCIAL SERVICES, INC.,
a Michigan corporation
By: /s/ Mark C. Stevens
------------------------------------
Its: President and CEO
------------------------------------
BINGHAM FINANCIAL SERVICES CORPORATION,
a Michigan corporation
By: /s/ Ronald A. Klein
------------------------------------
Its: President and CEO
------------------------------------
